Experian-Scorex, the global decision solutions business of Experian, has announced the release of the world's first customer-level decision management solution specifically designed to meet the requirements of Basel II for retail credit risk.
Based around Experian-Scorex's existing Probe SM for Retail Banking product, the solution has been designed to assist banks in their efforts to meet the requirements of Basel II's internal ratings based approach (IRB). The solution is focussed on Retail portfolios (in Basel terminology) and extends the risk management technology available in consumer banking to the small and medium sized entity (SME) environment. It combines the calculation of the Basel risk ratings and risk-weighted assets with the integration of these ratings into the lending decision making process for individual customers – the 'Use Test' as it is known in Basel II.
Already used by many of the world's leading banks, Probe SM for Retail Banking, a part of Experian-Scorex's Strategy Management suite of solutions, uses the latest generation of decision rules engine to deliver strategies to manage all aspects of the customer relationship. The latest version of Probe SM for Retail Banking, with its integrated business reporting capability, combines data from all account level sources to give an organisation an holistic customer-level view when making decisions to manage each individual customer relationship.
The new version, which is available immediately, includes the following new features:
- Basel II modules: the solution incorporates standard scoring objects designed to implement the Basel II risk inputs: probability of default (PD), loss given default (LGD) and exposure at default (EAD); calculate the Basel Risk Weighted Assets and implement the requirements of the Use Test by deploying the PD, LGD and EAD at the account, customer, segment or portfolio level for use in day-to-day decision making on individual customers. The advanced simulation capabilities of Strategy Management are central to the assessment of the impact of new strategies and for performing the stress testing that is so much a part of the Basel II requirements.
The integrated business reporting capability includes a new Basel II reporting module, which has been designed to deliver portfolio level Risk Weighted Assets reports, risk input (PD, LGD, EAD) trend analyses, pool migration and stability analyses, stress testing capability and full rating system monitoring, including misalignment analyses and population stability reporting.
- New cash flow variables. Over the last two years, Experian-Scorex has carried out extensive research with clients to identify the most predictive customer level variables. The new variables have delivered significant uplift, with one client in the trial increasing the predictive power by 29 per cent by adding cash flow information to its credit risk scorecard. This improvement was more marked for specific sub-populations; the largest improvement was seen on a borrowing population with no recent delinquency and showed a 300 per cent improvement. The impact on strategies across the business cycle was a 10 per cent increase in revenues and 11 per cent to 15 per cent reductions in write-offs.
- Integration of Strategy Management Generation 3 business rules engine. The new version includes the ability to calculate new variables on an ad hoc basis while using the system and delivers enhanced strategy simulation, strategy testing and champion/challenger functionality, all controlled by the business user on desktop.
- Strategy Optimization to enable optimisation of key decision points within the customer strategy. For example, optimisation can be used to increase activation and customer usage by determining the optimum limit increase/decrease, improve collections recoveries by determining which accounts to collect and which treatment to use, or maximise revenue by optimising pay/no-pay decisions.
- Platform independence: the solution is now available on mainframe, Windows and UNIX platforms.
Roger Aubrook, President of Experian-Scorex, commented: "Basel II is about much more than compliance with a set of rules. The regulatory authorities are keen to improve the safety and soundness of the banking system by encouraging banks to improve their risk management capabilities. This is driving the banks to increase their focus on data, predictive analytics, deployment systems and monitoring tools. With these elements in place, banks will achieve compliance but, more importantly, they will be gaining a deeper insight into the risks they face in their businesses and have the capability to manage those risks to achieve competitive advantage."
"Within any organisation, but particularly within retail banks, the customer relationship can be complex. You really need to understand the whole picture before you can effectively set strategies for an individual customer. Even though a customer may be performing well on one account, they may be several payments in arrears on another. Clearly, any strategies that you set for the good account need to take this into consideration if you are going to effectively manage the whole relationship. This drive towards a full understanding of the risks associated with individual customers is at the heart of what Basel II is trying to achieve and is central to the design of our solution for Basel II."