The Group acts in accordance with the IRB principles for the application of “use test” criteria. This means that the risk parameters used to calculate capital requirements for credit risk are also the parameters that are used for other internal purposes, in particular in the risk management process. Internal rating or internal loss estimation models play a major role in the risk management process and in the decision process at different risk management levels. i.e. for the purposes of defining the Bank’s credit risk strategy, for approving and monitoring credit risk and for allocating economic capital.
The Group has many years of experience in using internal rating models. since individual rating systems have been used to evaluate client risk since the 1990s. Ever since that time, the methodologies have been developed, improved and, to an increasing extent, incorporated in business processes, thus boosting risk management “culture” and awareness in the management process.