The new IFRS 9 framework applicable to all organisations requiring rating systems that determine one-year default probabilities.   Credit Risk ratings are an essential input into credit decisions and calculations of various risk related figures such as credit sanctioning, limits, economic and regulatory capital.

Anchor Point’s rating model utilizes the data obtained from Moody’s KMV RiskCalc which is widely used in Banks, Non-Bank Financial Institutions and Corporates across the world.  These are part of a series of models developed by Moody’s KMV to predict default rates for firms in different countries.

RiskCalc’s benchmark information includes combined financial statement information such as Return on Assets (ROA) of current and previous year, Leverage, Debt Coverage, Sales Growth, Liquidity, Total Assets all of which are adjusted on an industry specific basis to account for the risk factors.

This information is combined using statistical methods to get the optimal performance for the model with respect to its ability to discriminate between good and bad firms.

A crucial requirement for the successful use of a rating model within an organisation is the process that embeds the model into the entities business systems. Model development needs to be assessed as well as the processes around the IT implementation and the data capturing of the model.  Anchor Point team of consultants are well versed in the implementation of the ratings model to the companies existing business systems.

The Anchor Point model is capable of operating in two different modes. The Financial Statement Only (FSO) mode uses the financial statement variables and the industry factors to calculate an Probability of Default (PD) which represents the credit quality of a firm under average credit conditions. The second mode, which is called Credit Cycle Adjusted (CCA) mode, incorporates information on the current state of the credit cycle and therefore a PD calculated under current credit conditions.

RiskCalc provides a one-year PD as well as a five year PD as model outputs.  For each country, the model is calibrated to the central default currency of this country.