Credit decisions in line with costs and margins
A credit decision system such as CAS (Credit Approval System) generates a decision on the granting of credit in line with costs and margins in the shortest possible time and thus supports the manual process in the best possible way. The assessment of a customer's creditworthiness is indispensable for arriving at a decision about a customer.
An essential aspect of the creditworthiness assessment of a customer in the context of a credit request is the customer's rating. A customer's rating may consist of various qualitative and quantitative components. A structured rating approach forms the basis for any automated or partly automated credit decision on the basis of established regulations.
Therefore the rating module is a core component of CAS; this module ensures that at any time the correct rating of a customer, appropriate to the segment, is available for decision-making purposes. This is especially important if a company seeks to apply the non-capital intensive IABA approach for its ratings. The rating regulations and system of CAS have already been used with success in BaFin inspections and can be easily adapted to the individual rating needs of a financial service provider.
Configurable set of rules
The rating module of CAS is based on a configurable set of rules which determines a number - to be determined by each company - of possible rating methods for any possible customer constellation.
To obtain a valid rating, a customer must be assessed by virtue of a rating method that is suitable for the basic parameters. This set of rules is able operate with any initial parameters. The essential factors having an impact on the selection of the rating method are: the economic sector, the customer segment, the unsecured portion of the credit as well the degree of collateralisation provided by the customer.
Taking risk drivers into account
A rating method is always defined by the way in which it determines the rating and the risk drivers for doing so. In the normal course of business a rating always has one or more risk drivers, which serve to determine the actual rating method that is to be applied. These may be, e.g. a banker’s reference, a financial statement or a combination of various credit reports.
In the case of a decision, CAS first establishes the appropriate primary rating method on the basis of the applicable regulations. The risk drivers required for this purpose will be determined, and a check will be made to assess if these drivers are still applicable and valid. If they are not available, the system will seek to obtain them automatically. In the case of credit reports, this can be done automatically to some extent; in the case of risk drivers that must be entered manually (e.g. in the case of voluntary disclosures) this must be done by the operator.
When all risk drivers are available, the corresponding rating is generated automatically.
There are certain cases in which the primary rating method actually required according to the regulations cannot be applied (e.g. because a certain risk driver is not available.). In such cases it is possible for the rating regulations to define alternative rating methods, whose ratings will then also be accepted in the approval process. In this manner rule-compliant rating is guaranteed at all times.
Integrated cost calculation
This structured approach to rating renders credit decisions more transparent and standardises them to the extent possible. In this way a cost calculation on the basis of the ratings and the related effort to generate the ratings can be generated. The costs of every single credit decision become transparent and can then be used as a basic reference for internal cost rates as well as for the dynamic calculation of prices for credits.
By means of integrated reporting, the success rates of the selected rating methods can be determined. This serves as a foundation for the recurring new calibration and examination of the rating.
Often it is necessary to adapt rating regulations. This may become necessary due to changed scoring mechanisms, during rating calibrations or when new risk drivers become applicable, e.g. a Creditreform (business information agency) addendum, if this causes the available rating to become obsolete.
To avoid that in such a case all previous rating become void, CAS offers automatic re-rating procedures. These procedures are able to automatically monitor the regulation versions and to newly determine - in the case of a change - all available ratings in accordance with the new regulations.
Thus it is ensured that the ratings are always up-to-date.