Khoo
Guan Seng, PhD Head, Group Risk (Models Validation)
Standard Chartered [email protected]
Stress Testing: The Challenges & Practical Issues of Implementation
-
A Personal Perspective
Stress Testing in the context of ICAAP
Agenda Agenda ––•
Introduction and backdrop
•
What is stress testing? -
Definition •
Why stress test (Supervisory & banks’
expectations)
•
Stress Test -
External Drivers •
Stress Test -
Internal Drivers
•
Key Elements of a Stress Testing Process•
Types of Risk Factors
•
Categories of Stress Tests•
Sound & Best Practices
•
Implementation challenges•
Liquidity Risk Stress Test (Example)
The 3 Pillars & Stress TestingThe 3 Pillars & Stress Testing
Minimum Capital
Requirement
Minimum requirements provide economic incentives -
in the form of lower capital charges* *For
those banks that develop better measures for their exposures to risk and better techniques for managing their risks
Hence, banks perform back-tests on their risk models
to ensure they are valid and measure risk exposures appropriately
Pillar 1Pillar 1
Generate capital Generate capital requirementsrequirements
Supervisory Review Process
Supervisory Review Process
Pillar 2Pillar 2
Supervisors evaluate how bank performs internal processes for risk management
Supervisors check that parameters and conditions used to evaluate risk measures are sound and rigorous –
How?
One such tool/approach: One such tool/approach: Outcome of Stress Testing Outcome of Stress Testing
Market Discipline
Requirements
Market Discipline
Requirements
Pillar 3Pillar 3
The third pillar seeks to leverage the ability of markets to provide discipline to banks to ensure that they are not holding unrealistically low levels of capital
Hence, banks perform stress tests to ensure banks’
capital adequacy in times of shocks
Enhanced market Enhanced market transparency & reputationtransparency & reputation
Pillar 2 Overview
Firm assessment Supervisory assessment
Identify and assess material risks
Identify mitigating controls
Identify amount of capital in relation to business plan, strategies, and profile
Produce capital number and assessment
Review and evaluate all risk and control factors
Review and assess the firm’s risk assessment
Supervisory conclusion
Dialogueand
challenge
Objective:•
That the firm can meet its capital requirements at all times through out a reasonably severe economic recession.
Why capital planning?•
Elements 1 to 3 are static
•
Assure the firm will have sufficient capital tomorrow
Two aspects:•
Capital planning, and
•
Stress testing
Capital Planning and Stress Testing
Capital Planning and Stress Testing
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
CRR (post)
£
time
Capital (post)
Illustration: pre/post management actions
• Cut dividends• Reduced costs
•
Raised extra capital
•Reduced business volumes Capital (pre)
CRR (pre)
Cyclicality Credit Stress Test
•
A subset of Pillar 2 capital planning and stress tests8Scope is narrower than Pillar 28Static balance sheet
•
Same degree of severity (1:25)•
The gross test must be assessed under Pillar 1
•
The benefit of management actions and capital impact is considered under Pillar 2
Pillar 2 Interest Rate Risk in the
Banking Book (IRRBB)
Rules –
a selection (paraphrased)•
GENPRU 1.2.30R8
Firm must have in place sound, efficient and complete processes,
strategies and systems to identify and manage …. interest rate risk
•
GENPRU 1.2.428
A firm must carry out stress tests and scenario analyses appropriate to its business based on realistic adverse circumstances, and estimate
the financial resources needed
•
BIPRU 2.3.2 G8
IRRBB will normally be a major source of risk for a bank, building society (and investment firm with non-trading book >15% of total).
•
BIPRU 2.3.3G8
Interest rate risk can arise from:•
Mismatch of repricing periods (yield curve risk)•
Inaccurate hedging where the hedge reprices on a different basis
to the exposure (basis risk)
•
Uncertainties in the timing or occurrence of future transactions
(model risk)•
Early redemption of fixed rate products (embedded optionality risk)•
BIPRU 2.3.7R & 2.3.128
Requirement to stress test exposure to interest risk generally (annually) and to a 200bp parallel yield curve shift (at least 1/4ly)
Regulatory approach•
IRRBB will be one of the top three Pillar 2 risks on which supervisors will focus when reviewing an ICAAP.
•
The CRD’s
approach to assessment of risk is based principally on changes to economic value arising from a change in interest rates8Key test is whether a 200bp parallel yield curve shift in either
direction reduces economic value by >20% of capital resources
•
The FSA recognises that firms will normally measure their risks both from an earnings and an economic value perspective8Relative importance of these measures will vary from firm to
firm8Accept that measures to hedge earnings may increase
economic value at risk on an ongoing concern basis
Stress testing•
Sudden 200 bp parallel shift in both directions is at best a crude measure
•
FSA expects firms to apply stresses more relevant to the composition of their Non-Trading Book8Effect of earnings hedges may be neutralised in
assessing economic value at risk8Allowance may be made for behavioural expectations
•
Need to document key assumptions8FSA will particularly wish to understand basis for
behavioural adjustments
Proportionality•
IRRBB approach is as for other Pillar 2 risks:8Firms with relatively non-complex business profiles can
apply less sophisticated approaches to capturing and measuring their risks
8Larger and/or more complex firms may be expected to adopt more advanced modelling techniques, e.g.
•
Dynamic rather than static balance sheet modelling•
Simulation modelling to capture non-linear/option risks
•
Behavioural models to determine hedging strategies
Non-prescription•
FSA has not
sought to prescribe how IRRBB should be
measured, nor how capital should be attributed.8Such prescription would in their view be contrary to the
principles underlying Pillar 2 8A recent thematic review undertaken by the Risk Review
Department identified a range of approaches/market practices in this area
8However, the objective is still that risk should be measured & mitigated
•
Some overseas regulators are taking a different approach: e.g. APRA8Has chosen to include IRRBB within Pillar 18IRRBB models need to meet general and specific
requirements before approval is given for their use8Calibration is to 99% over a one year holding period
From Pillar 1 to 3From Pillar 1 to 3Risk management process
•
Basle document (Jan ’96) –
spells out stress testing as one of the prerequisites for internal model approval
•
Capital viewed as the last line of defense in a bank. When risk management is insufficient, when reserves are exhausted, capital absorbs losses to prevent a bank’s failure.
•
But when capital runs out, the bank may become insolvent, leaving public authorities and taxpayers responsible for restoring depositors’
savings
The challenge is determining how much capital is sufficient•
Stress testing is considered to be an effective and necessary tool that complements statistical models for quantifying & monitoring risk
and capital adequacy
•
By its very nature, stress testing also sets a high qualitative and quantitative standard for risk management
2. What is Stress Testing? 2. What is Stress Testing? (in banking)(in banking)
•
Stress testing refers to “the analytical process involved in subjecting a bank’s portfolio to a series of battery of tests, designed to study the performance of the bank’s portfolio under extreme adverse conditions
to generate the potential risk
measures under plausible events in abnormal markets”.
Definition Definition Key PointsKey Points
• Series of Battery of Tests
- More than 1 test or set of results
• Extreme Conditions
- Degree of severity critical
• Plausible Events in Abnormal Markets
- Unexpected and could have happened to competitors or in other countries
- Paradigm shift in global financial markets
- Historical (local) worst case
3. Why Stress Test 3. Why Stress Test (Supervisory & Banks(Supervisory & Banks’’
Expectations)Expectations)
What does the regulator hope to achieve?-
Able to understand mechanism through which stress develops, -
Able to implement measures when the effects of stress events evolve into a vicious circle involving the real economy, financial markets and the banking sector- etc……
What does the bank hope to achieve?-
Identify where the risk concentrations are?-
Understand impact on bank if biggest customers default?-
Impact on bank if historical worst-case scenario recur?-
Impact on bank if it is hit by a similar severe credit loss event that affected competitors in the past?- etc…..
Other ConsiderationsOther ConsiderationsWhy?
•
Economic downturns always follow buoyant periods and economic expansions
•
Unknown issue is when, the severity and scale of the economic recession
•
Can’t afford to be complacent•
Proof of certainty of global recession –
next few slides
Stress-testing and Impact on Economic Capital in Validation
Key:
Basel II-compliant Integrated Approach to Risk Management
–– Objective at End PointObjective at End Point
ReportsReporting Data
Regulatory R
eporting Data M
artR
egulatory Reporting D
ata Mart
G\LG\L
AnalysisAnalysis
RegulatoryRegulatory
DisclosureDisclosure
InternalInternal
Financial and Management Accounting
Financial and Management Accounting
Basel 2Basel 2
IASIAS
SharedShared
Market Discipline
Requirements
Market Discipline
Requirements
Fulfill Requirements of the 3 Pillars of Basel II
RegulatoryRegulatory DisclosureDisclosure
Internal or management
Internal or management AnalysisAnalysis
• Organization, Policies, Procedures
•
Human Resource, Culture
• IT & Systems
•
Process, Culture & Capability
•
Risk & Economic Capital Quantification
• Investor Relations Information
• Stress Test results
•
Risk & Economic Capital Quantification
• Organization, Policies, Procedures
•
Human Resource, Culture
• IT & Systems
•
Process, Culture & Capability
•
Risk & Economic Capital Quantification
•
Portfolio Risk-
Return Concentrations
• Profitability Analysis
•
Portfolio Risk Concentrations & Mitigation Analysis
•
Impact Analysis from Stress Tests & Economic Capital Quantification
•
Risk Transfer & Diversification
•
Challenges & competition
•
Environmental change analysis
• etc.
Key:
Basel II-compliant Integrated Approach to Risk Management
ReportsReporting Data
CalculatorsR
egulatory Reporting D
ata Mart
Regulatory R
eporting Data M
art
Basel II Calculation
Engines
Basel II Calculation
Engines
G\LG\L
Market & External
Market & External
RegulatoryRegulatory
DisclosureDisclosure
InternalInternal
Financial and Management Accounting
Financial and Management Accounting
IAS Calculation Engines
IAS Calculation Engines
Basel 2Basel 2
IASIAS
SharedShared
-- Risk Models & Measurements/Scenario AnalysisRisk Models & Measurements/Scenario Analysis
Severity
Frequency
economic capital (EC) by scenario type
Monte-Carlo simulation
De-pegging of USD/RMB CaR1Asian Financial crisis/Pandemic flu CaR2Terrorist threat & rise in NPL CaR3Succession & general election CaR4Sectoral distress, e.g., dotcom bust CaR5Fall in FDI (threat from China/India) CaR6Bank merger & loss of market share CaR7
_____Average Economic Capital
Severity
Calculation engines act on Ratings, Calculation engines act on Ratings, Loss Distribution to yield the PD Loss Distribution to yield the PD (PE), LGD (LE), EAD, (PE), LGD (LE), EAD, VaRVaR as well as well as EC (as EC (CaRCaR))
Adjust severity & frequency distribution
RECAP: Volatility in EL
•
Change in portfolio’s EL, ∆EL, dependent on key risk factors/drivers, e.g.,
∆EL = c1∆I + D + c2∆FX + c3∆GDP + c4∆DR + c5∆CGV + …….
•
Volatility in EL leads to Loss distribution => @99% confidence level = UL => EC
•
For Stress Tests, exaggerate changes in risk drivers according to different levels of severity
SeveritySeverity
Rating DataRating Data
PD, LGD, ELPD, LGD, EL
Rating migrationRating migration
Risk WeightsRisk Weights99.99% level99.99% level
Loss DistributionLoss Distribution
U.S. Yield Curve Inverts Before Last Five RecessionsU.S. Yield Curve Inverts Before Last Five Recessions (5(5--year Treasury bond year Treasury bond --
33--month Treasury bill)month Treasury bill)
-6
-4
-2
0
2
4
6
8
Mar-69
Mar-71
Mar-73
Mar-75
Mar-77
Mar-79
Mar-81
Mar-83
Mar-85
Mar-87
Mar-89
Mar-91
Mar-93
Mar-95
Mar-97
Mar-99
Mar-01
% GDP Growth/Yield Curve
% Real annual GDP growth
Yield curve
?RecessionCorrect 2 Recessions
Correct
RecessionCorrect
RecessionCorrect
RecessionCorrect
Data though 12/5/00
Getting the Basics Right –
The Importance of Data
Considerations
Remarks by Governor Susan S. Bies At the Annual International Symposium on Derivatives and Risk Management, Fordham University School of Law, New York, New York October 8, 2002 Corporate Governance and Risk Management
I want to thank Dean Treanor
and Alan Rechtschaffen
for the invitation to participate in this timely symposium on corporate governance issues. When I joined the Federal Reserve Board of Governors last December, I knew I would be doing more than helping to set short-term interest rates. ……..
Another major category of risk is credit risk, which also has become much more quantified. ……
the borrower's likely exposure at the time of default, taking into consideration future draw-downs. The greater use of credit models in retail transactions provides a stronger framework to assess risk and ensure that pricing reflects credit quality. For consumer credit, however, models are less proven, since data
collection and loss estimates generally evolved after the 1990-91 recession and so have not been proven under stress conditions or for subprime
borrowers. Because many of these borrowers did not have significant access to credit in previous recessions, their ultimate default rate in the current cycle should help to validate the strength of the new statistical models. ………….
Validation via Recessionary Stress Test
Ensure reliable data
Survey Portfolio & Environment
Identify Risk Factors
Construct Stress Tests
Calculate Stress Loss
Report Results
Take Corrective Action, if reqd
Reassess Stress tests for appropriateness
Does the bank possess quantitative risk measurement
systems?
Yes No
Run Stress-tests using counterparty & portfolio
risk models
Estimate bottomline
of counterparties under stressful conditions
KEY ELEMENTS in STRESS TESTING
Framework
Minimum requirements for the Foundation IRB Approach
•
…….•
Completeness & integrity of ratings
•
Min. requirements for estimation of PD•
…….
•
Use of internal ratingsInternal ratings to be used in credit approval processStress testing, performed at least semi-annually, to be used in the internal assessment of capital adequacy. Such stress tests to cover the impact of broad, downward rating migration and the impact of higher than predicted default rates (PDs) & LGDsAt least 3 years’ usage of internal ratings information……
VI. Portfolio level stress testing, practical application and range of practice -
Pillar 2 principles
Implications for Stress TestImplications for Stress Test•
Top-down Approach/Macro-view
•
Relate to Objective–
impact is bank-wide
•
Basel compliant framework–
PD and LGD are critical elements of the Standardized and IRB Approaches in the Basel Accord
•
Risk weight calculations also affected*–
Hence, portfolio or sub-portfolio approach recommended
•
Stress test within generic framework
Identify the Main ObjectiveIdentify the Main Objective
What does the bank hope to achieve?•
Identify where the risk concentrations are?
•
Impact on bank –
if biggest customers default?
–
if historical worst-case scenario recur?–
if it is hit by a similar severe loss event that affected competitors in the past?
–
etc…..
Risk Monitoring (Stress Test) Risk Monitoring (Stress Test) & &
Risk ConcentrationRisk Concentration•
What’s the relationship?
•
Worthwhile & logical to start somewhere:–
Where?
–
What?–
How?
–
Why?
Where to Start?Where to Start?
•
First place to start is to examine the portfolio of weak assets–
findings arise from risk monitoring
•
The weak assets are typically the first to default
•
Then, proceed with all customer segments as during the Asian crisis, even highly-rated customers were affected
What to Do?What to Do?•
With weak assets or customers, one stress test model (scenario) is for all of them to default
•
With the other customers including the highly rated ones, one possible scenario is to have all of them downgraded in credit quality by a few notches or severely downgraded to default status
How to Do It?How to Do It?Perform the stress tests at the portfolio level:•
Using scenario analysis (multiple scenarios)
–
e.g. a scenario where all are downgraded with some defaulting or all defaulting,
–
etc. •
Performing sensitivity analysis within each scenario
–
e.g. varying severity of downgrades (one notch instead of 2 notches),
–
or increasing the PD or LGD for different customer rating,
–
etc.
Why Do It?Why Do It?I. Stress Tests will yield info about:•
Extent of unexpected loss based on different scenarios as well as degree of severity & risk drivers
II. The info above will help provide early warning signs •
of where the bulk of the likely credit risk exposures are going to come from and
III. Prepare the bank to strategize •
on how to avoid or minimize them in case they occur
GENERIC GENERIC STRESS STRESS TESTING TESTING
FRAMEWORKFRAMEWORK
OVERVIEWCorporatesListed
SME’sUnlistedConsumers
CREDIT PORTFOLIO
1st LEVEL
(I) SCENARIO ANALYSIS
Downgrade customer rating through several
notches (have a range of scale, for example: one
notch down or 2 notches down)
Mixture of downgrades & defaults
Default some categories of customers
2nd LEVEL
(II) SENSITIVITY ANALYSIS
Vary PD and LDG for each item
OVERVIEW
CorporatesListed
SME’sUnlistedConsumers
CREDIT PORTFOLIO
STRESS TEST PORTFOLIO OF CORPORATES
USING a Generic FRAMEWORK
STRESS TEST PORTFOLIO OF CONSUMERS
USING a Generic FRAMEWORK
STRESS TEST PORTFOLIO OF SMES USING a
Generic FRAMEWORK
OR STRESS TESTING THE
WHOLE CREDIT PORTFOLIO OF
CUSTOMERS USING A GENERIC
FRAMEWORK
Stress Test OutputsStress Test Outputs
•
Can yield –
several types of reports for different customer segments•
corporates, SMEs, consumers
–
several reports •
for different scenarios
•
different degree of severity
–
bankwide
portfolio reports for different scenarios & degree of severity
Credit Portfolio
Corporates(Listed) Unlisted & SMEs Consumer
Ratings Ratings RatingsAAAAAA+A-
BBBBB+BB-B
CCCD (default)
A-BBBBB+BB-B
CCCD (default)
BB-B
CCCD (default)
IMPACT OF STRESSED ENVIRONMENT
1)
Credit ratings downgraded
2)
Higher default incidences
3)
Lower recovery rate or higher LGD
Probability of Default (PD) Probability of Default (PD) & Loss Given Default (LGD)& Loss Given Default (LGD)
•
Both concepts are tied and intimately linked to negative risk factors and economic environments, be it a rise in interest rate, higher unemployment, loss of FDIs, etc.
•
Changes in PDs
and LGDs
are the manifestation of negative stressed environments or periods of economic contractions irrespective of the causes
Key Insights
•
tracking of YTD CRR changes of existing customers and the corresponding impact on overall asset quality
•
early warning signal for deteriorating accounts
Group 6 Risk Migration -
Changes in CRR of Existing Accounts (YTD) 31 MAY 2000
Group 1 Risk Migration -
Changes in CRR of Existing Accounts (YTD) 31 MAY 2000
Risk Migration -
Changes in CRR of Existing Accounts (YTD) 31 MAY 2000
Illustrative
18
8
1 18
17
5 12
12 27
16 19
28 21
30
12
10
12
5 2216
19 10
25 9
18 15 22
13 22 22
last period
this period
22
28
12
13
12
74
52
26
16
12
1 2 3 4 5 6 7 8 9 10
10
9
8
7
6
5
4
3
2
1
CRR
CRR
improved
declined
net effect
-
0
0
4 7 11 18 24 9 10 13 3
7 6 4 10 5 4 6 0 ...
-3 +1 +7 +8 +19 +5 +4 +13 +3
99
42
+ 57
CRR 1 2 3 4 5 6 7 8 9 10 Total
Improved = 242
Declined= 240
Unchanged= 267
Total approved limits revised= 749
SGD ‘millions
SGD ‘millions
No. of customers
•The same assessment needs to be made for existing customer relationships within the portfolio to keep track of risk movements.•The risk migration of existing account are aggregated at the Year to Date level for the effect on the portfolio risk as the annual revisions of the customer relationship are progressively done.
Behavioral Credit Risk Monitoring as a Measure of Impairment Incidences
Example of Downgrades in Risk Migration for Stress Test Scenario
Distribution of Accounts
0.00000
0.02000
0.04000
0.06000
0.08000
0.10000
0.12000
Score
Score
Prop
ortio
n
Recent SampleDevelopment Sample
Application to economic capital Application to economic capital calculation and allocationcalculation and allocation
Table 1 Calculating the IRB Risk WeightsTable 1 Calculating the IRB Risk Weights
CALCULATING THE IRB RISK WEIGHTS RISK WEIGHTS: Foundations Advanced
EAD PD % LGD % G(PD) 1st paren N(col.F) (1-PD)/PD RW RW
Rating $mil LGD=50% actualLGD
AA 210 0.01 0.01-
3.719090272 -2.869942924 0.002052795 57.5382393 7.425464426 0.001485093
A 15 0.05 0.02-
3.290559929 -2.390846001 0.008404792 28.32931 19.13508759 0.007654035
BBB 0 0.77 0.44-
2.422833007 -1.420727302 0.077698074 8.44475535 105.9860987 0.932677669
BB 0 1.11 0.87-
2.286927358 -1.268784787 0.102258982 7.16490219 133.4824091 2.322593919
B 125 3.45 44.81-
1.818419019 -0.744992463 0.228138065 4.24728962 267.2481112 239.5077573
<B 210 5.69 57.62-
1.581341423 -0.479939711 0.315635136 3.32895824 356.4417735 410.7634998
Unrated 95 4.33 63.22-
1.713611669 -0.627817846 0.265061575 3.80821185 305.1600339 385.8443468
Total 655
Table 2: Calculating the Minimum Capital RequirementTable 2: Calculating the Minimum Capital Requirement
0.1866924510.1698874670.07902Capital/Assets
=
122.2835554111.276290751.76Total Capital
Requirement=647655TOTALS
29.3241703623.192162577.6366.5521293.858443468289.90203223.05160033995195Unrated
69.0082679759.8822179525.2862.603354.107634998748.52772443.5644177353151.5210<B
23.9507757326.7248111215299.3846972.395077573334.0601392.672481112187.51.5125B
00000.02322593901.334824091010BB
00000.00932677701.059860987010BBB
9.18484E-050.2296210510.60.001148117.65404E-052.8702631390.1913508767.50.515A
0.0002494961.2474780233.360.00311871.48509E-0515.593475290.074254644420.2210AA
Advanced IRB
Foundations IRB
StandardizedEAD*RWEAD*RWRW
EAD *RWRW
$million
s
CAPITAL REQUIREMENTSRWAAdv. IRB RWRWAFoundations
RWRWA
StandardizedEAD
January 2001 ProposalsCALCULATING THE MINIMUM CAPITAL REQUIREMENT:
6. Key Elements of a 6. Key Elements of a Stress Testing ProcessStress Testing Process
Background Understanding•
Majority of banks’
failures: Credit Risk (recent: Oprisk
& liquidity)•
Recession cycle: typically 2 years or more•
Default likelihood of counterparties or obligors: usually not within the 1st
year of getting the loan
Before embarking on stress testing, what are the lessons?•
Data history •
NPL, PD & LGD definitely increase in recessionary times •
Consider stress testing at every stage of credit risk management
process, including credit assessment & application stage (e.g. cutoff/limit at credit scoring), etc.
•
Don’t neglect market & operational risks aspects
Key Elements Key Elements ((Assumptions)Assumptions)
1. “Infrastructure”
readiness:•
Sufficiency & types of data to cover good & bad times
•
MIS & Data-warehouse capability•
Expertise (in-house or external)
2. Scenario selection & appropriateness (The 3 “Rs”):•
Relevance: Europe-centric events (Euro crisis) may not apply in Asia
•
Realistic: Hypothetical Scenarios should be plausible in local context, e.g., LTCM-type loss events may not be applicable to some Asian markets
•
Reliable & Readily Available Database: The Scenario chosen should be one where the institution is able to collate and analyze the data pertaining to it
Ensure reliable data
Survey Portfolio & Environment
Identify Risk Factors
Construct Stress Tests
Calculate Stress Loss
Report Results
Take Corrective Action, if reqd
Reassess Stress tests for appropriateness
Does the bank possess quantitative risk measurement
systems?
Yes No
Run Stress-tests using counterparty & portfolio
risk models
Estimate bottomline
of counterparties under stressful conditions
KEY ELEMENTS in KEY ELEMENTS in STRESS TESTING STRESS TESTING
FrameworkFramework
Reliability of DataReliability of Data•
Stress Testing involves the use of models based on unexpected events on a practical basis
•
Documentation and Access to database is important
•
Data should be sufficient to capture the downside change as well as the pre-event and post-event dynamics so that the critical risk factors are also captured
•
Choice of risk factors in determining the explanatory power
Survey Portfolio & EnvironmentSurvey Portfolio & EnvironmentPreliminary work necessary:•
Management & personnel in bank involved in stress-testing have to arrive at a consensus regarding the scenario or series of scenarios to be “stressed”,
• An agreed upon “benchmark”
which can
also be used in subsequent studies, e.g. historical worst-case scenario and to help define the KRIs
for future
benchmarking
Identify Risk FactorsIdentify Risk Factors•
This process will go hand-in-hand with the model and scenario chosen
•
Different types of risk factors may suit different economic environments or types of stress tests, e.g.,
-
with Asian financial crisis, risk factors could be market factors like interest rates, and currency exchange fluctuations
-
with dotcom bust, default probabilities, corporate bankruptcies or unemployment figures could be used as risk factors
Construct Stress TestsConstruct Stress Tests•
Once the basic prerequisites are satisfied: scenario chosen, KRFs
defined, relevant
data collated•
Next step is to construct the stress test based on the above in terms of dimensions of evaluation and interpretation of results
Dimensions of EvaluationDimensions of Evaluation
•
Risk: –
Severity & range: Loss Quantum & Range of loss quantum, e.g., varying the loss given default (recovery rate)
–
Frequency & range: Probability of loss, e.g., varying the probability of default
Scenario AnalysisScenario AnalysisCauses
Failure of relevant risk
factors
Scenario (s)
(Potential Event)Severity of potential loss
Frequency of potential loss
Range of frequency
Range of severity
Typical severity
Typical frequency
Evaluation
e.g. THB crashe.g. THB crash
((++
∆THB) –
sensitivity analysis
Severity of change in KRF
Failure of relevant risk
factors
Scenarios 1, 2, Scenarios 1, 2, ……
7. Types of Risk Factors7. Types of Risk FactorsCounterpartyCounterparty
Deterioration in ability and/or willingness to pay:
• PDs
• LGDs
• Credit Spreads
EnvironmentalEnvironmental• Financial Market factors
• Industry
• Economic
• Regulatory
• Political
• Sociological
• Ecological
ModelModel• Assumptions
• Holding period
•
Product complexity
AnalyticsAnalytics• Correlation
• Transition Matrices
• Volatility
Session 2Session 2
Includes examples for stress testing in:•
Market risk
•
Credit risk
9. Sound & Best Practices 9. Sound & Best Practices Stress Testing Decision SequenceStress Testing Decision Sequence
Market risk(interest rate risk,
exchange rate risk, etc.)
Sensitivity single factor
Individual market variables
Historical
Aggregation, comparison with present portfolio
Core assets to be shocked,size of shocks, and
time horizons
Hypothetical Monte Carlo simulation
Type of scenario
Underlying volatilities Underlying correlations
Type of shock
Scenario (multiple factors)
Other(extreme value,maximum loss)
Type of stress test
Credit Risk Other(liquidity, operational)
Type of risk model
Assumption: Data & MIS Assumption: Data & MIS Sufficient & Capable Sufficient & Capable ––
ideal ideal statestate
Examples Examples ––
Market & Credit RiskMarket & Credit Risk
•
Type of risk model –
market & credit risk•
Type of stress test –
scenario (multiple factors)
•
Type of shock –
underlying volatilities•
Type of scenario –
Monte Carlo simulation
•
Allowance for re-test –
for varying degrees of shocks or sensitivity analysis
Examples –
Risk Optimizer, etc.
10. Implementation Challenges10. Implementation ChallengesAlternatives 1. Lack of data•
Boot-strapping
•
Theoretical distributions & model•
Proxy benchmarking
•
Peer group (overseas) comparison, e.g. mortgage loan default in neighboring countries
•
etc
Example: Credit Stress Test Roadmap
Lack of Data on PD, LGD, customer ratings
Incorporates macroeconomic factors –
more easily available
LLP/NPL data from bank itself
e.g., Linear Regression Analysis
Financial ratio-
based model
Emphasis on ratios related to liquidity and solvency
Augment with profitability & efficiency ratios
Value-add on LLP Model
Financial ratio-
based model
Altman’s Z-score model & derivatives
Trend Analysis of Z-scores over a couple of years
ALM model
Use of equity indicators like share price and market cap
Monte Carlo simulations with adjustments to forecasts of returns, volatility and liabilities
LLP/NPL Model Balance Sheet Model
Accounting Model
Asset-LiabilityModel
IRB Compliant Portfolio Stress Test Model
Use of IRB factors like PD, LGD and RW formulations
Incorporates downgrade of ratings & increase in defaults
Relate results directly to capital requirements
Applicable to sub-
portfolios of different customer segments
Based on Basel 2
Continuous collation of customer data, PD, LGD
Linear or nonLinear or non--linear regression linear regression of own internal modelof own internal model
•
Change in firm’s NPL, ∆NPL, dependent on key risk factors, e.g.,
–
Change in interest rate, ∆I–
Change in currency rate, ∆FX
–
Change in GDP growth, ∆GDP–
Dummy variable, D (D = 0, when no terrorist threat, D = 3 when there is terrorist threat)
–
Coefficients, ci
∆NPL = c1∆I + D + c2∆FX + c3∆GDP + …….
Q&A: Implementation ChallengesQ&A: Implementation ChallengesAlternatives 2. Lack of risk analysis tools•
Qualitative judgement
(expert opinion)
regarding choice of parameters and risk factors & model –
expert system
•
Macro-impact of changes in Balance Sheet, Asset&Liability
•
etc
Low Stress
High Stress
Negative
2 1 or less
60% or more30%
10%
1% or less5%
5% or less
80% or more60%
20% or more10%
110% or less135%
20% or less40%
Liquidity
–
Current ratio
Solvency
–
Debt to Asset ratio Profitability
–
Net Operating Income
Repayment Capacity
-
Debt coverage ratio
Efficiency
-
Operating expense ratio
-
Interest expense ratio
-
Asset turnover ratio
-
Rate of return on equity
-
Rate of return on assets
Balance Sheet Stress Test
Related KRIs
from Financial Analysis
Example
Linking market and credit stress testing
t
Modigliani-Miller (1958): Firm value = Equity value + Debt value; Others: look at credit spread widening & credit indices
Firm value(Assets)
Debt
Equity valueMarket parameters
Merton model (structural): compute default probability
Asset
value
Default probability
Asset value distribution before and after shock
Liabilities
Liquid case (e.g. Investment Portfolio): Apply Merton model to link market factors and default probability PD. Exposures (market risk) and credit quality (PD corresponds to area below liability level) are affected simultaneously by shock of market parameters.
Illiquid case (e.g. Retail Portfolio):Work through the Balance Sheet to understand impact of risk factor shocks on P&L, capital etc.
Liquid case (e.g. Investment Portfolio): Apply Merton model to link market factors and default probability PD. Exposures (market risk) and credit quality (PD corresponds to area below liability level) are affected simultaneously by shock of market parameters.
Illiquid case (e.g. Retail Portfolio):Work through the Balance Sheet to understand impact of risk factor shocks on P&L, capital etc.
Credit Distress prediction horizon (in months) of Z-score and “KMV”
EDF Models
(Possible “Alert”
Cases)
Company Z-score EDF
BRWY 11 7
FOHD > 10 > 10
GRPS 12 12
IPCC 6 6
LKNS 37 10
LMGS 14 19
PCIS 29 17
SHOW 9 11
VDHS 7 7
Q&A: Implementation ChallengesQ&A: Implementation ChallengesAlternatives 3. Lack of real-time MIS & expertise•
Start at sub-organization or initial group of customers, e.g., consumers
•
Training & continuing education •
Learn from others’
experiences
•
etc
Other ConsiderationsOther Considerations•
It is also important to conduct stress tests based on assumptions that are less complicated for management buy-in.
•
Also, the stress test results ideally should yield, other than the “loss amount”, information about say, the key risk drivers or factors that have a high explanatory power, i.e., they can explain the loss of the worst-case scenario up to a high degree –
see example
•
Stress Tests also yield different loss amounts based on degree of severity
Stress Test Scenarios: Accounting for explanatory power
of different risk drivers
Reports Risk factors Relative changes
Loss of Portfolio Value
Explanatory Power
Report 1 DJIA -13% 206% 74%
Report 2 DJIAFTSE100
-13%-8%
264% 94%
Report 3 DJIAFTSE100NIK225
-13%-8%-5%
271% 97%
1. Leaving all other risk factors unchanged, a move of -13% in the DJIA would lead to a relative loss of 206%
2. Leaving all other risk factors unchanged, a simultaneous move
of -13% in the DJIA and of -8% in the FTSE100 would lead to a relative loss of 264%
3. etc.
Table Loss on the cash flow in 3 different scenarios
Scenario THB IDR JPY Loss
Minor crisis -15% -15% 0% USD 58 mil
Midsize crisis -30% -30% 0% USD 116.3 mil
Major crisis -50% -50% 0% USD 183.9 mil
The results provide a considerably more drastic picture of the loss potential of the given transaction than the VAR measure, calculated to be USD 16 mil, by MC simulation.
DEPTH & BREADTH OF STRESS TEST STUDY
Stress Test methods are hierarchical
-
Sensitivity Analysis: broader in coverage
-
Scenario Analysis: more focused on specifics
-
“Full-Blown”
Stress Test: the ultimate in coincident extreme conditions leading to:
“THE PERFECT STORM”
Sensitivity Analysis
Scenario Analysis
Full-Blown Stress
TestingDepthDepth
Breadth
STRESS TEST METHODS(A) Hierarchy & Overview
Overview of Stress Test methods•
Sensitivity Analysis:
Shock risk factor by large no of “standard deviations”–
Typically VAR-based–
use EVT to analyze 99.9...% quantile–
consistent with daily risk management –
takes into account probability of event •
Scenario
based:
Define scenarios that could hurt –
include “the unexpected”
(e.g. merger risk)–
consider highly correlated crashes–
forward looking–
Other “what-if”
scenarios•
Full-Blown Stress Test:
The perfect storm-
subject scenarios above to multitude and coincidence of extreme events and pressures
Sensitivity AnalysisSensitivity Analysis
VAR 98.70%
series 1 7 mil
series 2 10 mil
Extreme Value Theory (EVT) Model
-100
10
2030405060
708090
-15 -10 -5 0
Loss
Freq
uenc
y
Series1Series2
98.7% confidence
a)
Using EVT
b)
N X Std. Deviation
c)
Tweaking correlations & volatilities
1
c1 c2
1 c3
1
c1 +
15% c2 +
15%
1 c3 +
15%
Portfolio: 3 assets$10 mil portfolio:1)
500 Citicorp shares with nominal value of $5 mil
2)
150 Euroyen
Dec futures with nominal value of $3 mil
3)
50 QQQ (NASDAQ ETF) shares with nominal value of $2 mil
r1, r2, r3 = 0σ1 = 15% σ2 = 13%σ3 = 20%ρ12 = 0.5ρ13 = 0.3ρ23 = 0.4
1 ρ12 ρ13 = 1 0.5 0.31 ρ23 = 1 0.4 = M
1 = 1
VARVar
(N std dev) = 1 0.5 0.3 15%*N*5 √(15%*N*5 13%*N*3 20%*N*2) * 1 0.4 13%*N*3
1 20%*N*2
= VAR (2 std deviation) = √ (5.88)= 2.42
Or With a 95% confidence interval, the value of the portfolio will not decline by $ 2.42 mil
If N = 1.65, then it’s 90% confidence interval
ScenarioScenario--basedbased Event or Scenario Risk AnalysisEvent or Scenario Risk Analysis
Historical Events User-Defined Events
Shock Names S&P NASDAQ FTSE NIKKEI JPY GBP
Black Monday -20.5% -13.4% -10.8% -2.4% 0.0% -0.5%
Gulf War -10.4% -13.1% -7.9% -16.8% -2.1% -3.4%
Euro Crisis -2.0% -0.6% 7.8% -3.2% -4.5% 8.1%
Mexican Peso Crisis 1.9% 4.3% -3.4% -8.4% -0.4% -2.2%
Asian Crisis -6.9% -7.2% -2.6% -1.9% -0.2% -1.8%
Russian Crisis -12.9% -23.5% -16.8% -13.5% -17.6% -5.5%
Tech-Wreck -11.2% -33.1% -8.3% 2.4% -2.2% 0.3%
Sept. 11 -11.7% -16.1% -11.9% -6.3% 3.7% -0.1%
Asian Currencies
Declined
Credit
Spreads
Widened
MarketLiquidity
Dried
Up
Equities
Fell
Declining
Credit
Quality
EnterpriseLiquidity Dried Up
Interest
RatesUnstable
DefaultsIncreased
Financial System
Under Stress
Trading Market Risk
Liquidity
RiskTrading
Credit Risk
The Asian Contagion
Volatility 10 23 15 14 16 8 11
US SG HK ID TH MY JP
US 1 0.6 0.7 0.56 0.61 0.34 0.41
SG 0.6 1 0.72 .. .. .. ..
HK 0.7 0.72 1 .. .. .. ..
ID 0.56 1 .. .. ..
TH 0.61 1 .. ..
MY 0.34 1 ..
JP 0.41 1
Annual Correlation & Volatility (%) matrix
6-month correlation & volatility
matrix3-month
correlation & volatility
matrix
EXAMPLE:
STRESS TEST ASIAN CRISIS
•Pre-Thai Baht crash (July 1997)
•Post-Thai (impact on other markets)
“PERFECT STORM”
Environment
:
Introduce China factor –
Yuan devalued in the midst of crisis!
**GRANULARITY OF DATA
June 1996 June 1997 June 1998
ExamplesExamples
•
From US Markets•
Linking Market & Credit Risk
•
Balance Sheet Stress Testing
•• Scenario 1Scenario 1––
When US Stocks are all DownWhen US Stocks are all Down
•• Scenario 2Scenario 2
–
Using historical worst-case P-E, P-B or P-S scenarios3
THE US MARKETTHE US MARKET
US Market Examples: Scenario 1
When NASDAQ stocks are all down
US Markets: Scenario 2 Using historical worst-case P-E, P-B or P-S scenarios
Case Study Discussion
•
The Sub-Prime Contagion
Subprime Contagion: End-to-End Examination
Subprime & prime borrowers
No Income No Doc
Exotic mortgages: ARMS & HEL
Sales Incentives
Portfolio ALM info
Loss rates (DR)
Pooling of Loan receivables
Basel 1 or 2 status
Securitize pools of loan receivables into tranches
Obtain portfolio info
Hire ratings agencies & monolines
Rate the tranches based on portfolio info & facility
Insurers provide guarantees based on their AAA “reassurance”
Loan Origination Mortgage Lenders Investment Banks Ratings agencies & insurers Investors
Seeking high-yield “investment grade”
asset classes
Spectrum from hedge funds, mutual funds & pension funds, etc.
Securitization Process Map
In theory, optimal risk transfer thro’
originate & distribute model
Risk Exposures?
EXAMPLESEXAMPLES
CONCLUDING REMARKS•
Categories of Stress Test
•
Operational Risk Illustration
Risks Are Integrated/Correlated!
Source: Global Risks
2007. World
Economic
Forum Report
The actual value of “Asset Turnover Ratio”
is 39 and pointed out by black needle. The actual value is calculated on average of all subsidiary in year 2004.
The value 10 and 20 are two threshold value of Interest expense ratio.
Liquidity Risk Monitoring
Impact from OpRisk Event Types on Liquidity Risk manifestation -
Example
Inte
rnal
Fra
ud
Em
plo
ym
e
nt
Pra
ctic
es
&
Work
pla
ce
safe
tyClients
,
Pro
duct
s
ad
Busi
ness
Pra
ctic
es
Execu
tion,
Delivery
&
Pro
cess
Mgm
t
Corporate Finance
Trading & Sales
Payment & Settlement
Agency Services
Asset Management
Retail Brokerage
Commercial Banking
Retail Banking
Busi
ness
Dis
ruption
and
Syst
em
Failure
s
Exte
rnal
Fra
ud
Reduction in Operational
Losses
Outputs
Management Tools
Risk and Control Self-Assessment Workshops
Internal Operational Loss Data
Scenarios
Statistical Distributions
Self-Assessments
Scenario Analysis
Standardized Approach for 6 business lines
7 Categories of Operational Losses
8 B
usi
ness
Lin
es
External Operational Loss Data
Inputs
Statistical Models
Methodologies
Regulatory Capital
AMA Approach for 2
businesses
Dam
age to
Physi
cal
Ass
ets
It can be caused by the breakdown or inadequacies in:
-
Model use / model risk
-
Valuation/pricing
-
Fraud, e.g. losses due to rogue trading
-
Reputation
-
External factors
-
Others –
people/business
-
Etc.
Interplay b/w Oprisk
Events & Liquidity Risk Manifestation: Sources
Where Liquidity Risk could Manifest in the Context of the Building Blocks of ORM Framework
People
Process
Systems
Cause of Risk
Low-FreqHigh Impact Catastrophic
Impact Severity
Event Frequency
High-FreqLow
Impact
EXPECTED LOSSES
UNEXPECTED LOSSES
Primary focus of capital allocation for operational risk
Flow through income statement
External
Process Risk Mapping
Bankwide
Insurance Program
Business Continuity Program
Risk Management
Approach
Risk Governance
Loss Event Management
Risk & Control Assessment
Risk Measures & Reporting
Liquidity risk zone
Completeness of Stress Tests (environment, duration/stages,
scenario analysis including severity, etc.)
•
Documentation (thought processes)•
Scenario Analysis
•
Liquidity factors/ratio calculations•
Balance Sheet stress test
•
Etc.
Evidence/Documentation
•
Model assumptions•
Identification of risk drivers/factors
•
Data inputs/transformation/outputs: macroeconomic, micro-, demand-
supply/volumetric analyses•
Liquidity portfolio management & diversification
•
Risk Assessment/Monitoring•
Remedial activities (next slide)
Risk Mitigation Strategies•
Risk management strategies need to be determined and maximized.
•Allocate•Diversify•Expand•Create•Redesign•Reorganize•Price•Arbitrage•Negotiate•Influence
•Disperse•Control
•Accept•Re-price•Self insure•Offset•Plan
•Divest•Prohibit•Stop•Target•Screen•Eliminate
AVOID EXPLOITREDUCE RETAIN
•Insure•Reinsure•Hedge•Securitize•Share•Outsource•Indemnify
TRANSFER
Example of calculation of the liquidity ratio and the observation ratios
Calculation of the liquidity ratio and the observation ratios
Capital charges
Residual maturities of
due on demand up to one month
over 1 month up to 3 months
over 3 months up to 6 months
over 6 months up to 12 months
Maturity band 1 Maturity band 2 Maturity band 3 Maturity band 4
A. Total liquid assets 200 100 80 40
B. Total liabilities 160 180 60 80
C.Mismatches (A - B) + 40 - 80 + 20 - 40
D. Positive mismatches (A > B)* + 40 - + 20 -
E. Mismatches adjusted (A. plus positive mismatches D. of the preceding maturity band)
- 140 (100 + 40) 80 60
(40 + 20)
F. Liquidity ratio (A / B) (at least equal to 1.0) 1,25 - - -
H. Observation ratios (E / B) ( No minimum levels for the observation ratios)
- 0,78 1,33 0,75
*Severity of mismatch –
scenario analysis & stress tests
Liquidity Risk Mitigation
Integration-Centric Approach
•
Whether it is SOX, Basel II, International Accounting Standards (IAS), etc., integrating information in support of compliance is not a one-off proposition.
•
Compliance requires ongoing and constant enforcement. •
It’s never a matter of simply checking a box and then moving to another project. •
Compliance-driven requirements are usually phased in, evolve constantly, and invariably become more complex and stringent over time.
•
An integration-centric approach enhances the flexibility, and thus the value, of such an architecture because you can design the data integration capabilities necessary to meet whatever happens regulation wise.
•
You have a supple, adaptable and (over time) familiar framework for integrating new data and types of data in new ways.
•
In contrast, a non-integration-centric approach means having to recollect data for each new compliance mandate that comes along.
•
An integration-centric approach allows institutions to standardize their risk language in terms of the underlying Basel II risk-compliance categories or items and the overlapping risk parameters in the context of associated regulations (SOX, IAS, etc.)
Basel II
• Advanced IRB Approach for Credit Risk
• AMA for Operational Risk
• Pillar 2 & 3
IPSB/BIPRU
• High level standards
• Liquidity risk
• PRMR
• PRCR
• PROR
SOX
• Internal controls effectiveness testing
• Internal controls disclosure
IAS
• Fair Value Accounting
• Impairment value
• Hedge effectiveness
• Income recognition
Loan Impairment
Organizational Structure
Controls Testing
Risk Mitigation
Synergy Examples
Integration of Risk & Finance
Stress Environments Affect Both Cash Availability And Needs
Is there a framework for these 2 dimensions?Cash availability:
??
Needs:??
Choice of Systemic Crises1987
.1991
.
.19951997199819992000
2001..
20072008
U.S. stock market crash.Oil price surge..Mexican CrisisAsian crisisRussian default, LTCMGold pricesDotcom bustSeptember 11 payments system disruption..U.S. Sub-prime contagionCommodity/biodiesel bubble burst??
1. Normal environment, including any seasonal fluctuations:
2. Bank specific funding crisis
3. Systemic liquidity crisis
Granularity in Scenario Analysis(Types of Environment)
Level of Severity
Consideration of Liquidity Risk Evolution
Amount of contingent funds vs. severity of crisis.
Developmental stages in manifestation vs abrupt blowout
Short-term duration of liquidity crisis vs longer-term
• Clear Identification of Stages of a Funding Crisis
• Categorization of liquid asset & volatile liability -
helps in measurement of remaining liquidity gap after liabilities renewed or removed
• Asset liquidation & counter-balancing -
Liquidation profile of unencumbered assets, acts as driver of liquidity gap closure
- asset quality affects speed of liquidation
•
Also, evaluate stress tests to identify major contributors to risk exposures in order to:
reduce risk exposures if possiblecombine stress testing and limitscombine stress testing and liquidity contingency planning
Stress Test Process
Evidence of a Response Framework in Stress Testing: ALM Example
•
Ranking all assets along 2 dimensions -
how quickly and easily they can be sold
•
Preparation plans for loan sales or risk transfer
•
Ongoing maintenance of primary and secondary liquidity from assets/idle cash warehouses
•
Management of pledges to free up excess collateral or use of the various saleable assets
•
etc.
Evaluating Framework for Managing Funding Sources, including Diversification of Sources
•
Rating & Segmenting Funding Sources for Modeling Funds Withdrawal
Liability Management: Rating & Segmenting the Propensity to Withdraw Deposits
Insured or Secured
Depositors' Reliance On Information
Depositors' Relationship
With the Bank
Overall Assessment of Stability
consumers yes low high high
small business ……. ……. ……. ……..
large commercial …….. ……. ……. …….
banks …….. ……. ……. …….
municipalities ……. ……. ……. …….
capital markets funds providers ……. ……. ……. low
Very Sensitive to Perceived
Deterioration in Credit Quality or
Safety
money market mutual funds
rating sensitive providers
pension funds
……….
……….
broker/dealers
regional and money center banks in your country
foreign banks
……….
……….
Only sensitive to credit quality and
liquidity when problems are very
bad and highly publicized.
local, uninsured, unsecured depositors
………..
………..
insured depositors
Sensitivity Analysis of Funds Providers
Diversification Analysis of Funding Sources
Reduce funding from capital markets and increase fiduciary deposits to improve diversification?
Capital markets
Retail Deposits
Fiduciary Deposits
Central Bank Deposits
SWF
……..
28%
13%
6%
15%
7%
Evidence of Diversification Framework, e.g., for Wholesale Funding Sources
Several Dimensions:
• Product type –
deposit, CP, etc.
• Counterpart –
central bank, SWF, commercial bank, etc.
• Maturity –
1 month, 6 months, etc.
• Currency –
EUR, USD, JPY
• Region –
Americas, MidEast, Asia-Pac
Stress-Testing Funding Sources Summary
•
Quantitative Analysis: Rank, measure, manage for both current needs and for contingent needs.
•
Stability Analysis: Funding from more sticky
sources.
•
Performance Monitoring: Monitor borrowing spreads –
not unused borrowing commitments.
•
Agility & Adaptability: Taking advantage of market conditions to lengthen maturities when possible.
•
Longer-term Vision: Maintain an appropriate amount of time deposits and borrowing with remaining lives greater than 90 days, 180 days and one year.
Summary -
Liquidity Risk Model
Business and process modelingFramework architectureContent/document managementAssessment — validation and remediationTraining and awarenessReporting — business intelligenceAudit findingsEnterprise integrationLoss/incident tracking Identify key risk indicatorsRisk mitigation trackingRisk transferRisk acceptanceScenario analysis
Trace and monitor Find evidence.
Alert Inform when a threshold is crossed.
Aggregate Combine data from results.
Correlate Identify the relationship between results.
Synthesize Create a single view from multiple sources.
Compare Evaluate the difference between results.
Summarize Present the calculated results.
Predict Model future outcomes.
Recommend Create an alternate transaction.
10. Concluding Remarks Policies, Controls and Compliance
PolicyArea
Section
Controls
Policy
Area
Section
Industrystandards
COSO, BIPRU,
Policy Metrics
Reports
Risk and compliance
Regulations
SOX, IFRS/IAS, Basel, EU
Controls
Industryguidance
Industryregulations
Dashboardsand reporting
Process management
Business Part
Sales
Financial
Development
R&D
DistributionAsset management
Physical
Int. Property
Information
Users
Relationships
Processes
Incident/loss management
!
Use Validation as Nutrient to improve “Risk Agility”
THANK YOU
GS Khoo, PhD
Cell: (65) 98252148