Macro Analyzer PD combines macroeconomic forecasts with information on the present risk profile of a credit portfolio. This web-based application checks the consistency between current ratings and macroeconomic expectations; if necessary, it determines adjustment factors for the rating-specific PD curves used.
With the application of the IFRS 9 rules on the measurement of financial assets on 1 January 2018, the previous Incurred Loss approach was replaced with a Lifetime Expected Loss model. The key characteristic of this new model is that the expected loss of a financial instrument is calculated for the instrument’s complete term. Under the new standard institutions need to provide, among other things, information on how forecasts of future events including macroeconomic developments influence the expected loss.
Irrespective of the accounting standards applied, it is essential for banks and institutional investors to take macroeconomic expectations into account consistently both for managing credit risk and pricing individual financial assets.
Based on assumed country-specific macroeconomic developments, Macro Analyzer PD allows to check whether current ratings and corresponding PD profiles are appropriate.
For this purpose, the PD profiles are used to compare the changes in mean probabilities of default (Central Tendencies, CTs) with the default rates predicted based on the macroeconomic forecasts. The PD profiles can then be adjusted accordingly.
To estimate the default rates, country-specific forecasts of macroeconomic variables defined by the institution, e.g. GDP, are specified. For many countries, these inputs can be checked against historical observations provided. In addition, for the most important countries forecasts supplied by Consensus Economicx Inc. are available for all macroeconomic variables needed.
Using industry- and region-specific models, the forecasts entered are translated into default rates for the portfolio examined.
These default rates are compared with the CTs retrieved from the PD profiles. This allows to identify unusual macroeconomic circumstances which require adjustments to the current PD profiles.
The actual adjustments to the PD profiles are made in the separate application PDP Generator, which is part of the product Migration matrices and PD profiles.
Macro Analyzer PD is a web-based application available with both German and English text; it only requires a VPN (or CredNet) connection. Like all applications provided by RSU, it is operated under the strict security standards customary in the banking industry. Protected transmission channels and secure data storage at a level 3-certified data processing centre ensure a high degree of data security.