IBK, Obtains Approval for Advanced Internal Ratings-Based Approach Change in Credit Risk

Enabling Precise Credit Risk Measurement

[Asia Economy Reporter Park Sun-mi] IBK Industrial Bank announced on the 7th that it has received approval from the Financial Supervisory Service for changes to the Advanced Internal Ratings-Based (AIRB) approach for credit risk to enhance its risk management level.

The AIRB approach is the highest grade method among the Basel Committee on Banking Supervision (BIS) standards for calculating risk-weighted assets for credit risk in the capital adequacy ratio. It applies values for risk measurement factors such as Probability of Default (PD), Loss Given Default (LGD), and Exposure at Default (EAD) estimated internally by the bank.

Following the approval, Industrial Bank will comprehensively reflect recent trends in recovery rates of defaulted customers, changes in post-lending management such as restructuring and external sales, and supervisory regulatory directions to calculate LGD and EAD. The bank conducted a project for about two years to obtain approval for the changes to the AIRB approach.

The revised contents will be applied starting from the calculation of the BIS capital ratio for the fourth quarter of 2020. A representative from Industrial Bank said, “As the bank’s crisis management capability has become a key issue, this approval enables more precise measurement of credit risk,” adding, “It is expected to contribute to enhancing the stability and reliability of the BIS capital ratio.”

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