The Australian Prudential Regulation Authority (APRA) now expects banks using the Standardised Approach to increase their use of quantitative research and analytics. Previously this was only expected from banks using the Advanced approach.
“More than that, for most banks in Australia, it’s not about being standardised or advanced; it’s about understanding your risk. Whether you are standardised or advanced, you need to build the capability for quantitative analysis of your portfolios to really understand where the concentrations are,” the senior credit risk modeller said.
The research also identified a trend towards more frequent reporting, in line with the more active approaches regulators have been pushing for.
While almost half of respondents (46.3%) indicated that they revise single name, sector and country credit limits on an annual basis, reflecting formal review structures typically built into bank policies, other respondents said they reviewed credit limits more frequently (semiannually: 9.8%; quarterly: 29.3%; monthly: 17.1%).
This trend was more prominent among respondents who represented larger banks with greater cross-border exposures.