The internal ratings-based approaches (IRB), under Basel regulation, allow banks to move away from the traditional assessment of lending on an “expected loss” basis and bifurcate the loss into the Probability of default (PD) and the Loss Given Default (LGD).
The IRB Approaches Working Group -created by SAMA- identified the need for a National Data Pooling Consortium to satisfy IRB Approaches requirements, after it was concluded in the first quarter of 2006 that individual banks did not possess sufficient data for PD and LGD modelling to satisfy IRB Approaches requirements.
Consequently, in 2009, with joint efforts from the Saudi Credit Bureau (SIMAH) and the Participating Local Banks in cooperation with Standard & Poor’s Risk Solutions, the National Credit Data Pooling Consortium (NCDPC) has been initiated under the supervision of SAMA. NCDPC intended to:
- Establish a banking industry credit data pooling system in the Kingdom of Saudi Arabia to support the development of Probability of Default (PD) model
- Analyze the Loss Given Default (LGD) for the national Corporates & SME’s sectors.
- National financial Benchmarking Systems.
The National Credit Data Pooling consortium is the first of its kind in the region due to the nature of its governance and the comprehensiveness of pooled data on a country level.
This encompasses commercial and corporate lending defaults, as well as financial statements from both defaulted and non-defaulted firms. The NDPP also provides conformed default and recovery statistics.
NDP consortium is a group of banks that agreed to pool data, usually on a confidential basis, to a central repository, whereupon data cleansing, aggregation and analysis takes place. The data will typically relate to one or more homogeneous asset class and may be regarding default, default and recovery, or just recovery. The Kingdom of Saudi Arabia - Credit Data Consortium is a significant and strategic initiative to establish such an infrastructure.