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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.

Consortium Governors

The establishment of the management and methodological governing structure was necessary to provide the appropriate oversight, controls, acceptance and feedback for the operation of the consortium executed in the form of management and methodology committees, consortium membership and protocols.

Big data for account management: SIMAH 360 account management helps members gain comprehensive and holistic view of customer portfolios across industry and help extract maximum value, mitigate risk and improve over-all profitability.

Management committee regulator: SAMA Representatives from all KSA local Banks Saudi Credit Bureau-SIMAH.

Methodology committee: representatives from six local Banks

Consortium resulted services

SIMAH has developed a new portal for the consortium to deliver the NDP services to member banks efficiently, this portal will grant member banks access to:

  • The national probability of default (PD) model for scoring one company or a portfolio of companies.
  • The Financial Benchmarking System (FBS).
  • Annual LGD Statistics Report

National PD model: Robust empirical PD Model was built on a decade of historical Credit & financial information using Logistic Regression Algorithm where It provides the probability of default within one year for a single company or a portfolio of companies.

The resulted PD model was Validated and approved by SAMA To be used as a national benchmark to facilitates banks’ transition to IRB approaches.

Local financial benchmarking system: Allows banks and regulator to observe the behavior and the composition of the national market across Various Time frames. Assess the performance of a portfolio or a single customer in comparison to the local market based on 31 financial ratios covering the below Categories:

  • Profitability ratios
  • Efficiency rations
  • Liquidity ratios
  • Leverage ratios
  • Debt service coverage

Annual kingdom wide loss given default (LGD) estimates: Developed a national platform for capturing recoveries that was installed at the local banks and Introduced unified standards & guidance for tracking recoveries across the local banking system in the kingdom that allows Calculating LGD and Recovery Rate on the national level.

It also Provide banks with insights on their internal activities related to recoveries that can be compared with the market’s behavior.

LGD & Recovery statistics report is produced on an annual bases where it provides insights on the aggregated portfolio such as:

  • Recovery rate by industry
  • Recovery rate by resolution type
  • Recovery rate by loan type
  • Recovery rate by secured vs unsecured loans

Core advantage of the NDP consortium:

The Saudi banking industry is comparatively fragmented and even the largest banks do not have a hugely significant market share individually. So all banks will benefit by the more rapid aggregation of data and the building of a robust set of normalized statistics.

Core advantage for the banks:

Risk management: The risk management to benchmark their internal credit rating models and for risk management purposes.

Benchmarking: Top management to have benchmarks against which to assess the performance of their own bank.

Lending decisioning: The business development area to make benchmark comparisons on lending decisions, potential new business, marketing approaches etc.

Portfolio management and evaluation: A benchmarking portfolio that replicates the market.

Strategic insights: Insight on the experience in particular industrial sectors, in which it is not presently participating, thus informing expansion decisions.

Industry & regional overview: An informed strategy and risk appetite, from industry and regional analysis.

Core advantage for SAMA

Historical performance benchmarks: The consortium provide a reliable historical benchmark against which the performance of each bank can be measured using conformed data.

Risk management: Supports SAMA’s goal of achieving sound risk management in the banking system.

Localization: Enable localization of SAMA’s independent validation process.