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Nevan McBride, Risk Practice Director

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Nevan McBride

Risk Practice Director

In our latest whitepaper, Seven risk predictions for 2018, we explore which trends lenders are most likely to adopt to protect themselves, consumers and the global economies, whilst also going back to the most important aspect of any business: profitability. Here's our first risk prediction...

#1: 2018 to mark year one for many lenders embarking on the IRB journey

The last couple of years have seen significant changes to the regulation underpinning how banks set their capital requirements, particularly in an Internal Ratings Based (IRB) world.

Last year ended with announcements from the Basel Committee on Banking Supervision (BCBS) of reforms which are likely to increase capital requirements for lenders on the Standardised approach particularly those lending in the higher LTV market or with material concentrations of Income Producing Real Estate.

These lenders are already looking at the IRB approach as a means of consuming proportionately less capital with a high likelihood of being in a better capital position even before the application of the BCBS
reforms. The transition to IRB for smaller organisations was never a consideration due to the associated
complexity and cost but it is now in reach more than ever.

Last year the PRA implemented regulatory changes removing some cost and data barriers to entry, enabling smaller lenders to reap the benefits. For many organisations embarking on the IRB journey, 2018 marks the mobilisation of their programme. IRB will elevate the status of your firm with investors and regulators alike as it promotes robust risk management frameworks and improves capital efficiency. But for many, this requires an investment in resources such as data, technology and modelling expertise.

With reforms often requiring significant business change, lenders should start to prepare for IRB compliance now to meet the 2022 BCBS reform date.

 To read all seven of our risk predictions, download our latest guide.