SIGNIFICANCE OF APPLICATION OF STATISTICAL MODELS IN THE DEVELOPMENT OF THE RATING SYSTEM OF FINANCIAL INSTITUTIONS

Abstract

The most important system for managing risks and measuring financial performance is the rating system. The rating system is considered an integral part of banks' current operations and their risk management culture. All banks try to highlight its affiliation with current affairs, in order to show the supervisors the necessity of its use for the purpose of determining the minimum regulatory capital requirements.
The Committee in Basel for certain classes of exposure to risks recommends the use of a basic methodology where banking institutions use their own assessment of the risk of non-payment of debtors as an input, while assessments of additional risk factors are applied through the supervisor's standardized rules.
This basic methodology is available for banking institutions that have the ability to satisfy their supervisors that they are capable of meeting certain minimum requirements of the banking system, the risk management process and the ability to assess its essential components.
In addition to the basic methodology, advanced methodologies have also been defined that provide the possibility of internal assessment of risk components. Wide application of the aforementioned assessments is an important part of the dynamic and risk-sensitive IRB approach (Internal Rating Based). Thus, those banking institutions that have the ability to carry out a certain valid and quantified risk assessment can be identified and distinguished.
Some specific models, procedures and processes of assessing the probability of non-payment in certain situations, through the obtained results, enable the management of banking institutions to analyze in detail the real picture of possible debtors, which ultimately provides a possible better analysis of their default.