Prelios Valuations took part in the ABI Supervision, Risks & Profitability conference held in Rome on June 25 and 26, 2019, the key event on risk management, capital and European supervision. It was attended by more than 600 members and was addressed by 111 speakers from across Italy and abroad. The conference offers leading representatives from Italian and European banks and financial organizations, regulators, supervisors, academics, consultants and digital innovators a chance to meet up and network.
Luke Brucato, Prelios Group Sales & Markets Director, was a speaker on the panel entitled: “Credit risk: regulation, policies and profitability”; below is an extract from his paper.
"With the new international laws, risk management has become an increasingly crucial factor in the governance of NPE portfolios and in granting new mortgage loans. Besides the excellent business reasons for monitoring the value of the assets guaranteeing distressed loans, the final EBA guidelines on NPEs due to come into force on June 30, 2019, for all banks, envisage advanced statistical methods supported by empirical data on the real estate market. For example, banks’ credit risk policy will now have to include back-testing of statistically updated values and will be required to move on from rough and ready macro-territorial indexing and adopt an asset-specific approach through methods like automated valuation models. This is particularly important for UTP positions, since the counterparties are still operational. Turning to newly originated loans and related monitoring, Prelios highlights the importance of the EBA consultation launched on June 19, 2019, which requires a still data-driven approach with specific evidence on property market trends at various levels (geography, industrial sector, property type, vintage, etc.). It expressly calls for a databank on property transactions that is sufficiently granular to enable the lender to conduct regular back-testing on the solidity of values through the cycle. To this end, Prelios recently invested in the creation of PREMIUM, a property risk analysis platform for the determination of real estate values in a variety of scenarios and market conditions. Through the socio-economic and demographic big data underpinning PREMIUM, Prelios is able to tell banks which indicators have the greatest impact on the formation of the market value of their collateral, possible future scenarios for market value in different economic conditions, and, consequently, which approaches to adopt to optimize risk-weighted assets and the commercial strategy on the mortgage loan. Use of PREMIUM recently enabled an Italian bank to achieve a double-digit reduction in additional loan loss provisions on a UTP portfolio secured by real estate assets. Through PREMIUM, the bank successfully built an empirical dataset on its guarantees portfolio and developed forward-looking algorithms to support the haircuts applied by the bank, facilitating dialog with the Supervisor and safeguarding the value of the portfolio."