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Object documentationCredit Risk Scenario Locate this document in the navigation structure

 

You can use a credit risk scenario to simulate the effects of stressed risk parameters on a bank's portfolio, for example, counterparty default or a lowering of the rating of the government bonds of certain countries.

You edit credit risk scenarios on the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal under   Credit Risk Stress Tests   Definition   Manage Credit Risk Scenarios   or in Customizing for Bank Analyzer under   Processes and Methods   Credit Risk   Credit Risk Stress Tests   Configuration   Edit Credit Risk Scenarios  .

Structure

A credit risk scenario comprises at least one risk parameter specification, to which you can assign one scenario segmentation. A scenario segmentation consists of scenario segments.

The CEBS stress scenarios from 2010 are an example of this. These scenarios were segmented by country and country group, and the stressed risk parameter values for probability of default (PD) and loss given default (LGD) were provided explicitly.

Scenario Segment

You edit scenario segments on the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal under   Credit Risk Stress Tests   Definition   Manage Scenario Segments   or in Customizing for Bank Analyzer under   Processes and Methods   Credit Risk   Credit Risk Stress Tests   Configuration   Edit Scenario Segments  .

Scenario segments define a subset of transactions on the basis of selection criteria that are based on characteristics. The characteristic values of a transaction determine the scenario segment or segments in which this transaction falls. Scenario segments are not necessarily without overlaps.

In the Customizing activity Define Characteristics for Scenario Segments, you specify the characteristics for which selection options can be entered on the Manage Scenario Segments user interface in SAP NetWeaver Portal or SAP NetWeaver Business Client.

You can define scenario segments based on characteristics such as Country, Industry, Product Category or Customer Class:

  • Germany

  • Euro area countries

  • Automobile industry in the EU

  • Real estate financing

  • Consumer loans in the good book

Scenario Segmentation

You edit scenario segmentations on the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal under   Credit Risk Stress Tests   Definition   Manage Scenario Segmentations   or in Customizing for Bank Analyzer under   Processes and Methods   Credit Risk   Credit Risk Stress Tests   Configuration   Edit Scenario Segmentations  .

You assign a scenario segment to one or more scenario segmentations in order to structure the scenario portfolio in more detail: For example, you can create a scenario segment as a combination of different characteristics (such as food industry in France) rather than selecting individual characteristics.

Since a transaction can meet the selection criteria of several scenario segments you have to define the priority of a scenario segment within a segmentation. On the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal, the sequence in which you assign scenario segments to a scenario segmentation determines their priority. The first (or highest) scenario segment has the highest priority. In Customizing, the number of the scenario segment determines its priority. In this case, the lower the number, the higher the priority.

The system assigns the transactions in the scenario portfolio to one scenario segment in order of priority: The transaction is assigned to the first scenario segment whose selection criteria it meets. This means that the scenario portfolio is divided into non-overlapping scenario segments.

For example, you can define a scenario segmentation as follows:

  • Scenario segment 1: automobile industry in Germany

  • Scenario segment 2: European Union

  • Scenario segment 3: U.S.

  • Scenario segment 4: complementary segment (residual)

The transactions that are included in the scenario segment with the highest priority (Automobile Industry in Germany) could also be included in the second-ranked scenario segment (European Union) because they have the characteristic value Germany. However, the system assigns these transactions only to the first scenario segment because this has the higher priority in the segmentation.

The complementary segment contains all the transactions in the scenario portfolio that could not be assigned by the system to any of the other scenario segments. This ensures that all the transactions are assigned to scenario segments. The use of a complementary segment is optional.

Risk Parameter Specification

You edit risk parameter specifications on the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal under   Credit Risk Stress Tests   Definition   Manage Risk Parameter Specifications   or in Customizing for Bank Analyzer under   Processes and Methods   Credit Risk   Credit Risk Stress Tests   Configuration   Edit Risk Parameter Specifications  .

The risk parameter shift type determines which risk parameter is stressed, such as the probability of default (PD) or the exposure at default (EAD). For each risk parameter shift type, you can assign only one risk parameter specification to a credit risk scenario.

A risk parameter specification corresponds to one of the following categories:

  • A risk parameter shift deals with the change in the value of a risk parameter in a credit risk scenario. This change is entered as a relative or absolute shift. The system increases or reduces the original value of the risk parameter being stressed through multiplication (relative risk parameter shift) or addition (absolute risk parameter shift):

    • Example 1:

      PD = 0.10 * 1.5 = 0.15 = 15%

      (relative shift of the original PD of 10% by 1.5)

    • Example 2:

      PD = 0.10 + 0.05 = 15%

      (absolute shift of the original PD of 10% by 5%)

  • A risk parameter value is the value of a stressed risk parameter that is explicitly provided in a credit risk scenario.

    Example: LGD = 40%

The combination of specific risk parameter shift types in a credit risk scenario is problematic if these affect the same key figure. Therefore, the following combinations are not permitted:

  • Currency and simulation of new business

  • Currency and EAD

  • Currency and collateral value

  • Currency and Credit Conversion Factor (CCF)

  • Simulation of new business and EAD

  • Simulation of new business and collateral value

  • Simulation of new business and CCF

  • EAD and CCF

  • Master rating and PD

  • Master rating and risk weight

Note Note

The system cannot check the compatibility of customer-specific risk parameter shift types.

End of the note.

Note Note

Currency shifts and simulations of new business can be executed only in the ad hoc calculation and the approximate stress run, but not in the credit exposure stress run.

End of the note.

The credit risk scenarios are calculated based on the changes to the risk parameter. You can map these changes in different ways:

  • Entry of values (generic market data)

    Risk parameter specifications entered as values in SAP NetWeaver Business Client or SAP NetWeaver Portal are mapped in the system based on generic market data. When you select the data structure of the risk parameter specification, you define the generic market data class.

    Before you can select a data structure in SAP NetWeaver Business Client or SAP NetWeaver Portal, the corresponding market data class must have been created in Customizing for Bank Analyzer under   Source Data Layer   Primary Objects   Generic Market Data   Edit Generic Market Data Classes  .

    If multiple market data areas have been created in Customizing you need to select the required market data area in SAP NetWeaver Business Client or SAP NetWeaver Portal.

    The generic market data is used to store the risk parameters in the specifications. You can also use this data to define additional dimensions for differentiating between individual scenario segments.

  • Derivation of values (module editor)

    Risk parameter specifications derived as values in SAP NetWeaver Business Client or SAP NetWeaver Portal are mapped in the system based on the module editor. You can use the module editor to define very complex formulaic risk parameter specifications.

    When you create a new risk parameter specification based on the derivation of values, you must enter a module and a module environment. You must first create both parameters in Customizing for Bank Analyzer under   Processes and Methods   Credit Risk   Credit Risk Stress Tests   Configuration   Module Editor  . They can then be selected on the user interface in SAP NetWeaver Business Client or SAP NetWeaver Portal.

You can assign one scenario segmentation to a risk parameter specification. You can assign the same scenario segmentation to different risk parameter specifications.

A scenario segmentation does not have to cover all the transactions in the scenario portfolio. If you are not using a scenario segmentation or if there are no suitable transactions in any of the scenario segments, you can still stress the affected transactions by configuring the data structure (or the generic market data class) of the risk parameter specification accordingly.

Integration

The Audit Support checkbox controls the traceability of credit risk stress tests. The system only supports the auditing of a credit risk scenario if this checkbox has been set for all the corresponding scenario segments, scenario segmentations, and risk parameter specifications. The checkbox is set automatically for the scenario entities defined in Customizing.

Note Note

If the Audit Support checkbox has been set you can still change or delete the scenario entity in Customizing, but not on the user interface in SAP NetWeaver Business Client and SAP NetWeaver Portal.

End of the note.

You can include a credit risk scenario in a credit risk scenario set. For more information, see Credit Risk Scenario Set.

You can include a credit risk scenario or a credit risk scenario set in Customizing in a composite scenario. For more information, see the Integration section under Stress Test Scenarios.

Note Note

We recommend that you do not include a credit risk scenario and a credit risk scenario set in the same composite scenario.

End of the note.

When you create a credit risk scenario, a credit risk scenario set, and a risk parameter specification, the system creates an entry with the same name in the table for simple scenarios used for general scenario management (see Scenario). You can change or display the generic market data of a risk parameter specification on the SAP Easy Access screen under   Bank Analyzer   Source Data Layer   Primary Objects   Generic Market Data   Edit Scenario Version   or Display Scenario Version. Enter the ID of the risk parameter specification in the Scenario field.

Example

Example: Credit Risk Scenario

More Information

NetWeaver Portal Content documentation: