Training Objectives

This programme aims to:

• Highlight the importance of stress-testing, both from a supervisory and an internal risk management perspective
• Enable participants to understand and contribute to the stress-testing process
• Enable participants to understand the challenges and various means of calibrating the stress level
• Highlight the impact stress-testing has on a bank’s capital requirement
• Identify the impact of bond holdings in either Market Risk (if AFS) or IRRBB (if HTM)

Training Outline

Business plan

• The current Business plan and its expected consequences for the bank’s capital ratio – modelling NII, etc.
• The main risk types
• IFRS 9 and forecasting Expected Credit Losses (ECLs), their impact on profit and capital 

Stress tests

• An example of macroeconomic stresses – the EBA stress test
• The static balance sheet approach – Baseline and Stressed scenarios
• Developing a model for forecasting losses from macroeconomic forecasts – regression analysis of historic losses and macroeconomic variables
• The Merton or Structural model (Corporate risk) and its application during stressed periods
• Retail exposures – bank’s internal historic data, credit scoring, etc.
• Case study of a bank’s stress test output
• Challenges – the limitations of models, discontinuities and the need for post-model adjustments and continual model review
• Reverse stress test

Interest Rate Risk in the Banking Book (IRRBB)

• How Interest rate risk arises – asset v liability maturity and interest rate reset date mis-matches, non-maturity deposits (NMDs), holding government bonds
• A traditional approach: ‘gap’ analysis

IRRBB Part One: the Economic Value of Equity (EVE) approach

• Brief review of single-period and compound discounting to a Present Value (PV), bonds and duration (PV01)
• The net impact of stressed yield curve changes on interest-rate sensitive positions on both sides of the balance sheet
• Bucketing the positions and the specified time buckets
• NMDs and Behavioural analysis
• Behavioural options – client breakage on fixed rate instruments and penalties
• Excerpt from a recent Pillar Three report

IRRBB Part Two – Net Interest Income (NII)

• Starting point: static balance sheet with instantaneous yield curve changes
• A changing Balance sheet: the impact of changing rates on depositor and borrower behaviour
• Excerpt from a recent Pillar Three report

Who Should Attend

This course is designed for professionals within the financial services sector and will be particularly beneficial for:

• Risk Management Professionals
• Finance and Treasury Personnel
• Regulatory Compliance Officers
• Bank Executives and Directors
• Internal Auditors
• Regulatory Authorities and Supervisors
• Consultants and Advisors

Training Style

The programme is designed to deliver the scope, principles, and methodologies of ICAAP, and most of the seminar’s time will be invested in analysing the different methodologies and risk management tools that Banks should take into consideration during the preparation and implementation of the ICAAP report.

Through a presentation of the programme content the course is designed to promote questions and discussion throughout. It includes numerous real-life local examples and case studies for a deeper understanding.

CPD Recognition

This programme may be approved for up to 5 CPD units in Banking and Financial Regulation. Eligibility criteria and CPD Units are verified directly by your association, regulator or other bodies which you hold membership.

In-house Training

For groups within the same organisation, this course may be customized to meet any specific needs and delivered in-house.