ABN Amro took a €1.7 billion ($1.85 billion) add-on to risk-weighted assets (RWAs) from an overhaul of its credit risk models, as the bank continues to transition away from the advanced internal ratings-based (A-IRB) approach. Credit risk RWAs calculated under the A-IRB fell by €16.1 billion, or 25%, to €47.8 billion, marking the lowest level on record. On the other hand, RWAs produced by the foundation IRB approach rose by €18.9 billion, near-tripling to €29.8 billion, the highest level since the bank first started using this methodology in 2021. A spokesperson for ABN Amro told Risk Quantumthe move was down to the transfer of the bank’s large corporate portfolio to the less sophisticated approach. Credit risk RWAs under the standardised approach also rose, by 21.8% to €7.1 billion. As a result, total credit risk was up €1.8 billion to €117.8 billion. Total RWAs increased by €4 billion to €144.2 billion. The growth was broad-based, with operational, market and counterparty credit risk rising 3.3%, 25.3% and 17.2%, respectively. While the bank’s Common Equity Tier 1 capital remained roughly stable, the increase in RWAs led to a 43-basis point drop in its CET1 ratio to 13.8%, the lowest level on record going back to 2014.
What is it?
Basel Committee rules allow credit risk RWAs to be calculated using the standardised and IRB approaches.
Under the standardised approach, credit exposures are assessed using standard industry-wide risk weightings. The F-IRB allows banks to provide their own estimates of the probabilities of default of their credit exposures, but uses regulator-set schema for other risk components, such as loss given default measures, to generate the ultimate RWA amount. Under the A-IRB approach, banks can also model their own loss given default and exposure-at-default levels.
Under the finalised Basel III package, banks can no longer use the A-IRB approach for exposures to financial institutions or corporates with consolidated annual revenues of more than €500 million.
Why it matters
ABN Amro has embarked on a journey to shift away from internal modelling for a number of years, with credit risk RWAs calculated under the A-IRB down almost 50% compared with 2022 levels.
According to the bank, the move is part of a long-term strategy to adopt less sophisticated modelling. But the incomingBasel III framework set for implementation in the European Union on January 1, 2025, has undoubtedly accelerated the process – something the bankacknowledged back in 2020.
With just over 40% of credit risk RWAs still calculated under the A-IRB approach, the journey is likely not over yet. “We are continuing the review of our credit risk [RWA] models, which may lead to further model updates and [RWA] add-ons under both Basel III and Basel IV,” the bank said in its latest Pillar 3.
Explore our data
Readers ofRisk Quantum now have access to some of the datasets that sit behind our stories – not just the segment of data that is the focus for the story, but the full time series, for the full population of covered firms. Readers can choose the institutions they want to look at, the metrics they are interested in, and download the data in CSV format to run their own comparisons and build their own charts. Risk and capital managers told us it would be helpful for internal reporting and benchmarking, but we figured many of our readers might get something out of it.
Currently, the available data covers more than 120 banks and over 350 metrics, but we’ll be adding more throughout the year. The Risk Quantum database can be accessedhere. The full list of data points currently available can be foundat this page. The full range of banks covered can be viewedhere.
Get in touch
Like Risk Quantum? Sign up for free to ourdaily newsletter and check@RiskQuantum for the latest updates.
If you have any thoughts on our latest analysis or want to suggest other ways to present and analyse the data, you canemail us.
Tell me more
ABN Amro ditches op risk modelling
Norinchukin’s credit RWAs up 31% on early Basel III opt-in
Portfolio shifts aided credit RWA reductions at Dutch banks in 2020
View all bank stories
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
