• Question ID: 2021/0005
• Date of publication: 14/10/2021
• Subject matter: Credit risk metrics
• AnaCredit Manual: Part II
• Data attribute: Probability of default

Probabilities of default which are not established in accordance with the internal ratings-based (IRB) approach for credit risk are not to be reported to AnaCredit.

Question

Under AnaCredit, the data attribute “Probability of default” refers to the one-year probability of default (“the PD”) as established in accordance with the internal ratings-based (IRB) approach for credit risk (section 11.4.1, Part II of the AnaCredit reporting manual – hereafter “IRB-PDs”). However, the existing AnaCredit reporting instructions do not explicitly state that PDs which are not approved for the purpose of the IRB approach should not be reported to AnaCredit. Can PD values which have not been authorised by the competent authorities for the purpose of the IRB approach for credit risk (“non-IRB PDs”) be reported under the AnaCredit attribute “Probability of default”?

Answer

Under AnaCredit, the purpose of the attribute “Probability of default” is to collect data on the probability of default (“the PD”) as established in accordance with Regulation (EU) No 575/2013 (“the CRR”) of counterparties reported to AnaCredit which are debtors or protection providers (insofar as they are also the issuers of the protection). Specifically, it is the counterparty’s probability of default over one year, determined in accordance with Articles 160, 163, 179 and 180 of the CRR in accordance with the CRR’s internal ratings-based (IRB) approach for credit risk.

For that reason, the attribute “Probability of default” is addressed only to reporting agents that apply the IRB approach for credit risk and only in relation to debtors or protection providers for which PDs have been approved for the purpose of the IRB approach for credit risk.

Consequently, reporting agents that apply the IRB approach for credit risk must report the attribute “Probability of default”. Reporting agents which apply the standardised approach for credit risk should not report this attribute to AnaCredit.

Reporting agents that apply the IRB approach for credit risk to a part of their credit risk exposure and the standardised approach to their remaining credit risk exposures are required to report the attribute only in relation to debtors and protection providers for which they have IRB-PDs. Otherwise, the attribute “Probability of default” is not applicable.

This means that in relation to debtors or protection providers for which there is no IRB-PD, no value is reported under the attribute “Probability of default”, i.e. the attribute “Probability of default” is not applicable and no record in the counterparty risk dataset is reported for the debtor/protection provider. For an illustration, please see Example 77 in Section 11.1.1, Part II of the AnaCredit reporting manual, available here.