Allowance for Loan Lease Losses
Banks are required to reserve an Allowance for Loan and Lease Losses (ALLL) as protection against likely losses given the loans currently in the bank’s portfolio. In doing so, they need an approach that can satisfy regulatory and accounting standards, which are not always in line with one another.
SunGard can help. SunGard’s Ambit Risk Consulting provides approaches to the complicated issue of developing an ALLL reserve.
Features
- Provides a one-year loss cushion solution that leverages on proprietary loss distribution analytics in Ambit Economic Capital software to provide a bank with loss magnitudes at various confidence thresholds. For example, after developing a bottom-up credit loss distribution based on the current portfolio and risk drivers such as PD, LGD, maturity and correlations, the bank will be able to report what the magnitude of a one-in-twenty (95% confidence level) one-year loss might be.
- Provides a multi-year expected loss calculation that is based on current exposures, risk ratings and collateral strength. This approach to calculating ALLL assesses the current portfolio’s expected loss over the remaining life of the portfolio. It also captures the effect of credit degradation by analyzing how loans migrate from one rating to another over time
Benefits
- Allows development of an objective and efficient approach to measure allowance that is consistent with regulatory and accounting standards
