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Case Studies

Identifying underlying risks

Client profile:

Our client, a publicly listed midsized Private bank, has a large Home and Loans against property (LAP) portfolio.

Business need:

The portfolio’s credit performance is excellent; however, the mix was changing as larger ticket LAP Loans were being initiated since the yields on these loans are higher vs. those of traditional Home Loans. Accordingly, the client was concerned about any systemic risk that may be building up in this portfolio despite the very satisfactorily portfolio performance.
 

Analysis:

A detailed assessment was undertaken of the total portfolio dynamics, as well as of the LAP portfolio. The profitability / pricing vs. NPA interplay was also analyzed in detail. Customer/property assessment was done and the early trend on stress was analyzed while assessing the efficacy of the warning systems. The analysis also included modeling to assess the impact of negative amortization and reduction in property prices.

Our solution:

Enabled the client to do a market benchmarking of their loan origination vs. key competitors. It also included an assessment and detailing of systematic risk in the portfolios (Home/ LAP) and specific recommendations to mitigate these risks. The solution also included an analytical model to monitor the systematic risk on an ongoing basis.