Stress Testing

MIAC Analytics allow you to fully anticipate portfolio performance with our Stress Testing services.

With the EBA and Bank of England constantly conducting EU-wide and UK specific stress tests, it is a topic high on the agenda for financial institutions who are looking to

  • satisfy regulatory requirements for specific scenarios under the EU-wide/UK variant stress tests
  • provide third-party, independent benchmarks for various ICAAP numbers or for internal loss provision (IFRS9) levels
  • portfolio projections or sensitivity analysis to changes in the performance of the economy

With our advanced approach to Stress Testing, we aim to fulfil these requirements through the use of a cash flow-based approach to model residential (including Equity Release) and commercial mortgage loans, consumer finance, and/or structured finance products.

Bespoke for each client

We are focused on producing comprehensive, proven methodologies and models in support of your requirements. Using a transparent and independent approach, we enable organisations to embrace a more rigorous methodology to analysing future loss provision coverage or capital adequacy in a range of possible future economic scenarios.

The typical framework, built into MIAC’s proprietary software suite, has the flexibility to specify macroeconomic scenarios and variables independently or in collaboration with clients. Whilst multiple regulatory driven scenarios have been built-in to the system (including EBA and BoE) our flexible approach allows us to examine the things that matter most to you.

The credit loss forecasting framework is based upon:

  • Detailed asset segmentation
  • Bespoke lifetime PiT probability of default (PD), exposure at default (EAD) and loss given default (LGD) models based on analysis of historical performance data (idiosyncratic factors influencing default):
      • PD, EAD and LGD models can be built from client specific data or our own proprietary database of loans.
      • PD, EAD and LGD models can also be provided by the client if there is a desire to stress previously established parameters.
  • Flexible approach to macroeconomic modelling (systemic factors influencing default); utilising the most fit-for-purpose framework:
      • Credit Cycle prediction inputs to the overall PD (to transform to future point-in-time or through-the-cycle), or;
      • Geographic-specific Macro-Risk-Weightings, reflecting the influence of changing economic conditions on default
  • Prescribed macroeconomic scenarios; we utilise the EBA and BoE adverse and baseline scenarios along with internal and client driven scenarios
  • Evolution of balances, based on asset characteristics and modelled borrower behaviours
  • Projected collateral values along with anticipated liquidation and recovery rates and timing
  • Expected credit loss modelling and loss provision evolution over time
  • Our proprietary cash flow engine, which sits within Vision™, part of our MIAC Analytics™ suite of pricing and quantitative risk management software tools
  • Where required, Financial Statement projections, incorporating output from the modelling and client-based business plans, adapted for modelled macroeconomic scenarios

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