UBI Banca Group

Credit processes within the network banks work with information channelled from the rating system
as described in detail below.
The operational units involved in the loan disbursement and renewal process use internal credit
ratings, which constitute necessary and essential evaluation factors for credit authorisations when
these are assessed and revised. Powers to authorise loans are based on the risk profiles of the
customers or the transactions as given by the credit rating and by the expected loss, while they are
managed using Pratica Elettronica di Fido (electronic credit authorisation) software. The credit
ratings are used, amongst other things, to monitor loans both by the management reporting system
and in the information made available to units in banks involved in the lending process.
The assignment to rating classes that are different from those calculated by the internal rating
system on the basis of the models adopted is made by proposing an override on the rating for which
the methods of presentation, examination and validation are different for cases of:
higher rating override;
lower rating override.
These changes are made on the basis of information not already considered by the rating model, not
adequately weighted by the model or where it is intended to anticipate the future influence of the
information.
In addition to the process for the disbursement, renewal and monitoring of credit and to the
departmental reporting process just described, the processes directly affected by internal ratings or in
which internal estimates of PD and LGD are described below.
The calculation of collective impairment losses on performing loans
The calculation methodologies used for the calculation of collective impairment losses on performing
loans in the network banks and at Centrobanca are different from those used by the main product
companies of the Group.
More specifically a method is employed for loans (and guarantees) to customers in network banks
and at Centrobanca based on internal estimates of PD (probability of default) associated with internal
ratings and estimates of LGD (loss given default). The latter uses operational corrective factors with
respect to the parameters used for regulatory purposes. It should be noted that the percentages of
impairment resulting from the application of the PD and LGD are also used for “irrevocable
commitments of uncertain use” to which the supervisory credit conversion coefficient is also applied.
The approach currently used for those product companies most subject to credit risk is that based on
impairment rates for loans which uses a broader definition of default that includes changes of
classification from performing to impaired and non-performing classes (B@nca 24/7 and UBI Leasing)
and internal estimates of LGD.
As concerns LGD, different internal estimates are used at UBI Leasing for different types of product
and sales channel, while expert values are applied at Banca 24/7, estimated on the bank’s own data
where significant and in other cases values are borrowed from similar products sold by the network
banks. Special “danger rates” need to be applied to render the definitions of default used for
impairment rates and estimates of LGD consistent. For both UBI Leasing and Banca 24/7, these are
estimated on internal data and differentiated by product. Further refinements and updates of
parameters were performed within this methodological framework in 2011. For UBI Leasing they
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