UBI Banca Group

involved an update of the historical data series and for Banca 24/7 a specific development of the
management of the salary backed loans portfolio.
The calculation of risk adjusted pricing levels
Expected loss is one of the inputs for the calculation model for theoretical minimum pricing levels
which guarantee achievement of a return on risk adjusted capital (RORAC). According to the risk
adjusted pricing policy pursued, theoretical minimum pricing matrices are defined by market and
segment, product and type of guarantee, rating and maturity.
Creation of value, capital allocation and incentive schemes
As part of its capital management processes, the UBI Group applies multi-period methodologies to
assess risk adjusted performance that are designed to measure and summarise the effects of
economic, asset, risk and capital variables that impact the creation of wealth for shareholders. With
regard to the incentive scheme, one of the quantitative objectives of the scheme is the cost of credit
on loans, which incorporates the collective impairment loss component, calculated using
measurements of PD and LGD.
Stress tests
Stress tests for credit risk are performed in relation to the ICAAP Report, as support in the
preparation of business plans and in response to specific requests by the Bank of Italy. More
specifically, stress tests are performed on those exposure classes that can present greater variability
in the ratio between risk weighted assets (RWA) and the corresponding amount of the exposure.
The scenarios analysed involve an increase in the average ratio between the amount of the exposure
and RWAs of differing dimensions, estimating the impact on capital ratios.
The Group intends within the framework of the Basel 2 project to apply for authorisation from the
supervisory body to use its own internal rating and LGD ratings for the purpose of determining
minimum supervisory requirements firstly for the “corporate” and then subsequently for “retail
exposure” supervisory portfolios. The Group pursues the objective of maintaining a level of
capitalisation that is adequate for the actual risk of its lending portfolio and therefore of using the
rating and LGD calculation systems which are already used for operating purposes also for
supervisory purposes.
As recommended by the Bank of Italy circular No. 263/2006, New Supervisory Instructions for
Banks, the Group currently adopts the standardised approach for the determination of supervisory
capital. It was decided to make use, for the “businesses and other” supervisory class of exposures in
particular, of external credit ratings, where available, furnished by the agencies Moody’s and Cerved
Group (formerly Lince), which are ECAIs (External Credit Assessment Institutions) recognised by the
Bank of Italy.
Activity also continued in 2011 to revise, update and adopt policies and regulations for credit risk
management.
Existing policies are listed below together with the principal contents.
377