The Basel II implementation in ICBC

The Basel II implementation in ICBC1

1.The preparation work to implement Basel II(1)set up the Enterprise-wide risk managementsystem 。 It is represented on the four aspects ofrisk policy and system building, risk measurement,information system, data consolidation.2

(2)set up the risk measurementsystem covering all kinds ofcustomers and realized thescientific measurement on creditrisk, market risk, liquidity risk andoperational risk.4

Establish the IRB methodology and system.Referring to has developed a series of ratingmodels covering corporate business, interbankbusiness, retail business and sovereignexposures. The data indicates that thecorporate rating model has the goodperformance with AR 0.55 which has enteredinto the international standard (0.5-0.7).5

(3)Build up the IT system for IRB project.ICBC has developed the obligor ratingsystem which is embedded with the ratingmethodology and rating models and realizedthe whole process IT management fromobligor rating, credit line approval to postdisbursementmanagement. ICBC alsodeveloped the financial report checkingsystem, the collateral appraisal managementIT systems to supply the data basis for facilityrating and the industrial analysis system tosupply the technology support for regionaland industrial risk rating and portfolioanalysis.6

(4) Build up the IRB data foundation.In 2002, ICBC conducted data consolidation project whichenables centralized and real-time processing of credit riskmanagement and to further enhance customer rating, creditlimit, 12-grade loan classification, middle and long-termfacility rating functions.In 2003, ICBC developed the CIIS, PCM2003 systems whichimproved the credit risk management efficiency andaccumulated the data for credit risk quantification. Until nowICBC has accumulated six-year loan information covering allkinds of customers including the basic information, financialinformation, trading and rating information, which satisfiedthe 5-year data accumulation requirements of the F-IRB.8

(5)Set up the policy basis of the IRBimplementation and train the internal ratingstaff.9

2.The main developments and advances ofBasel II project.ICBC Risk Management Projects ListProject NameTimeICBC EWRM Project 2004ICBC Capital Management Project 2005ICBC Interest Rate Risk Management Project 2005ICBC Non-retail Credit Risk IRB Project 2005-2006ICBC Market Risk Management Project 2006ICBC Internal Audit Project 2006ICBC Retail Credit Risk IRB Project 200710

3、The problems and the challengeThe existing problemsA. The loss data cannot meet the 7-year datarequirement.B. The obligor rating and facility rating modelsneed to be validated and calibrated.C. Need to develop the retail-business approvaland performance monitoring risk quantificationmodels.D. Need to enhance the application of IRB resultson portfolio management.11

4、The work plan of next stepA. Expedite the application of the IRBresults on the whole process of riskmanagement.B. Advance the retail IRB project toimprove ICBC retail risk management.C. Expedite the data warehouseestablishment and improve the facilityrating system to lay the foundation for A-IRB.D. Enhance the establishment of riskculture.12