CCF for Performance Guarantees and Claims – evidence from ICC and GCD

Document

Author: 
Krishnan Ramadurai (ICC Trade Register), Philip Winckle (GCD), Michael Dhaenens (GCD)
Topics: 
Regulatory matters
CCF/EaD modelling for regulatory capital
Specific portfolios in credit risk modelling
Project Finance
Trade and Commodity Finance
Description: 

ICC members active in trade finance have collected large scale data on the claim and drawing rates of Performance Guarantees (i.e. Bid, Advance Payment, Performance and Retention) and financial guarantees, showing very low drawing and pay out rates, due to the nature of  these products which only pay out when there are failures in the underlying contract/agreement 

GCD members have collected similar data on the drawing rates of performance bonds and guarantees after the obligor has gone into default. This data shows higher but similar drawing rates, reflecting that even after a company defaults, most commercial guarantees do not need to be claimed as either the underlying contractual obligations have been carried out to the satisfaction of both parties to the commercial contract or the business ceases and both parties have come to a mutual agreement without a claim under the guarantee being enforced.

These data together support an average Credit Conversion Factor (CCF) of less than 10% which in turn supports the maintenance of a 20% downturn EAD when calculating Risk Weighted Assets for capital purposes.

You can donwload it on ICC Website here

File Type: 
GCD publications
Publication Year: 
2019
Groups audience: 
- Private group -
Workflow status: 
Final
Group content visibility: 
Public - accessible to all site users