AxiomSL has announced today that it has formed a partnership with AlgoSave, a provider of credit modelling products. As part of the agreement, AlgoSave’s expected credit loss (ECL) model has been integrated into AxiomSL’s solution for International Financial Reporting Standard 9 (IFRS 9).
IFRS 9 is a new accounting standard that has been created to ensure the exposure of financial instruments to risk is better understood and accurately reported. When it comes into force in 2018, IFRS 9 will be leveraged for a wide range of regulatory and internal reporting requirements.
AxiomSL’s solution addresses the challenges of IFRS 9 by aggregating and integrating the disparate data required by the standard, including risk and financial data, and providing rule sets to determine how financial instruments should be classified. Based on the results, the instruments are either measured at fair value or amortized cost. The solution displays the outputs in accordance with the IFRS taxonomy and can produce both standard IFRS and management information (MI) reports.
The challenges created by IFRS 9 include requirements for financial firms to calculate the ECL for their instruments and maintain capital provisions to mitigate the expected losses. IFRS 9 includes many scenarios under which financial firms will be obliged to calculate the ECL for the lifetime of an instrument. As a result, their provisioning requirements will be significant and firms will be keen to take advantage of any opportunity to reduce them.
As part of the new partnership between the two companies, AxiomSL’s clients have the option of leveraging AlgoSave’s CSF (Calibrated Stochastic Simulations of the Fundamentals of Borrowers) Credit Model to calculate the ECL for their instruments. This model has been fully integrated into AxiomSL’s IFRS 9 solution. Clients can also use any other model that has not been integrated into the solution.
The AlgoSave model has been used for many years to support corporate credit risk analysis, company valuation, and high-yield and distressed-debt investments. It delivers auditable, simulation-based, point-in-time (PIT) IFRS 9 ECL calculations, using up to 100,000 scenarios per borrower. AlgoSave’s unique PIT default correlation matrix enables clients to calculate the ECL on a portfolio basis, helping entities to reduce their overall provisioning requirements. It also empowers them with much-needed PIT insights into their risk-adjusted return on capital (RAROC) and risk capital assessments.
“Building and maintaining the PIT ECL model required for IFRS 9 promises to be a challenging exercise for many firms, so we are pleased to offer our clients the option of leveraging the model that has already been developed by our new partner, AlgoSave. This project with AlgoSave demonstrates our model integration capabilities,” said Olivier Kamoun, CEO APAC, AxiomSL. “IFRS 9 is one of a number of new requirements, including BCBS 239, which call for greater integration between risk and finance. We are empowering clients to overcome this challenge by providing a platform that can aggregate and normalize data from different systems and ensure it conforms to the same standards.”
“Based on 40 years’ experience in banking, high-yield and distressed-debt investment, AlgoSave’s CSF Credit Model provides IFRS 9 PIT ECL calculations together with multi-period PIT probability of default and PIT loss-given default. AlgoSave also offers unique, multi-period PIT default and asset value correlation matrices, which empower financial institutions with much-needed insights into their RAROC and risk capital assessments,” said Mikhael Botbol, founder of AlgoSave. “We are delighted to announce our strategic partnership with AxiomSL, which provides a robust and effective environment to deliver AlgoSave’s IP and know-how to AxiomSL’s current and future clients.”