On 21 July, 2022 the EBA published four draft principles on how to handle historical data affected by COVID-19. Impact can be direct, through moratoria or guarantees, or indirect when the input parameters of a rating model are affected by COVID-19 support measures such as employment support. As described in our white paper published in 2021, the COVID-19 pandemic affects trends in the historical data used in modelsraising questions about representativeness and requiring action by credit risk modelers. The EBA principles hint that the set of guidelines and principles will be part of the supervisory handbook that will be published by EBA later in 2022 and that these guidelines are of general interest, applicable for all credit risk models, including IFRS9. However, there is an increased attention to how financial institutions account for the potential impact of the COVID-19 crisis and the countering measures on the IRB risk parameters and related measures (PD, LGD, ELBE and CCF).
During recalibration of credit risk models, the following principles should be kept in mind ensuring representativeness of the IRB-relevant data affected by the crisis:
Read the full publication of the EBA here.