What is foundation IRB approach in SAP FS-BA-PM-CR - Credit Risk?

SAP Term: foundation IRB approach

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: One of the approaches described in the Basel II Accord. In this approach, banks may use their own methods to estimate the rating and probability of default PD of businesses and partners.

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• Key Concepts: 
  The foundation Internal Rating Based (IRB) approach is a credit risk management tool used in the Financial Services (FS) Banking and Asset Management (BA) Portfolio Management (PM) Credit Risk Management (CR) component of SAP. It is a risk-based approach to credit risk management that uses internal ratings to determine the probability of default for a given loan or portfolio of loans. 
  
  How to use it: 
  The foundation IRB approach is used to assess the credit risk of a loan or portfolio of loans. It uses internal ratings to determine the probability of default for each loan or portfolio. The ratings are based on factors such as the borrower's credit history, financial stability, and other relevant information. The ratings are then used to calculate the expected loss for each loan or portfolio. 
  
  Tips & Tricks: 
  When using the foundation IRB approach, it is important to ensure that the internal ratings are accurate and up-to-date. This will help ensure that the expected losses are calculated accurately and that the credit risk is properly managed. 
  
  Related Information: 
  The foundation IRB approach is part of the Financial Services Banking and Asset Management Portfolio Management Credit Risk Management component of SAP. Other components in this area include Credit Risk Analysis, Credit Risk Monitoring, and Credit Risk Reporting.