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

SAP Term: IRB

• Component: FS-BA-PM-CR

• Component Name: Credit Risk

• Description: Internal rating-based approach

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• Key Concepts: 
  IRB stands for Internal Rating Based approach. It is a credit risk management tool used in the FS-BA-PM-CR Credit Risk Management component of SAP. It is used to assess the creditworthiness of a customer or counterparty by assigning them a risk rating based on internal criteria. This rating is then used to determine the amount of capital that must be set aside to cover potential losses.
  
  How to use it: 
  The IRB approach requires the user to define their own internal criteria for assessing credit risk. This includes setting up a rating system, defining the criteria for each rating, and setting up a process for regularly reviewing and updating ratings. Once these criteria have been established, the user can then use the IRB approach to assign risk ratings to customers or counterparties.
  
  Tips & Tricks: 
  When setting up an IRB approach, it is important to ensure that the criteria used are appropriate and relevant to the customer or counterparty being assessed. It is also important to ensure that the ratings are regularly reviewed and updated as needed.
  
  Related Information: 
  The IRB approach is part of the Basel II Accord, which sets out international standards for banking regulation and supervision. The Basel II Accord also includes other approaches such as Standardized Approach and Foundation Internal Ratings Based Approach (FIRB).