Service overview

Capital adequacy

BSC’s technologies can help customers estimate capital requirements. The advent of structural risk analysis (for loan, market and strategy risks) has made highly accurate capital estimates for retail banks possible.

The RRAS system was released in 2014. This analytic tool can compute every aspect of a credit portfolio from statistic data and provide banks with good estimates of economic capital requirements – whether for an entire portfolio or a segment.

RRAS provides a guide for theoretical assessment of valid component of the economic capital, which is connected with loan, market and strategy risks.

It can process hundreds of thousands of scenarios and uses forecasting to range probable behaviors of a portfolio. Maturation curves, vintage quality, seasonal factors for the portfolio are all fed in along with numerous other types of other factors.

A valid assessment of economic capital is important because a corporation needs this information about credit portfolios to understand critical growth level, investment and what needs to be done to avoid extreme risks.

  • Using of correct methodology tested on real data is an essential component of the economic capital valuation.
  • Managers need to know whether their marketing strategies for a segment or a portfolio fit current capital size.

Wrong or unrealistic capital estimates can cost a company millions of dollars when emergencies strikes or funding runs short.

RRAS can also automate risk-based pricing calculations, appraise business plans’ resistance to shocks and help adapt credit portfolios to capital limitations.



The author presents the methods for studying credit portfolio behavior in the Modeling and Stress-Testing Credit Portfolio Behavior are partly based on so-called “dual time dynamics” method. This work suggests using dual time dynamics not for decomposing scalar values but for decomposing matrices. The author considers a credit portfolio as a process described by a first-order heterogeneous Markov chain. Starting from this premise, the author uses vintage analysis and the theorem of strong convergence of modified fixed-point algorithms to arrive at transition matrix decomposition. This method makes highly accurate forecasts of credit portfolios possible. Reserves can be estimated with excellent precision and relevant values for stress-testing obtained.

In his later article The Theory and practice of Retail Credit the author considers some successful practical applications of his methods described in the article “Credit portfolios behavior modelling and stress-test”.