Forecasting Market Fundamentals to Estimate Expected Loss for Canadian Commercial Real Estate Portfolios
This webinar discusses the impact of new IFRS 9 regulations on Canadian CRE portfolios, creating an effective framework for CRE credit risk analysis, and integrating market factors forecasts for property performance into risk models.
Canadian institutions are faced with increasing requirements with the IFRS9 guidelines and additional pressure to analyze and manage their commercial real estate (CRE) portfolios.
Credit and risk professionals can benefit from better understanding their CRE exposure by incorporating forecasted market factors, including rent, vacancy, and cap rates for all property types across all different census metropolitan areas (CMAs) and provinces.
Analytical tools make it easy to develop predictive metrics and reports, and to calculate estimates for one year and lifetime expected loss for CRE mortgage portfolios. However, conducting a robust assessment on CRE credit risk still poses as a significant challenge for many institutions due to data limitations and constraints on internal resources.
Join Moody's Analytics and PRMIA for this recorded webinar to learn more about:
• The impact of new IFRS 9 regulations on CRE portfolios
• Creating an effective framework for CRE credit risk analysis
• Integrating market factors forecasts for property performance into risk models
Related Articles
Managing the Shock to Commercial Real Estate: A Practical Approach to Quantify Loan Performance
Join us for an in-depth analysis of CRE loan performance and credit risks under Moody’s latest economic and real estate scenarios.
Rethinking Commercial Real Estate Credit Risk
Commercial real estate (CRE) loans are seeing strong loan growth, combined with easing underwriting, resulting in increased credit risk. CRE mortgages often make up a significant part of a bank’s loan portfolio. In this webinar, we explore the keys to effective credit risk management for CRE.
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2017 Comprehensive Capital Analysis and Review (CCAR) Scenarios
For the 2017 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in stress testing 34 CCAR financial institutions. In this study, we analyze 27 institutions, with a total of more than $760 billion in exposures to commercial real estate loans, using Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. This is our first study leveraging the loan-level commercial banks' data collected via Moody's Analytics CRE Credit Research Database (CRD™). Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the first quarter of 2019 is 6.5% under the CCAR 2017 Severely Adverse Scenario. The primary factors behind the higher loss estimate compared to last year's stressed scenario (5.1% loss) is that this year's scenario features a slightly more severe economic downturn and a significantly larger decline in commercial real estate prices.
Forecasting Market Fundamentals to Estimate Expected Loss for Canadian Commercial Real Estate Portfolios Slides
This webinar discusses the impact of new IFRS 9 regulations on Canadian CRE portfolios, creating an effective framework for CRE credit risk analysis, and integrating market factors forecasts for property performance into risk models.
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2016 Comprehensive Capital Analysis and Review (CCAR) Scenarios
For the 2016 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in the stress testing of 33 CCAR financial institutions. In this study, we analyze 26 of these financial institutions, with a total of more than $695 billion in exposure to commercial real estate loans, using Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the first quarter of 2018 is 5.1% under the CCAR 2016 Severely Adverse Scenario. The primary factor behind the lower loss estimate compared to last year's stressed scenario is that CRE market conditions continued to improve during the past five quarters. From Q3 2014–Q4 2015, the commercial real estate price index increased by 11.6%, which substantially lowered average LTV and improved DSCR for the typical CRE loan portfolio.
Modeling Canadian Commercial Real Estate Loan Credit Risk: An Overview
Commercial real estate (CRE) exposures represent a large market share of credit portfolios for many Canadian banks, credit unions, insurance companies, and asset managers. While this segment escaped the most recent financial crisis relatively safely, Canadian CRE loan portfolios may be facing heightened credit risks given the current changing market conditions, which include sliding oil prices and reduced demand for natural resources and possible interest rate hikes. Given this environment, is critical to use an objective credit risk measurement solution that quantifies CRE loan risks consistently and objectively in order to help assess, stress test, and manage loan portfolios. This paper presents Moody's Analytics Commercial Mortgage Metrics (CMM™) framework, tailored for Canadian CRE loan credit risk, forming the core of our Commercial Mortgage Metrics: Canada (CMM Canada™) product. Based on the well-established CMM U.S. model, our enhanced framework incorporates new factors that capture unique Canada CRE market dynamics and lending practices. We describe our modeling approaches for default probability, loss given default (LGD), Expected Loss (EL), and other related risk measures.
Effective Risk Management in CRE Lending Webinar Presentation Slides
This webinar discusses the importance of effective credit risk management for commercial real estate lending.
Effective Risk Management in CRE Lending
Commercial real estate (CRE) mortgages can often make up a significant part of the loan portfolio. To gain competitive advantage in the marketplace, lending officer's must acquire an in-depth understanding of their borrowers' CRE portfolios.
Estimating Commercial Real Estate (CRE) Stressed Loss Measures Under Federal Reserve 2015 Comprehensive Capital Analysis and Review (CCAR) Scenarios
The Comprehensive Capital Analysis and Review (CCAR) program is an annual capital adequacy exercise conducted under the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act rules. For the 2015 CCAR program, the Federal Reserve published three macroeconomic and financial scenarios to be used in the stress tests of 31 CCAR financial institutions. In this study, we analyze 22 of these financial institutions, with a total of more than $558 billion in exposures to commercial real estate loans, under the Moody's CMM Stress Testing framework. This report describes how we derive credit loss estimates for the CRE loan portfolios held by CCAR firms. Our analysis estimates that the expected nine-quarter, cumulative CRE portfolio loss through the end of 2016 is 5.6% under the CCAR 2015 Severely Adverse Scenario. The primary factor behind the slightly higher loss estimate compared to last year's stressed scenario is that the proportion of construction loans in banks' CRE portfolios has started to increase.
CRE Credit Risk Solutions and Best Practices Webinar Slides
Moody's Analytics CRE credit risk experts, Christian Henkel and Sumit Grover, discuss the topics including an overview of CRE credit risk management challenges, data management and credit risk solutions that address the needs of CRE risk managers, and CRE stress testing model and approach.
