Loan banks pool default data

SG CIB, Fortis Bank, Bank of Scotland, Calyon and WestLB have linked up with S&P to pool default and recovery data on highly leveraged European loans. The data pooling system will widen the data the banks have access to and enable them to benchmark their internal default and recovery ratings for capital efficiency and for Basle II purposes.

The initiative follows S&P’s global project finance default and recovery consortium, in which 30 banks are now participating. Lower than expected credit losses from project finance loans, as evidenced by empirical data collected, was presented to the Basle modelling task force and proved instrumental in lowering risk weightings for the sub asset class.

The objective of the new consortium is to quantify the historical risk performance of leveraged finance loans over the last five years on an absolute basis and relative to other sub asset classes, like corporate loans.

Output will facilitate more refined risk and profitability analysis, aiding pricing and capital allocation, as well as discussions with regulators. Participating banks will receive a report on their own loss experience compared to that of the overall pool, with appropriate sector, capital structure and geographical breakdown included. S&P recently launched a European Leveraged Loan Index, the first non bank loan index for this sector.