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The Basel II implementation in ICBC

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(1)set up the Enterprise-wide risk management system 。 It is represented on the four aspects of risk policy and system building, risk measurement, information system, data consolidation.

1.The preparation work to implement Basel II

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(2)set up the risk measurement system covering all kinds of customers and realized the scientific measurement on credit risk, market risk, liquidity risk and operational risk.

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Establish the IRB methodology and system. Referring to has developed a series of rating models covering corporate business, inter-bank business, retail business and sovereign exposures. The data indicates that the corporate rating model has the good performance with AR 0.55 which has entered into the international standard (0.5-0.7).

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(3)Build up the IT system for IRB project. ICBC has developed the obligor rating system which is embedded with the rating methodology and rating models and realized the whole process IT management from obligor rating, credit line approval to post-disbursement management. ICBC also developed the financial report checking system, the collateral appraisal management IT systems to supply the data basis for facility rating and the industrial analysis system to supply the technology support for regional and industrial risk rating and portfolio analysis.

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(4) Build up the IRB data foundation.

In 2002, ICBC conducted data consolidation project which enables centralized and real-time processing of credit risk management and to further enhance customer rating, credit limit, 12-grade loan classification, middle and long-term facility rating functions.

In 2003, ICBC developed the CIIS, PCM2003 systems which improved the credit risk management efficiency and accumulated the data for credit risk quantification. Until now ICBC has accumulated six-year loan information covering all kinds of customers including the basic information, financial information, trading and rating information, which satisfied the 5-year data accumulation requirements of the F-IRB.

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(5)Set up the policy basis of the IRB implementation and train the internal rating staff.

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2.The main developments and advances of Basel II project.

Project Name Time

ICBC EWRM Project 2004

ICBC Capital Management Project 2005

ICBC Interest Rate Risk Management Project 2005

ICBC Non-retail Credit Risk IRB Project 2005-2006

ICBC Market Risk Management Project 2006

ICBC Internal Audit Project 2006

ICBC Retail Credit Risk IRB Project 2007

ICBC Risk Management Projects List

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3、The problems and the challenge

The existing problemsA. The loss data cannot meet the 7-year data requirement. B. The obligor rating and facility rating models need to be validated and calibrated.C. Need to develop the retail-business approval and performance monitoring risk quantification models.D. Need to enhance the application of IRB results on portfolio management.

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4、The work plan of next step

A. Expedite the application of the IRB results on the whole process of risk management. B. Advance the retail IRB project to improve ICBC retail risk management. C. Expedite the data warehouse establishment and improve the facility rating system to lay the foundation for A-IRB. D. Enhance the establishment of risk culture.