— This paper presents banks' fulfillment of preconditions for application on advanced internal rating based approach (AIRB). We investigated the level of qualitative and quantitative preconditions matched by Croatian banks in order to reveal readiness of Croatian banks for AIRB application. Results of the test on assumed value of proportion show that the majority of Croatian banks don't fulfill qualitative and quantitative preconditions for AIRB. Furthermore, according to the document of Public disclosures on solvency requirements that banks are obliged to disclose on their web sites, all Croatian banks are applying standardized approach for credit risk estimation. The main goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. That is why banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits. Since exposure to credit risk continues to be the leading source of problems in all banks, the effective credit risk management is a crucial component of a comprehensive approach to risk management and essential for long-term success of all credit institutions. Nevertheless, more sophisticated methods of credit risk estimation are needed in order to adjust the level of regulatory capital with the risk profile of banks which leads to strengthening of financial system on local as well as on global level. Our paper thus provides analysis of preconditions fulfilled by Croatian banks.
— AIRB, credit risk, qualitative preconditions, quantitative preconditions.
V. Vašiček and S. Broz Tominac are with the Faculty of Business and Economics Zagreb Croatia, Department of Accounting (e-mail: firstname.lastname@example.org, email@example.com).
B. Ţmuk is with the Faculty of Business and Economics Zagreb Croatia, Department of Statistics (e-mail: firstname.lastname@example.org).
Cite: V. Vašiček, S. Broz Tominac, and B. Ţmuk, " Are Croatian Banks Ready for Pass on AIRB Approach?," Journal of Economics, Business and Management vol. 1, no. 1, pp. 81-84, 2013.