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Tuesday 23 October 2018

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CYBG gets regulatory approval for risk modelling

Written by Hannah McGrath

Challenger bank CYBG has announced it has been given the green light from the Prudential Regulatory Authority to use its own risk modelling to establish the levels of capital it should hold.

The regulator has granted the bank internal ratings-based (IRB) accreditation, meaning that it could opt to hold less capital as a result of new risk modelling requirements.

CYBG holding company, formed in 2016, owns Clysdale and Yorkshire banking brands and is currently in the process of merging with Virgin Money as part of a £1.7 billion deal that is set to create Britain’s sixth largest bank.

The bank said the PRA accreditation will enable a significant reduction in risk-weighted assets on its books.

Under the new approach, CYBG's risk-weighted assets would have been £4.5 billion lower for mortgages and £800 million lower for small business lending, CYB said.

IRB accreditation will also enable the bank to target segments of the lending market where previously it was difficult to compete effectively due to a disparity in capital requirements.

Banks use risk modelling to determine stress testing on their assets, with the bulk of UK banks required to use an established set of guidelines unless the regulator grants them permission to use their own models.

Traditionally the preserve of the incumbent banks, CYBG’s IRB accreditation indicates that smaller challenger banks may soon be in a position to adopt the model, which can attract cheaper funding.

David Duffy, chief executive of CYBG PLC, said: “I am delighted the PRA has approved CYBG’s applications for IRB accreditation across our Mortgage and SME/Corporate portfolios in what is an incredibly important milestone for the Group.

“It reinforces our capital efficiency as we cement our position as a true national banking competitor with a full-service offering to millions of retail and SME customers across the country.”



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