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Finance companies should benchmark economic data published by SAMA and Other Governmental Agencies on an annual basis as part of their economic modelling process. Economic scenarios should be compared with macroeconomic drivers that are relevant to finance company portfolio. Macroeconomic factors may include the following:
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GDP and GDP forecast
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Brent oil prices (actual and forecast)
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Expectations of government spending
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Credit growth and availability
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Employment indicator (for finance companies active in retail lending)
A finance company should use at-least two macroeconomic factors in determining expected credit losses based on their relevance.
Finance companies should annually assess whether their approach for macroeconomic factors (based on single model or multiple models) continues to be appropriate in the light of changes in business circumstances i.e. growth in balance sheet, new and complicated products.
Forward looking macro-economic scenarios:
A moderate stress testing scenario as required under IFRS 9 should be used for upside and downside assumptions i.e. Upside and downside scenarios may each be given maximum 30% weight while the base case scenario may ideally be given 40% weightage. This may be subject to change depending on economic cycles in future.
