New definition of client default

Project objective

Implementation of the requirement of the Czech banking market  regulator - CNB (Czech National Bank) and the European regulator EBA  (European Banking Authority) for a new definition of customer default in the  relevant company systems.

MONETA Money Bank, a. s.

MONETA Money Bank, a. s. is one of the leading banks on the  Czech banking market and a pioneer in the digitalization of financial  products. It has a strong position on the market of credit products for Czech  households, and a growing position in the area of loans for tradesmen, small  and medium-sized enterprises. It offers its clients cutting-edge digital  services/solutions, while providing them with the convenience and facilities  of branches in the regions where they live.

months per project
experienced experts

This initiative by the European Banking Authority, subsequently  adopted by local national regulators, is an effort to unify the view of the  problem of default across all financial institutions operating in the EU.

This new definition introduces

"limits" for the new calculation of "days past due" (DPD):

  • absolute EUR 100 (retail) and EUR 500 (non-retail) in the sum of  all overdue receivables of the client
  • relative 1% vs. the ratio of the sum of all client claims to the  client's total exposure

"probation" periods:

  • where the client, although no longer fulfilling any of the  default conditions, is still in default for a period of time
  • where the client is forced to remain in a state of  "default" for a minimum of one year from the debt restructuring or  from the last default after the debt restructuring

Expected consequences of the change in the definition of  "client default”

The implementation of the requirement to introduce a relative  barrier of 1% of the total claims of the economically connected client group  has led to a major refactoring of the categorisation tool within the  company's data warehouse (EDWH).

   The second major impact was the need to recalculate a significant part of  the default history on selected portfolios taking into account the newly  required rules, which was a very data-intensive task.

   Finally, based on these newly calculated historical defaults, it was  necessary to reassess the changes in PD, LGD and CR values and their impact  on the calculation of provisions under IFRS 9

Preparatory phase of the project

The first step towards a full understanding of the impact on the  bank's systemic environment was a thorough gap analysis of the current status  of the client default calculation against the required EBA regulatory  standard.

   Although the impact on the Bank's processes and subsequently systems was  the primary task of the project, it was similarly necessary to adequately  assess the impact of the new definition at the level of internal procedures  and policies.

A big challenge for me was to "dig through" the CNB  and EBA documents, which eventually led to a change in the original  assignment we received from Risk Management. At times you felt like a  "lawyer" when every word, conjunction, comma, etc. matters:) But it  was a great learning experience and an opportunity to broaden my professional  horizons outside of IT.

Jiří Krčmář

Lead Analyst

Implementation phase in a nutshell

The whole implementation consisted of 5 basic steps:


Reprogramming existing logic in the EDWH to reflect the revised  definition of the default.


Estimates of the impact of the new version of the default on the  calculation of RVA, EL and NPE.


Calculation of historical default values.


Switching from the old version of the algorithm to the new one.


Parallel running of the old and new versions of the default  calculations in EDWH.

Project team and management methods:

The project core team consisted of 8 experts, representatives of  the RISK and IT departments. The whole implementation lasted about 8 months,  the pilot (parallel) calculation according to the new rules then ran for  another 8 months.

   In terms of project management methodology, it was an agile approach or a  combination of agile & waterfall. The waterfall aspect was reflected in  the fact that the entire functionality had to be deployed into production as  a single unit, completely replacing the existing categorisation calculation.  The agile approach was adopted in the analysis and development of new rules,  their testing and the gradual calculation of their historical progress.

A few numbers in conclusion:

days of non-stop calculations
min. on average for SQL query processing
test scenarios
GB of data

Jiří Krčmář from epptec worked as a Senior Analyst in my last project - Implementation of a new definition of client default. He demonstrated excellent communication skills in his work, easily bridging the communication gap between business and IT and preparing a full specification of the required changes. Jiří also prepared a full range of user access tests for the team and negotiated the necessary changes with the IT department. With his structured thinking and always professional approach, he moved the project forward and contributed significantly to the successful and timely completion

Petr Novák

Model Governance Leader, MONETA Money Bank

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Lead consultant & co-founder
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