Rating model (internal credit rating)

Roles that need it

• Credit Risk Model Developer
• Credit Risk Analyst
• Corporate Credit Analyst
• Model Validation Analyst
• Data Scientist (Banking)

Skills it belongs to

• Credit risk models (IFRS 9, IRB)
• Applied statistical modelling for pricing and risk (GLM, survival)
• Credit analysis and creditworthiness

Related concepts

• Probability of default (PD)Probability of default is the likelihood that a borrower defaults over a given horizon, usually one year. Capital models use a long-run average (through-the-cycle) PD per rating grade, while IFRS 9 uses point-in-time 12-month and lifetime PDs that react to the economic outlook.
• Discriminatory power (Gini, AUC)Discriminatory power measures how well a rating model or scorecard ranks borrowers who later default above those who do not. Common statistics are the area under the ROC curve (AUC) and the Gini coefficient, or accuracy ratio, equal to 2 x AUC minus 1.
• Model validationModel validation is the independent review that checks whether a model is conceptually sound, built on suitable data, correctly implemented and performing as intended for its use. It is done before first use and periodically after, and its findings feed model approval and the model risk framework.
• IRB approach (internal ratings-based)The internal ratings-based approach lets a bank use its own approved models for probability of default and, in the advanced version, loss given default and exposure at default to set credit risk weights. CRR3 restricts its use for some portfolios and adds input floors.

Sources

• Guidelines on PD estimation, LGD estimation and treatment of defaulted assets, EBA (external site) accessed 31 Oct 2026
• Basel Framework CRE36 IRB approach: minimum requirements, BIS (external site) accessed 31 Oct 2026

Updated 31 Oct 2026.