Advanced Internal Rating-Based (AIRB)

Advanced Internal Rating-Based (AIRB) is a credit risk assessment methodology used by banks to determine the riskiness of a loan. It is an internal rating system that is based on the bank's own credit risk models. AIRB is more sophisticated than the Standardized Approach to Credit Risk (SAC) because it takes into account more factors when assessing a loan's risk.

The AIRB methodology uses a number of factors to assess a loan's risk, including:

* The borrower's credit score
* The borrower's debt-to-income ratio
* The borrower's employment history
* The borrower's property value
* The borrower's loan-to-value ratio

The AIRB methodology also takes into account the type of loan being made. For example, a mortgage loan is considered to be riskier than a car loan.

Once the bank has assessed the risk of a loan, it will assign the loan a risk rating. The risk rating is used to determine the interest rate that the borrower will pay on the loan. The higher the risk rating, the higher the interest rate.

The AIRB methodology is more accurate than the SAC methodology because it takes into account more factors when assessing a loan's risk. This makes it a more effective tool for managing credit risk.

However, the AIRB methodology is also more complex than the SAC methodology. This can make it more difficult for banks to implement and use.

Overall, the AIRB methodology is a more sophisticated and accurate credit risk assessment methodology than the SAC methodology. However, it is also more complex and difficult to implement.