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XETRA: SNT Reuters: SNTS.VI Bloomberg: SNT AV US-OTC: STSQY Risk Management in the Financial Services Industry 24 February 2004 Dan LISTEŞ,

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Presentation on theme: "XETRA: SNT Reuters: SNTS.VI Bloomberg: SNT AV US-OTC: STSQY Risk Management in the Financial Services Industry 24 February 2004 Dan LISTEŞ,"— Presentation transcript:

1 XETRA: SNT Reuters: SNTS.VI Bloomberg: SNT AV US-OTC: STSQY Risk Management in the Financial Services Industry 24 February 2004 Dan LISTEŞ, Business Development Manager, S&T Romania

2 IT in Emerging Europe What Meridien Research says: “Whether planners and users of risk management systems realize it or not DATA is the single most important component of risk management. Planning and implementing a comprehensive data architecture to support risk is the only reliable way to ensure risk calculations are accurate, comprehensive, and available, to business decision makers …”

3 IT in Emerging Europe Basel II - 3 Pillars Banks MUST produce risk measures for Capital Adequacy Calculation: possible with standardized and internal measurement approach They WANT to do this as accurately as possible to preserve profitability: possible with internal measurement approach Minimum Capital Requirements Meaningful differentiation of risk types Completeness and integrity of rating assessment Oversight of the rating system and processes Criteria of rating system Estimation of PD Data collection & IT systems Use of internal rating systems Internal validation Disclosure Supervisory Review Strong emphasis on risk reporting and disclosure of measures and techniques Market Discipline Data Model Mapping Data Management Standard Analytics Business Rules Advanced Analytics Disclosure Standard Reports Intelligence

4 IT in Emerging Europe Basel II Minimum Capital Requirements MarketDiscipline Various Reporting Tools Market Risk Credit Risk Operational Risk Standardized Approach Internal Measurement Approach Standardized Approach Basic Indicator Approach Foundation Approach Advanced Approach Internal Ratings Based Approach Standardized Approach Internal Measurement Approach SupervisoryReview Risk Warehouse

5 IT in Emerging Europe SAS Risk Management For Banking SAS Regulatory Reporting Portal SAS Fraud Detection Solution SAS Individual Credit Risk Solution SAS Market Risk Solution SAS It Management Solution SAS Human Capital Solution SAS Money Laundering Solution SAS Financial Management Solution SAS Fraud Detection Solution SAS Portfolio Credit Risk Solution SAS Risk Warehouse SAS Risk Performance Measurement Solution Market Risk Operational Risk Credit Risk Standardized Approach Internal Measurement Approach Standardized Approach Basic Indicator Approach Foundation Approach Advanced Approach InternalRatingsBased Standardized Approach Advanced Measurement Approaches SupervisoryReviewMarketDiscipline Basel II and More…

6 IT in Emerging Europe The Big Basel II Issue(s) for Banks Effectively integrating different risk types Ensuring data integrity & timeliness of figures Guaranteeing accurate calculation of risk measures Interpreting analytics for regulatory reporting–risk disclosure Implementing better risk management processes Overcoming lack of data integration. Conversion of market risk oriented systems to meet Basel II requirements Compliance with supervisory rules

7 IT in Emerging Europe Basel II - Hot Topic Estimated cost of $2250bn to the world's 30,000 largest banks for Basel II compliance. Basel II should (if implemented correctly) help to increase shareholder value and profitability levels through improved enterprise risk management. Able to demonstrate that their supervisory and internal risk control processes are sufficiently robust and transparent to meet the new standards Responsible for allocating resources and overseeing Basel II program e.g: Tier 1 Bank budgeted approx $50m, Tier 2/3 Banks $10- 30m Must have a risk management strategy

8 IT in Emerging Europe Basel II spending trends 0%100% 2003 2004 2005 2006 2007 2008 ApplicationInfrastructure 50% The near term spend will be infrastructure based as banks seek to develop core IT infrastructure to support data management requirements Banks will focus on improving risk applications as parallel running nears in 2005 Following implementation, banks will be required to make incremental investments in modelling and analytical applications to satisfy regulatory demands

9 IT in Emerging Europe Rethinking Risk... Value from Basel II ? Source: Crouhy et al. (2001). Risk Management, McGraw-Hill Operational Risk 20% Current Capital Allocation Future Capital Allocation Market Risk 10% Credit Risk 70% Operational Risk 30% Credit Risk 50% Market Risk 20%

10 IT in Emerging Europe Unique Positioning of SAS for Basel II Existing external credit, operational and market risk banking references Proven successes in the delivery of the core quantitative and qualitative components in the Basel II framework Probability of Default via credit scoring Exposure calculation via SAS for Risk Management Risk and regulatory reporting capabilities Compliance with all data delivery aspects in the Minimum Requirements Operational risk framework and supporting solutions Proven data management expertise

11 IT in Emerging Europe SAS Enterprise Risk Management – Value of Data Integration Performance Data Loss DataRisk Data Risk Management Bank Operations/ Platforms Finance INTEGRATED RISK MANAGEMENT


13 IT in Emerging Europe Risk types covered Market Risk Mark to Market and P/L VaR algorithms Parametric: delta normal, riskmetrics, delta gamma Non-parametric: historical simulation, monte carlo Sensitivity analysis and scenario analysis Credit Risk Current & potential exposure Credit Metrics, Credit Risk PoD Performance Calculation & Allocation Retail and Corporate Operational Risk Human, IT, Legal, Processes Strategic Performance Management (Link to KPIs)

14 IT in Emerging Europe The Basel Capital Accord: Credit Risk SAS Credit Risk Solution Credit Scoring for Retail Portfolio Risk Management for Corporate ‘Foundation’‘Advanced’

15 IT in Emerging Europe Types of Credit Scoring Application Scoring Performed at time of credit application Results in Accept / Reject Behavioural Scoring Risk within existing clients Profitability Modelling Up-Sell / Cross-Sell Potential Collection Scoring predict recovery value of outstanding credit

16 IT in Emerging Europe Credit Portfolio Risk Expected Loss Expected Exposure Loss in the event of default Default Probability =xx Rating Customer Segment LimitUtilisation Collateral Value Collateral Type Counterparty Specific Transaction Specific Unexpected Loss = Volatility of actual versus Expected Loss experience

17 IT in Emerging Europe Operational Risk - Defined Operational Risk is the current or prospective risk to earnings and capital arising from failures in transactions with customers or counter parties, ineffective decision making, and inadequate, insufficient human resources Types of Operational Risk Pre-transaction risk Processing risk Settlement and payments risk Management information risk Human resources risk

18 IT in Emerging Europe Access Data Management Analysis Reporting Operational Risk Dashboard and Reporting SAS Strategic Performance Management Data Mining, Analytics, Value at Risk Modeling (SAS Risk Dimensions / SAS Enterprise Miner) Data Repository, Data Cleansing, Definitions SAS Warehousing Suite, SAS BIM (Data Models ) Risk Self Assessment Data Repository, Operational Data Sources (legacy systems, database systems, ERP Systems, etc.), Loss Databases Access to 50 + data sources, multi-platform Basel II compliant SAS ® Enterprise Risk Management Risk Management Optimization Strategic Advantage

19 IT in Emerging Europe AT HU CZ SK PL UA TR CY RU LV SI HR BA YU RO MD BG MK GR ATAustria MDMoldova SLSlovenia Headquarter BABosnia and Herzegovina MKRepublic of Macedonia SKSlovak Republic S&T Countries BGBulgaria PLPoland TRTurkey CZCzech Republic RORomania UAUkraine CYCyprus RURussia HUHungary Serbia and Montenegro LVLatvia Success in CEE GRGreece MT Malta HRCroatia MT YU

20 IT in Emerging Europe References in FSI Ministry of Public Finance BRD – Societe Generale Romanian Commercial Bank Romanian National Bank Savings Bank “Ion Tiriac” Commercial Bank UniCredito Alpha Bank HVB Banque Franco-Roumaine Transilvania Bank Transfond (deployment) Our experience in FSI Public Key Security Infrastructure Core banking infrastructure Information system management Signature Scanning SalesForce Automation Payment Orders Tracking Report Generation automation Business continuity Internet Banking Consumer Loans Risk Management Competence Experienced Business Consultants Certified Technical Resources Assesements/pilots on role References in Romania

21 What Meridien Research says: “ We believe that, in order to be in a position to comply with changes in regulation, financial institutions will have to start investing now in changes to the processes and technologies that support risk management. Significant efforts, especially in data identification and aggregation, will be needed to meet new validation and verification requirements for credit risk management ”

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