Dear,
Last week we discussed the importance of a centralized and integrated management of the Bank’s collaterals.
http://sapbank.blogspot.com/2013/09/collaterals-management-and-bank.html
Today, I’d like to look specifically at the issues and requirements on the valuation of Collaterals, particularly Financial Collaterals.
Valuation of collaterals is a critical issue in Collaterals Management; any hair-cut damaging the value of the collateral will penalize its capacity as a risk mitigator, and it will increase the potential losses of the Bank, and its Capital consumption.
We have two types of Assets that can be used as Collaterals, Physical and Financial (Non-Physical).
SAP Collaterals Management has powerful functionalities for determining market and lending values of the collateral from external valuations. ,
But for the valuation of Financial Collaterals, SAP-CMS offers us another excellent opportunity of integration with other SAP Banking components.
Bank Analyzer is a very detailed and sophisticated tool for valuating Financial Transactions and Financial Instruments. Additionally, valuations are always opinions; even regulatory valuations can be different (IFRS, US-GAAP, etc.).
Integrating Financial Collaterals objects with the multi-accounting valuation functionalities of Bank Analyzer will give us a detailed and complete tool for valuating them.
More importantly, integrating Collaterals Management with the risk management tools of Bank Analyzer (Strategy Analyzer) and future Analyzers (ALM) will leverage those functionalities for valuating Financial Collaterals on stressed and simulated scenarios, and estimate potential hair-cuts.
You’re probably aware already of the advantages in terms of Total Cost of Ownership and Single Truth DataSources for the Bank, of the integrated architecture proposed above.
But this is just the beginning, as we move deeper into the Financial Crisis and the Financial System feels the scarcity of Capital, we will discover new advantages on having a holistic vision of Collaterals Management, integrating the Transactional and Analytical Banking scopes.
For instance, as the Basel II and Basel III agreements recognize, there’s an optimal distribution of Collateral bundles to exposures which minimizes the Capital Requirements for the portfolio of assets.
Actually, the Credit Risk Analyzer of Bank Analyzer supports this functionality on the Level 2 of the Capital Requirements Calculation; this is the foundation of a Capital Optimization technique called “Dynamic Collateral Management”.
Reducing Capital requirements the Bank achieves better Capitalization ratios, and consequently lower Cost of Capital (the less risky investment, the lower the capital cost) and new investment opportunities, as better capitalization also means the opportunity of allocate the free capital in new exposures.
This is just an example, the new Financial System, driven by the new paradigm of Capital Management efficiency, will require holistic information systems which assure the optimal utilization of the banks’ capital.
As I mentioned in the past; Capital Optimization is not just a portfolio management activity, it involves the whole Bank, and requires a seamless integration between the Transactional and Analytical Banking information systems,
With these premises, I don’t think any software company is in the position of competing with SAP for offering the required holistic vision and seamless integration between the Banking Information System components that the new Financial System is going to demand.
Looking forward to read your opinions.
Kindest Regards,
Ferran.
Last week we discussed the importance of a centralized and integrated management of the Bank’s collaterals.
http://sapbank.blogspot.com/2013/09/collaterals-management-and-bank.html
Today, I’d like to look specifically at the issues and requirements on the valuation of Collaterals, particularly Financial Collaterals.
Valuation of collaterals is a critical issue in Collaterals Management; any hair-cut damaging the value of the collateral will penalize its capacity as a risk mitigator, and it will increase the potential losses of the Bank, and its Capital consumption.
We have two types of Assets that can be used as Collaterals, Physical and Financial (Non-Physical).
SAP Collaterals Management has powerful functionalities for determining market and lending values of the collateral from external valuations. ,
But for the valuation of Financial Collaterals, SAP-CMS offers us another excellent opportunity of integration with other SAP Banking components.
Bank Analyzer is a very detailed and sophisticated tool for valuating Financial Transactions and Financial Instruments. Additionally, valuations are always opinions; even regulatory valuations can be different (IFRS, US-GAAP, etc.).
Integrating Financial Collaterals objects with the multi-accounting valuation functionalities of Bank Analyzer will give us a detailed and complete tool for valuating them.
More importantly, integrating Collaterals Management with the risk management tools of Bank Analyzer (Strategy Analyzer) and future Analyzers (ALM) will leverage those functionalities for valuating Financial Collaterals on stressed and simulated scenarios, and estimate potential hair-cuts.
You’re probably aware already of the advantages in terms of Total Cost of Ownership and Single Truth DataSources for the Bank, of the integrated architecture proposed above.
But this is just the beginning, as we move deeper into the Financial Crisis and the Financial System feels the scarcity of Capital, we will discover new advantages on having a holistic vision of Collaterals Management, integrating the Transactional and Analytical Banking scopes.
For instance, as the Basel II and Basel III agreements recognize, there’s an optimal distribution of Collateral bundles to exposures which minimizes the Capital Requirements for the portfolio of assets.
Actually, the Credit Risk Analyzer of Bank Analyzer supports this functionality on the Level 2 of the Capital Requirements Calculation; this is the foundation of a Capital Optimization technique called “Dynamic Collateral Management”.
Reducing Capital requirements the Bank achieves better Capitalization ratios, and consequently lower Cost of Capital (the less risky investment, the lower the capital cost) and new investment opportunities, as better capitalization also means the opportunity of allocate the free capital in new exposures.
This is just an example, the new Financial System, driven by the new paradigm of Capital Management efficiency, will require holistic information systems which assure the optimal utilization of the banks’ capital.
As I mentioned in the past; Capital Optimization is not just a portfolio management activity, it involves the whole Bank, and requires a seamless integration between the Transactional and Analytical Banking information systems,
With these premises, I don’t think any software company is in the position of competing with SAP for offering the required holistic vision and seamless integration between the Banking Information System components that the new Financial System is going to demand.
Looking forward to read your opinions.
Kindest Regards,
Ferran.
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