Dear,
As we saw in the previous post, capital scarcity is incentivizing securitization as an alternative to banking credit which is becoming very expensive in the current economic environment.
We also saw that new regulation is increasing the reporting requirements in the securitization industry.
Today, we’ll see how we can combine several SAP components to build a holistic and efficient securitization process for accounts receivables.
The process starts with a standard sales and invoicing process in SAP-ECC Sales module.
For building the securitization process we must integrate the sales invoices as a Financial Transactions in the Bank Analyzer Source Data Layer. The Financial Transaction Cash-Flows will be determined from the Invoice Amount, Invoice Date and Payment conditions.
The counterparty of the Financial Transaction is the invoice payer, and we’ll read his rating from the Credit Risk data of the business partner in SAP ECC.
Once the invoices (or more exactly invoices items) have been modeled as Bank Analyzer Financial Transactions, we will use the Risk Engines of Bank Analyzer for generating the reporting requirements, and prepare the pool of loans according to the definition of the securitization tranches.
The AFI and Credit Risk modules of Bank Analyzer are an excellent base to support the analysis of the account receivables (modeled as Financial Transactions) that the company is going to securitize.
Once the securitized pool of assets is transferred (sold) to the Special Purpose Vehicle, we will use the Treasury and Risk Management module of SAP ECC for building the securities (assets backed by the securitized account receivables). Management and trading of the securities is fully supported by the Treasury and Risk Management module of SAP ECC.
In real life, a portion of the customers will fail to fulfill their obligations. The relevant information (rating) will be transferred from Credit Risk to the Bank Analyzer system, and the Bank Analyzer risk and price engines will calculate the loss of value on the account receivables. This valuation is the basis for determining the value of the securities, and drives the dividends payment, according to the securities conditions (interest rate, tranches, priority, etc.).
Building this process with SAP components has several advantages.
Many corporations, which are starting to securitize accounts receivables for covering their financing requirements, are long term users of SAP Sales, and Accounting modules.
For years, they have collected the credit risk information of their clients, which is the basis information for determining the customer rating, build the assets tranches and calculate the value of the securitized assets.
As the securitized assets (accounts receivables) have been integrated in Bank Analyzer, the company will enjoy all the Bank Analyzer functionalities for fulfilling the regulatory reporting requirements. They’re modeled as Financial Transactions, fully integrated in the standard Bank Analyzer data-model, so from Bank Analyzer perspective there’re no technical limitations.
Finally, if the company integrates all the account receivables and sales invoices in Bank Analyzer, it will have the capacity of comparing their securitization costs with the cost of capital of non-securitized assets.
Remember, capital scarcity is driving a systemic change in the whole economic system and Bank Analyzer is very well positioned to manage and optimize capital in multiple business scenarios.
I’ve been working for the last 7 years in analyzing and designing capital optimization models by using Bank Analyzer functionalities, and I will share with you in future posts.
Looking forward to read your opinions.
K. Regards,
Ferran.
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