Dear,
We mentioned in the past that Bank Analyzer represents a very robust Analytical Banking component, but it lacks on some functionalities which are available for other competitors.
For covering the gap we take advantage of the open architecture of the Financial Database and integrate the missing calculations from an external system. For instance, as previous releases of Bank Analyzer didn't have Impairment functionalities, we build interfaces to other systems, like SAP Reserves for Bad Debts, in order of including the impairment provisions in the SAP Bank Analyzer sub-ledger, achieving a complete accounting vision of the Financial Transaction (customer account).
Fortunately, new versions of SAP Bank Analyzer are coming which new functionalities, covering existing limitations. This is the case with Bank Analyzer 8 which provides a strong Impairment functionality, compliant with IFRS requirements.
Bank Analyzer 8 determines the impairment accounting entries following one of the following approaches.
- Percentage Expected Loss
- Expected Cash Flow
The first one determines the impairment postings by calculating the percentage expected loss and the percentage write-down, while the second determines the impairment postings by calculating the expected cash flow and the write-down.
An important constrain that we must keep in mind is that expected cash-flows can’t be calculated for those products for which we’re using Source Data Aggregation. Anyway the same limitation applies for the discounting cash-flows valuation of Financial Transactions in combination with Source Data Aggregation, so customers using Source Data Aggregation will probably be familiar with the Source Data Aggregation functionality constraints.
But it’s not my intention to make a detailed description of the SAP Bank Analyzer 8 functionalities for impairment, which by the way, are very well explained in the SAP documentation.
My intention today, is explaining the competitive advantages of the Integrated Financial Risk Architecture for the management of impaired assets.
When we’re talking about impairment, we are looking at the most risk driven accounting activity. Most of the necessary parameters for measuring the credit risk associated to a financial transaction are also required for determining their impairment accounting entries. This opens the gate for integrated scenarios between AFI and Credit Risk modules of Bank Analyzer.
Last summer, I had the opportunity of talking to a former customer who implemented Basel II on Bank Analyzer seven years ago, calculating capital requirements on contract level. But today, the same bank is calculating the impairment accounting entries in portfolio level, and distributing the results to contract level.
This is not the best approach when the customer already has most of the necessary parameters for calculating the impairment accounting entries in contract level, as they’re available as a result of their solvency calculations.
But more than that, the Integrated Financial and Risk Architecture offers others important opportunities for Capital Optimization in the management of impaired assets, which should be evaluated when defining the bank’s impairment architecture.
Keep in mind that Capital is scarce and it’s going to be scarcer in the future, and consequently capital optimization is becoming the most critical activity. The Integrated Financial and Risk Architecture of Bank Analyzer provides the foundation for optimizing capital in the management of impaired assets, by building integrated scenarios between Credit Risk and Accounting for Financial Instruments.
I have personally worked on some of them and I’ll be happy to share with you in a future post, this one has become too long.
Looking forward to read your opinions.
We mentioned in the past that Bank Analyzer represents a very robust Analytical Banking component, but it lacks on some functionalities which are available for other competitors.
For covering the gap we take advantage of the open architecture of the Financial Database and integrate the missing calculations from an external system. For instance, as previous releases of Bank Analyzer didn't have Impairment functionalities, we build interfaces to other systems, like SAP Reserves for Bad Debts, in order of including the impairment provisions in the SAP Bank Analyzer sub-ledger, achieving a complete accounting vision of the Financial Transaction (customer account).
Fortunately, new versions of SAP Bank Analyzer are coming which new functionalities, covering existing limitations. This is the case with Bank Analyzer 8 which provides a strong Impairment functionality, compliant with IFRS requirements.
Bank Analyzer 8 determines the impairment accounting entries following one of the following approaches.
- Percentage Expected Loss
- Expected Cash Flow
The first one determines the impairment postings by calculating the percentage expected loss and the percentage write-down, while the second determines the impairment postings by calculating the expected cash flow and the write-down.
An important constrain that we must keep in mind is that expected cash-flows can’t be calculated for those products for which we’re using Source Data Aggregation. Anyway the same limitation applies for the discounting cash-flows valuation of Financial Transactions in combination with Source Data Aggregation, so customers using Source Data Aggregation will probably be familiar with the Source Data Aggregation functionality constraints.
But it’s not my intention to make a detailed description of the SAP Bank Analyzer 8 functionalities for impairment, which by the way, are very well explained in the SAP documentation.
My intention today, is explaining the competitive advantages of the Integrated Financial Risk Architecture for the management of impaired assets.
When we’re talking about impairment, we are looking at the most risk driven accounting activity. Most of the necessary parameters for measuring the credit risk associated to a financial transaction are also required for determining their impairment accounting entries. This opens the gate for integrated scenarios between AFI and Credit Risk modules of Bank Analyzer.
Last summer, I had the opportunity of talking to a former customer who implemented Basel II on Bank Analyzer seven years ago, calculating capital requirements on contract level. But today, the same bank is calculating the impairment accounting entries in portfolio level, and distributing the results to contract level.
This is not the best approach when the customer already has most of the necessary parameters for calculating the impairment accounting entries in contract level, as they’re available as a result of their solvency calculations.
But more than that, the Integrated Financial and Risk Architecture offers others important opportunities for Capital Optimization in the management of impaired assets, which should be evaluated when defining the bank’s impairment architecture.
Keep in mind that Capital is scarce and it’s going to be scarcer in the future, and consequently capital optimization is becoming the most critical activity. The Integrated Financial and Risk Architecture of Bank Analyzer provides the foundation for optimizing capital in the management of impaired assets, by building integrated scenarios between Credit Risk and Accounting for Financial Instruments.
I have personally worked on some of them and I’ll be happy to share with you in a future post, this one has become too long.
Looking forward to read your opinions.
Join the SAP Banking Group at: http://www.linkedin.com/e/gis/92860
K. Regards,
Ferran.
Ferran.
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