Dear,
The Financial System is in the middle of a Systemic Transformation, from a Business Model based in Volume to a Business Model based in Efficient Management of Capital.
The increasing Capital Requirements levels (specially after the implementation of Basel IV), low growth rates of the Global Economy and huge Global Debt (around $233 trillion) are putting a big pressure in Banks’ Solvency positions.
The pressure in the Banks’ Capital positions is not a temporary fashion, Capital scarcity is here to stay and makes Capital Optimization the main priority for Banks’ executives.
As you could see in previous blogs, in my opinion SAP Bank Analyzer is the best Capital Optimizer in the market.
https://www.linkedin.com/pulse/capital-optimization-clearing-houses-blockchain-sap-bank-frances/
https://www.linkedin.com/pulse/capital-optimization-trading-activities-sap-bank-analyzer-frances/
https://www.linkedin.com/pulse/capital-optimization-investment-activities-sap-bank-frances-gil/
http://sapbank.blogspot.com/2017/06/capital-optimization-and-business-case.html
http://sapbank.blogspot.com/2014/05/liquidity-and-capital-optimization-with.html
http://sapbank.blogspot.com/2016/03/impairment-calculations-and-capital.html
But for some reason that I can’t understand, it’s difficult to find voices explaining the Bank Analyzer capabilities as a Capital Optimizer.
I'll try to put my two cents for changing this with this blog.
1) The first step in a Capital Optimization process is measuring accurately the Capital consumed in every market segment that the bank is exposed to.
This is the main value proposition of the Integrated Financial and Risk Architecture of SAP Bank Analyzer.
Bank Analyzer – Credit Risk module will calculate the Risk Weighted Assets of every contract, every risk exposure of the bank’s portfolio, and consequently the Regulatory Capital consumed.
Once we know the Capital consumed by every Contract/Exposure, we can aggregate the Capital consumed according to the analytical dimensions that we have defined in the Bank Analyzer-Results Data Layer, and consequently we will know the Capital consumed in every market segment in which the bank operates.
Alternatively, the SAP Bank Analyzer Credit Portfolio also give us the Economic Capital consumed by market segment, and all the complementary parameters to the Capital consumed.
2) The second step in a Capital Optimization process is the efficient assignment of Collaterals to exposures for reducing the Risk Weighted Assets and the Capital consumed.
The assignment of Collaterals to Exposures is not always an static assignment. The 1 to 1 assignment of a Collateral to an exposure is just the trivial case, but it’s usual that several (n) exposures are assigned to several (m) collaterals.
In case (n) exposures are assigned to (m) collaterals there’s an Optimal Distribution of the Collateral portions to the Exposures, which reduces the Risk Weighted Assets, and consequently the Capital consumption. This is the basis of the Dynamic Management of Collaterals that we discussed in a previous blog, and we will analyze again in a future one.
https://sapbank.blogspot.com/2012/09/capital-management-chapter-v-dynamic.html
The Bank Analyzer – Credit Risk Module has strong capabilities for the Optimal Distribution of Collaterals to Exposures in the Level 2 of the Calculation of the Risk Weighted Assets. These capabilities look at the Probabilities of Default and Exposures at Default of the Exposures and the Collaterals Values, adjusting efficiently the assignment of Collateral portions to Exposures.
3) The third step of a Capital Optimization process is maximizing the Banks profit reducing the Capital Consumed. Every market segment has a potential expected profit, and every market segment has a potential Expected Loss, and consequently a potential Capital Consumption.
Optimizing Capital means identifying the market segments with higher Expected Profit weighted by the Expected Capital consumed of the market segment.
This is the most difficult element of a Capital Optimization process, because it requires a double-synchronized simulation, looking for a solution which minimizes the Risk Weighted Assets maximizing the Expected Profit.
This optimization engine is still not available, but the Integrated Financial and Risk Architecture of Bank Analyzer has been designed for having an Integrated and Reconcilable vision of Risk and Accounting (Profit).
The IFRA is the technical foundation for running cycles of simulation that Capital Managers should run for achieving the Optimal Planning of the bank’s portfolio, reducing the RWA and maximizing at the same time the expected Profit.
Finally, the future will require the automatic calculation and simulation of banks investments, for proposing the Optimal Sales and Execution planning of the Bank. I’ve personally worked in some of this models, by adapting the Theory of Constrains to portfolio management.
These simulations require very strong computing capabilities, but this is the value that SAP HANA provides for solving the problem.
Looking forward to read your opinions.
K. Regards,
Ferran.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
The Financial System is in the middle of a Systemic Transformation, from a Business Model based in Volume to a Business Model based in Efficient Management of Capital.
The increasing Capital Requirements levels (specially after the implementation of Basel IV), low growth rates of the Global Economy and huge Global Debt (around $233 trillion) are putting a big pressure in Banks’ Solvency positions.
The pressure in the Banks’ Capital positions is not a temporary fashion, Capital scarcity is here to stay and makes Capital Optimization the main priority for Banks’ executives.
As you could see in previous blogs, in my opinion SAP Bank Analyzer is the best Capital Optimizer in the market.
https://www.linkedin.com/pulse/capital-optimization-clearing-houses-blockchain-sap-bank-frances/
https://www.linkedin.com/pulse/capital-optimization-trading-activities-sap-bank-analyzer-frances/
https://www.linkedin.com/pulse/capital-optimization-investment-activities-sap-bank-frances-gil/
http://sapbank.blogspot.com/2017/06/capital-optimization-and-business-case.html
http://sapbank.blogspot.com/2014/05/liquidity-and-capital-optimization-with.html
http://sapbank.blogspot.com/2016/03/impairment-calculations-and-capital.html
But for some reason that I can’t understand, it’s difficult to find voices explaining the Bank Analyzer capabilities as a Capital Optimizer.
I'll try to put my two cents for changing this with this blog.
1) The first step in a Capital Optimization process is measuring accurately the Capital consumed in every market segment that the bank is exposed to.
This is the main value proposition of the Integrated Financial and Risk Architecture of SAP Bank Analyzer.
Bank Analyzer – Credit Risk module will calculate the Risk Weighted Assets of every contract, every risk exposure of the bank’s portfolio, and consequently the Regulatory Capital consumed.
Once we know the Capital consumed by every Contract/Exposure, we can aggregate the Capital consumed according to the analytical dimensions that we have defined in the Bank Analyzer-Results Data Layer, and consequently we will know the Capital consumed in every market segment in which the bank operates.
Alternatively, the SAP Bank Analyzer Credit Portfolio also give us the Economic Capital consumed by market segment, and all the complementary parameters to the Capital consumed.
2) The second step in a Capital Optimization process is the efficient assignment of Collaterals to exposures for reducing the Risk Weighted Assets and the Capital consumed.
The assignment of Collaterals to Exposures is not always an static assignment. The 1 to 1 assignment of a Collateral to an exposure is just the trivial case, but it’s usual that several (n) exposures are assigned to several (m) collaterals.
In case (n) exposures are assigned to (m) collaterals there’s an Optimal Distribution of the Collateral portions to the Exposures, which reduces the Risk Weighted Assets, and consequently the Capital consumption. This is the basis of the Dynamic Management of Collaterals that we discussed in a previous blog, and we will analyze again in a future one.
https://sapbank.blogspot.com/2012/09/capital-management-chapter-v-dynamic.html
The Bank Analyzer – Credit Risk Module has strong capabilities for the Optimal Distribution of Collaterals to Exposures in the Level 2 of the Calculation of the Risk Weighted Assets. These capabilities look at the Probabilities of Default and Exposures at Default of the Exposures and the Collaterals Values, adjusting efficiently the assignment of Collateral portions to Exposures.
3) The third step of a Capital Optimization process is maximizing the Banks profit reducing the Capital Consumed. Every market segment has a potential expected profit, and every market segment has a potential Expected Loss, and consequently a potential Capital Consumption.
Optimizing Capital means identifying the market segments with higher Expected Profit weighted by the Expected Capital consumed of the market segment.
This is the most difficult element of a Capital Optimization process, because it requires a double-synchronized simulation, looking for a solution which minimizes the Risk Weighted Assets maximizing the Expected Profit.
This optimization engine is still not available, but the Integrated Financial and Risk Architecture of Bank Analyzer has been designed for having an Integrated and Reconcilable vision of Risk and Accounting (Profit).
The IFRA is the technical foundation for running cycles of simulation that Capital Managers should run for achieving the Optimal Planning of the bank’s portfolio, reducing the RWA and maximizing at the same time the expected Profit.
Finally, the future will require the automatic calculation and simulation of banks investments, for proposing the Optimal Sales and Execution planning of the Bank. I’ve personally worked in some of this models, by adapting the Theory of Constrains to portfolio management.
These simulations require very strong computing capabilities, but this is the value that SAP HANA provides for solving the problem.
Looking forward to read your opinions.
K. Regards,
Ferran.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
1 comment:
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