Dear,
As some of you know, I have mentioned in previous messages that the banking system is facing a systemic transformation, from a model based on Volume to a model based in Efficient Management of Capital.
Two forces are moving the financial system towards a new environment of capital scarcity; global debt, the highest in the history of capitalism, and weak economic growth.
There are many estimations of the Global Debt, you can find a very detailed one on the IMF website.
https://www.imf.org/external/datamapper/datasets/GDD
Weak economic growth is coming as a consequence of the energy and other natural resources scarcity, including climate change, and threatened natural environment.
Ultra Expansive monetary policies of the central banks are still maintaining liquidity of the capital markets but they are also exacerbating the rise of energy and natural resources prices.
Some people are warning that the economy is falling in an inflationary cycle; I disagree.
Although they are inflated by the monetary policies, current prices rise have the shape of an external shock, but they will not produce an inflationary crisis. Actually, as we already saw in the 2008 financial crisis, they will trigger a capital crisis.
Sustaining the inflationary cycle requires that demand can respond to offering prices rise, increasing its buying capacity. But this is not possible because automation and robotization are pushing salaries down, and global debt also prevents increasing demand capacity by borrowing funds.
As the prices rise we will see demand destruction that will stabilize prices, but with a constrained offering and demand. This means less economic activity and consequently weaker capital generation.
In this new environment we have to find processes and technology for optimizing capital. I have spent most of my professional career looking at SAP technology capacity for capital optimization. You can find some of what I have written about the topic by google “SAP Banking capital optimization” (without quotes).
SAP has always been about capital optimization. By making information available through the Supply Chain, companies have been able to increase level of service and reduce inventory, production and transportation costs (optimizing tangible capital).
Same principle applies for solvency and liquidity optimization. I discovered this in 2008 and I started to work on the integration of the processes of the real economy with the financial economy. This integration provides the information for reducing risk and optimizing solvency. As most of the real economy business processes are run on SAP, the answer of how to integrate the financial and non-financial economy was easy.
Since then I have been working on modeling the business processes of the real economy in terms of capital and liquidity consumption and generation. This is the same logic followed by the SAP Integrated Financial and Risk Architecture for Financial Instruments (Securities and Over the Counter), but there is no reason for doing the same with non-financial business processes (Sales and Purchase Orders, Forecasts, Production Orders, etc.).
As we have the complete view of the Capital and Liquidity position and evolution of the company, we can proactively provide Financial Instruments for covering capital and liquidity gaps or investment opportunities for capital and liquidity surpluses. For those of you who are familiar with the concept of Supply Chain management it is a similar concept, but instead of replenishing goods (tangible capital), the system provides solvency and liquidity, with the objective of reducing the capital consumption of the system.
Optimizing capital means improving the margin weighted by capital consumption, or in other words, including the cost of capital in the margin calculation.
Calculating the cost of capital requires a holistic vision of the business processes because it spreads on them. But it also looks at the expected future maturity of the investment, consequently requires integration between planning and execution.
Only SAP can offer this holistic vision and that’s why SAP Banking will be the leader in capital optimization when its value proposition is fully understood.
We are working on presenting our system to the market, and looking for business partners and investors, if you are interested do not hesitate in contacting me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
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
No comments:
Post a Comment