Navigating the Storm: How SAP HANA and Bank Analyzer Empowers Active Risk Management Amidst Global Volatility

The Volatile Horizon: How Global Instability and Technological Breakthroughs are Reshaping Active Risk Management in Banking The global financial landscape in mid-2025 is marked by heightened volatility, driven by a confluence of economic and geopolitical factors. Concerns linger over potential financial instability in major economies, including France, Japan, the UK, and the USA, adding significant complexity to capital markets. In France, while the economy has shown resilience in early 2025, buoyed partly by the Paris Olympics, high and rising public debt (113.2% of GDP in 2024, third highest in the Euro area) and moderate growth prospects for 2025 (estimated at 0.6-0.7%) present challenges. Political uncertainty, as evidenced by the yield spread between French and German government bonds remaining higher than pre-June 2024 snap elections, continues to be a factor. The real estate sector, while showing signs of recovery in residential, remains vulnerable, and banks are seeing an increase in their cost of risk, particularly in household portfolios. Japan's economy experienced mixed results in 2024 with sluggish growth (0.3-0.4% for FY2024/25) despite record corporate profits and a strong stock market. While growth is expected to pick up to 1.1-1.2% in FY2025, structural issues like low productivity, an. aging population, and massive government debt (estimated 254.6% of GDP in 2024) pose significant long-term risks. Wage growth is crucial for sustainable recovery, and the Bank of Japan is gradually tightening its monetary policy, with interest rates expected to reach 0.75% by Q3 2025. The United Kingdom faces ongoing fiscal challenges, with public sector borrowing in June 2025 at its second-highest on record (£20.7 billion), and public sector net debt at 96.4% of GDP. Inflation is proving stubborn, with forecasts suggesting it will remain above the Bank of England's 2% target until late 2027. While some business investment has been stronger than expected, the UK economy risks becoming "two-speed," with high-margin sectors surging ahead while others struggle. Rising unemployment, particularly among youth, and the impact of increasing National Insurance contributions are key concerns. In the USA, while the probability of a recession has recently fallen to 40% (as of May 2025), significant headwinds remain. Consumer sentiment has fallen, and year-ahead inflation expectations have risen. The nation's fiscal path is deemed unsustainable, with federal debt projected to reach 200% of GDP by 2047 if current policies persist. Rising interest rates and the growing cost of servicing this debt are increasing pressure. Trade tensions and the erratic nature of US trade policy, with abrupt tariff announcements, continue to generate market unpredictability, impacting investor sentiment and disrupting cross-border financial flows. These volatile macroeconomic conditions, coupled with ongoing geopolitical tensions which can rapidly propagate and magnify financial risks, underscore the critical need for financial institutions to possess advanced capabilities in risk management. Furthermore, the IMF, OECD, and World Bank have consistently highlighted how excessive debt levels combined with slow economic growth lead to capital scarcity, which in turn significantly exacerbates market volatility. This environment makes proactive management of both capital and risk not just an advantage, but a necessity for survival and growth. The Rise of Active Risk Management: How SAP HANA is Reshaping Banking The global financial markets are in constant flux, driven by rapid technological advancements and increasing globalization. This dynamic environment is fueling financial innovation, with Active Risk Management emerging as a particularly compelling strategy. What is Active Risk Management? At its core, Active Risk Management aims to boost portfolio performance through dynamic trading and the strategic use of derivatives. It's about constantly scanning the market for arbitrage opportunities and making calculated moves to anticipate market behavior. Think of it as real-time financial agility. This discipline demands lightning-fast simulation capabilities to predict market shifts and inform immediate decision-making, often relying on statistical models built from rapidly changing information. Historically, SAP Banking hasn't been a front-runner in the Active Risk Management space. Solutions like SAP Bank Analyzer, while robust for long-term sustainability and accurate calculations (requiring high data accuracy), weren't designed for the rapid-fire analysis that Active Risk Management demands. Simply put, Bank Analyzer focuses on the big picture and long-term health of a bank's portfolios, while Active Risk Management zooms in on the market's real-time pulse and the immediate potential value of portfolio components. A Shifting Landscape: Regulation Meets Breakthrough Technology The stage is now set for a significant shift, driven by two powerful forces: new regulations and groundbreaking technology. Since the 2008 financial crisis, global banking directives have steadily increased liquidity and capital requirements for financial institutions engaged in trading. Regulations like the European Market Infrastructure Regulation (EMIR) and the Dodd-Frank Act (particularly Chapter VII) in the US exemplify this trend. While their frameworks differ, they share two critical objectives: Increase capital requirements for financial institutions involved in derivatives trading. Incentivize centrally cleared derivatives trades with stricter requirements for disclosure, collateralization, and supervision. On the technology front, SAP is a game-changer. The introduction of SAP HANA-powered components has dramatically improved performance. What once took hours for stress testing simulations with previous Bank Analyzer releases can now be completed in minutes, all thanks to HANA's in-memory computing paradigm. SAP's Competitive Edge in the New Era The convergence of tighter regulations and the transformative power of SAP HANA creates a compelling competitive advantage for SAP Bank Analyzer in the realm of Active Risk Management. SAP Banking already boasts a holistic data model perfectly suited for navigating complex and stringent regulatory requirements. Now, with HANA, it gains the technological horsepower to execute rapid statistical simulations in volatile, fast-moving market environments. We're currently in a transition phase. As the financial system evolves, regulation will only become more stringent, pushing for efficient capital management and discouraging speculative trading. In this evolving landscape, the potent combination of Bank Analyzer's analytical capabilities powered by SAP HANA will bridge the gap between regulatory demands and critical business needs. As I highlighted in a post nearly three years ago ([suspicious link removed]), SAP HANA isn't just about doing the same things faster; it's about enabling entirely new possibilities. Connect and Stay Informed: Join the Conversation: Connect with fellow professionals in the SAP Banking Group on LinkedIn. https://www.linkedin.com/groups/92860/ Stay Updated: Subscribe to the SAP Banking Newsletter for the latest insights. https://www.linkedin.com/newsletters/sap-banking-6893665983048081409/ Explore More: Visit the SAP Banking Blog for in-depth articles and analyses. https://sapbank.blogspot.com/ Connect Personally: Feel free to send a LinkedIn invitation; I'm always open to connecting with like-minded individuals. ferran.frances@gmail.com I look forward to hearing your perspectives. Kindest Regards, Ferran Frances-Gil