Efficient Capital Allocation
Ness consultants participated in Raiffeisenbank's internal project focused on the area of regulatory capital in order to reduce the reported value of credit risk-weighted assets (RWA) and achieve the set limits.
|Initial State||Project Objectives|
|The EBA regulation has tightened conditions for capital adequacy for a selected group of major European banks, with effect from 30th June 2012. This change is based on the proposal of Basel III, which will be gradually supplementing the current Basel II.||Newly, the Core Tier 1 ratio has to be at least 9%. It is the ratio of regulatory definition of Core Tier 1 capital (i.e. highest-quality original capital) to total risk weighted assets.|
Optimization of Credit RWA
Our consultants have taken a number of measures, which led to significant savings and optimization of capital. The main areas in which we have carried out effective measures are:
Review of the methodology
- Differences in rules by particular regulators
- Conditions of collateral eligibility
Revision of processes
- Business processes
- Collection process
- Segmentation of clients
- Collateral data
- Customer ratings, Credit Conversion Factor
- Other indicators used in RWA calculations
PHASES OF THE PROJECT
At the beginning, we reviewed the state of processes, used methodologies and data quality in the area of credit RWA calculation and defined new ideas for their optimization. We estimated the potential savings for measurable areas and designed the necessary steps for the implementation and also needed cooperation of particular departments of the Bank.
In the second phase, we cooperated with banks internal team on implementation of selected measures. In addition, we designed operational reports and prepared for them a new data base. Based on a detailed analysis of the area during the implementation, we generated additional measures for future savings RWA.
During the project our consultants designed operational reports which provide valuable information about the area of credit risk RWA for all levels of management:
- KPI reports (Top management)
- Operational reports (Risk, Collateral management, supervision of clients)
- Reports for sale persons (Region, Account manager – client portfolio detail with the indicators of profitability)
- Long term achievement of higher capital adequacy ratio / releasing of capital
- Accuracy improvement of client profitability calculation
- Accuracy improvement of client segmentation
- Accuracy improvement of product pricing
- Delivery of new operational reports for monitoring the credit RWA area
The credit risk-weighted asset (RWA) has been reduced in the bank in order to disengage capital for crediting or another use.
During the design of reports, we used a comprehensive approach to describe banks processes across several bank departments (e.g. Finance, Risk management, Trade). We mapped previously unused data areas and integrated combined information from different sources (RWA application, source system requirements between departments, etc.) to reach our goals. The key factor of reports contribution is the monitoring of areas critical metrics along with links to other financial and risk indicators. Thanks to these ideas operational reports become highly effective tools for long-term management of capital allocation for our client.
Risk Management in Ness
A team of consultants with many years of experience in the area of risk management
- Basel II and Basel III
- Solvency II
- Operational risk / Fraud management
- Collection / Early warning
- External reporting
- Scoring etc.
Certification Global Association of Risk Professionals (GARP) for financial Risk Management (FRM®).
Knowledge of business issues and the world of data services.
"The newly implemented internal operational reports show the processes and metrics related to RWA, which we haven't been able to measure effectively and to monitor in such a detail yet. It has been created a comprehensive and transparent tool to help manage the efficient allocation of capital across business segments of the bank and point out at any time on inefficient processes. The reports are met with a very positive response from top management of our bank."
Jiří Humhal, Head of Controlling, Raiffeisenbank, a.s.
Raiffeisenbank a.s. is an important banking institution that provides wide range of banking services to private and corporate clientele in the Czech Republic. Raiffeisenbank has merged with eBanka,a.s., in 2008. Raiffeisenbank serves clients at more than 120 branches and business client centres throughout Czech Republic. The bank also provides services of specialized mortgage centres, personal, corporate and business advisors. In 2011, the bank increased its net profit by 22% to CZK 2.22 billion. The bank serves total assets in a volume over CZK 200 billion and thus is the 5th largest bank in the market.