Professional Risk Managers' International Association, today announced the
results of a survey conducted at the PRMIA 2003 European Summit on the key
issues facing risk professionals.
Issues surrounding Basel II, such as credit and operational risk were key,
with 53 per cent of respondents stating they planned to spend in the range
of EUR100,000 - EUR5 million on new related credit risk IT solutions in
2003. A further 27 per cent of respondents said they would spend between
EUR700,000 - EUR5 million on advanced Internal Rating Based approach for
Basel II and the remaining 20 per cent revealing they either have no plans
or do not know how much they will spend in 2003.
In terms of priorities relating to aggregating counter-party exposure across
their company, risk managers said that combining net outstanding positions
across products ranked top of their list of priorities, followed by netting
and offsetting positions. Third on the list was factoring credit limits
across businesses, with daily valuation and mark to market of collateral
assets in fourth; and finally, real-time tracking of margin exposure and
intra-day positions coming in last.
Concerning the Basel Accord's operational risk implications, Reuters and
PRMIA asked the risk managers to comment on their company's operational risk
strategy and found that 32 per cent are still actively analysing the impact
of Basel II, while 24 per cent are going for, or implementing, AMA methods.
An additional, 24 per cent already manage enterprise operational risk for
cost efficiency and control reasons, while 12 per cent do not believe Basel
II will impact capital requirements due to operational risk, and the
remaining eight per cent either do not yet know or are putting off analysis
until the final Basel II regulations are enforced.
Thirty three per cent of risk professionals surveyed said operational risk
management budgets from now until 2006 would range from EUR1 - 10 million, while an additional 33 per cent expect to invest less than EUR1 million.
However, seven per cent plan to spend between EUR10 - 50 million with the
remaining 27per cent unsure of their exact operational risk management
The approach to advanced operational risk is highly debated and 59 per cent
of those surveyed said they would use a hybrid combination to operational
risk, while 27 per cent would take a bottom-up approach (such as reviewing
data integration, operational risk analytics). Fourteen per cent were
either not sure which approach they would take or were looking for other
The Basel II accord is expected to become effective in 2007 and compliance
will be essential for banks. When asked to rank their organisation's
ability to achieve the four-stage process of Basel II compliance (from
limited to fully able to comply), the majority of respondents felt
moderately comfortable that they would be able to achieve the criteria
- Base inputs such as ratings, correlations, transactions,
netting and collateral guarantees;
- Calculations/analytics for loss given defaults, exposure,
loss calculations, default predictions;
- Credit portfolio management (e.g. for portfolio, collateral
- Production of compliance reports.
However, none of the respondents felt they were fully able to meet the above
criteria today, with the exception of nine per cent who said they were fully
able to meet the above base inputs criteria.
When asked if the respondents felt they would be ready to comply with Basel
II by 2006, 23 percent said they would be fully ready to comply, followed by
15 percent who will be nearly ready, 31 per cent felt moderately
comfortable, with 23% stating it would not be likely to be ready, and
finally 8 per cent who would not be ready at all.
David R. Koenig, Chair of PRMIA, said, "The results of the survey reflect
the ongoing discussions and debates that we witnessed during the PRMIA
European Summit. The issues are not settled and such uncertainty is clearly
affecting the planning of financial service firms."
The Reuters and PRMIA survey was conducted at the PRMIA European Summit held
in Paris on Monday, 7 April from a representative sampling of the risk
managers who attended the meeting. The risk professionals represent major
local, European and international banks and range in size from small to
Mike Whitaker, Managing Director, Trade and Risk Management, Reuters, said,
"As Basel II is a few years away, the results of this survey show that risk
professionals are still somewhat undecided on their exact steps and spend.
However, Reuters is starting to see a number of banks allocating budget or
spend to meet this demanding imperative."