7th May 2003 - Almonde, the banking performance management specialist, has launched Almonde Credit, a comprehensive solution that allows banks to achieve compliance with Basle II quickly and cost effectively while enabling them to vastly improve their overall performance management.
The Basle II Accord, set to take effect in 2006, replaces the existing Basle Accord, which has been adopted by over 100 countries, provides a risk-sensitive framework for banks to report on their total loans and credit exposure across the enterprise. A key element of the proposed Accord is a greater emphasis on a bank's own assessment of the risks to which they are exposed to in the calculation of the regulatory charges. It is built on three key pillars: 1) minimum capital requirements for banks based on an overall loan book 2) supervisory review of capital adequacy and internal assessment processes and 3) increased disclosure and market discipline.
A study released this month by the Basel Committee on Banking Supervision said that its third Quantitative Impact Study (QIS3) of the planned "Basel II" capital adequacy rules showed that large banks adopting the most advanced of the new regulatory standards would need less capital (average 6%) than under present rules to cover their risks. In contrast capital requirements would rise for those adopting the least sophisticated Basel II techniques.
Almonde Credit enables customers to establish an integrated credit exposure process, from credit scoring and exposure reporting, to stress testing and historical analysis of portfolios and counter-parties. It enables customers to drill down to granular levels of accuracy on individual contracts to give banks a holistic view and total control of their financial performance. The solution enables banks to assess their credit exposures for regulatory and performance purposes. Using Almonde Credit, financial institutions are able to calculate the necessary exposure figures under the Basle II reporting categories, Standard, IRB Foundation, and IRB Advanced.
The solution can be customised to incorporate any number of credit assessment techniques and calculates credit scores through data mining. Banks can also use the calculations made with Almonde Credit to enhance margin analysis and establish the foundations for an Economic Value Management (EVM) framework that will enable better decision-making and consequently enhanced profitability.
Economic Value Management
An EVM framework provides an accurate, evidence-based strategic vision of every aspect of the organisation's performance and how they interrelate. Specifically, they can identify in real time the departments, investments and initiatives that are performing well, enabling additional resources to be deployed for maximum return. The information gained from this exercise can be applied to other business areas.
Ben Salama, CEO of Almonde said: "Most banks currently have no idea of where their true profits lie. While Basle II is seen as a major burden for financial institutions, it also presents them with an opportunity to improve their performance management practices. Once banks have complied with the new credit reporting standards they will be able to assess credit and risk far better than ever before."
"The information gathered and analysed to determine the credit ratings can be used to assess performance of products, customers and business units. It will make it possible for banks to expand their product offerings to respond to specific client needs and will enable them to launch more profitable product lines based on the performance of existing products."
Cross-departmental performance management is delivered through the integrated Almonde Platform, which provides common data and user interface layers. The integrated data integration tools enables customers to easily share common data across departments and disciplines. For example, loan information used by the Credit Department in assessing credit exposure, with Almonde Credit, can be
seamlessly shared by the Asset-Liability Management department to assess interest rate risk, by using Almonde ALM, Almonde's Asset-Liability Management product. Further, departments are all able to leverage the Almonde Cube, a multi-dimensional user-interface. The Almonde Cube enables customers to analyse data by any number of dimensions, conducting ad-hoc analysis quickly and easily.
Further Almonde Credit Benefits:
- Reduced Basle II project risk by allowing risk managers to incrementally build a solution and easily clean and access data
- Improved profitability through better decision-making capability. This includes access to a complete audit trail for back
testing and the ability to monitor and manage past performance
- Easily achieved compliance to enhanced reporting requirements through an integrated multi-dimensional cube
- Improved profitability through the establishment of an FTP/EVM framework by calculating and using expected and unexpected loss data to enhance margin analysis capability
How Almonde Credit works
Almonde Credit is comprised of five modules:
1.Internal Rating Module: Performs regression analysis in order to develop a predictive model for credit analysis. The solution provides indicators and graphs to ensure that you can easily assess the quality and robustness of your models.
2.PDTM (Probability of Default and Transition Matrix) Module: Accepts results from a variety of different predictive models, the results from Almonde Credit - Internal Rating as well as third party and proprietary modules. The PDTM module enables users to compute default probabilities and transition matrices over any time horizon.
3.Standard Exposure Module: Provides the user with the capability to perform calculations and the reporting necessary to comply with Basel II's Standard Reporting requirements.
4.IRB Foundation Exposure Module: Produces the reporting required to be compliant with Basle II's IRB Foundation Approach.
5.IRB Advanced Exposure Module: Produces the reporting required to be compliant with Basle II's IRB Advanced Approach.
Almonde Credit Capabilities
Using Almonde Credit enables institutions to do the following:
- Develop, calibrate and implement an integrated credit rating module. Almonde Credit uses a predictive credit rating model, enabling customers to easily develop, calibrate and implement a credit rating model on a single integrated platform, accessing data from a variety of disparate sources. Integrated into the solution is a Cumulative Accuracy Profile where users are able to easily assess model robustness.
- Enhance Credit Decision-making Process: Enhanced credit modelling strengthens the credit decision-making process within the institution by providing a mechanism where the credit decisions can reflect recent customer/market activity.
- Historical Analysis: Customers can review results for current exposures as well as put them in context by reviewing the historical results.
- Easily assess model robustness through back testing: It includes a variety of back-testing measures, which include mean value, and standard deviation, which can be applied to determine the strength of the transition matrices.
- Stress Testing: Enables customers to perform stress testing as a powerful analytical tool as it allows customers to stress test any subset of a portfolio or segment of exposures.
- Limit Management: Almonde provides a robust and flexible limit management module, which enables customers to assess limits on a variety of different measures, including exposure, balance, and capital.
Almonde 4 Product Suite
Almonde Credit is an integrated part of the Almonde 4 product suite, which includes Almonde ALM (Asset-Liability Management), Almonde FTP (Funds-Transfer-Pricing) and Almonde SDK (Software Development Toolkit).
Unlike any other available product, Almonde 4 provides strong data handling capabilities and enables banks to manage unlimited volumes of contract data while being able to drill down to individual contracts. The software can be easily installed, lowering the implementation costs and associated risk while maximizing the return-on-investment (ROI) and providing a solution that can be tailored to their evolving business needs. Flexibility, based on financial and technology industry expertise, lies at the heart of the Almonde product, enabling banks to create their own specific algorithms, models, reports and applications based on their specific business processes using an open software