Dr Linda Yueh, Teaching Fellow in Economics at Pembroke College and author of numerous books and articles on China and emerging markets said, âEmerging markets now account for roughly 25-30% of global output with a rising share. Harmonisation of rules and regulations have allowed the global economy to grow as it has never before. For businesses navigating this evolving state, economic risk assessment is more important than ever.â
There are a number of drivers for this growing demand.
â¢ Regulatory requirements and in particular the adoption of Basel II mean banks around the world need to have risk management and measurement systems that comply with international standards.
â¢ As these economies open to foreign trade and investment, they need to compete in the global marketplace. This in turn requires being able to demonstrate to investors and customers that they are using their capital and managing their risks efficiently.
â¢ The increasing use of structured products, partly to meet competitive pressures, necessitates sophisticated risk management modeling and procedures.
â¢ Banks which expand internationally find their international branches subject to foreign supervision and reporting standards.
â¢ There is global movement from a top-down business model to a bottom-up business model where individuals need to be empowered to make business decisions faster in order to gain/maintain the firmâs market share and competitiveness. The need for fast, accurate and extendable information has turned risk analysis, simulations and active balance sheet management into strategically critical tasks.
Eric Takigawa, a Managing Director of Algorithmics in Asia said, âWe know that in these newer markets we need to establish a local presence, investing for the medium to long term, and hiring people with local market knowledge and language skills. We have offices in 19 countries and work in 30 languages. We pride ourselves at looking at what is really required in each local market rather than making assumptions based on risk management in North America and Europe. It means we need to adapt our solutions and implementation processes to local concerns in particular in providing more advisory services with our solutions.â
In some instances, the systems being purchased now in these newer economies are more integrated than those used in many financial institutions in North America and Europe. They can be aided in moving to the most advanced solutions on offer by the lack of legacy problems that often cause difficulty for financial institutions in Europe and North America. So for instance instead of implementing a solution to address Pillar 1 only, then another to address Pillar 2, they plan on a solution for Pillar 1 and Pillar 2 and beyond, aiming towards better decision making and the optimal use of capital to enhance shareholder value.
Eric Takigawa added, âIn many instances financial institutions in the newer economies are able to skip a generation of risk management software, and move straight to a full enterprise risk management solution, integrating the balance sheet assets and liabilities and covering the full range of markets and financial instruments and scenarios, within a single, unified framework. A single, integrated solution will lower the cost of ownership, helping to provide a competitive advantage.â
Algorithmics is rapidly establishing its presence in many of these markets, in Asia, the Middle East, Central and Eastern Europe and Central and South America. Already this year it has announced deals in China, Mexico, Poland, Russia, Turkey and Saudi Arabia.
For instance, in June, The China Construction Bank Corporation (CCB) selected Algorithmics to help it measure and manage its international credit exposure and credit limits. This was a landmark deal for the Chinese banking industry as it moves towards adopting international risk management standards.
In July, TÅ±rkiye Is BankasÄ± chose Algorithmicsâ integrated market risk, asset liability management, credit regulatory, economic capital and operational risk management solutions for its group wide risk management, to assist in integrating its risk assessments with loss data, monitoring key indicators, modeling loss event data and scenario analysis.
In September, the Savings Bank of the Russian Federation chose Algorithmics and its Russian partner Technoserv to deliver and implement a new risk management system, including all of the main areas of managing market, credit, and operational risks, as well as asset and liability management and regulatory compliance.
Eric Takigawa added, âInnovation in financial markets and technology has resulted in real value creation. It helps enable market players to better identify and use information asymmetries from a risk-centric perspective; to make use of the interrelationship between market risk and credit risk and their effects on all important liquidity before the actual impact of widening spreads; and set in place operational risk management systems to become more efficient and hence more competitive.As these examples demonstrate, we are seeing an increasing number of clients moving straight to a complete, enterprise wide risk management system to help them achieve dynamic growth and competitive advantage. We believe this is a mega-trend that will accelerate in the future.â