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BANKS PROFITABILITY MANAGEMENTBANKS PROFITABILITY MANAGEMENTOFSAA

MARIO MRLJIĆ NEOS 15.4.2010

AGENDAAGENDA

• INTRODUCTION

• BANK PROFITABILITY

• OFSAA

• IMPLEMENTATION• IMPLEMENTATION

• Q&A

15. travanj 2010 OFSA – UPRAVLJANJE PROFITABILNOŠĆU BANKE 2

NEOSNEOS

• FOUNDED 2002.

• LONG TERM EXPIRIENCE ON PROJECTS WITH MID-SIZED AND LARGE CUSTOMERS

• ORACLE CERTIFIED PARTNER


• ORACLE CERTIFIED PARTNER

• LOCAL PARTNERS – S&T

• CERTIFIED CONSULTANTS

APPLICATION DEVELOPMENTBUSINESS INTELLIGENCE

(BI i DW)

CONSULTANCY SERVICES

CUSTOMERS/EXPIRIENCECUSTOMERS/EXPIRIENCE

• AZFOND (OBVEZNI I DOBROVOLJNI FONDOVI)

• ALLIANZ TYRIAK (MIROVINSKI FOND RUMUNJSKA)

• COCA COLA BEVERAGES HRVATSKA D.O.O.

• CROATIA OSIGURANJE D.D.

• FIMA VRIJEDNOSNICE D.O.O.


• HEP

• HNZ

• HYPO LEASING

• HZZO

• IGH

• MAKEDONSKI TELEKOM

• PBZ D.D.

• SITRONICS TELECOM SOLUTIONS (PRAGUE)

• TEKSTILPROMET D.D.

• VABA BANKA D.D.

• ZABA D.D

BANK PROFITABILITYBANK PROFITABILITY


BANK PROFITABILITY BANK PROFITABILITY -- HRHR


BANK PROFITABILITY BANK PROFITABILITY -- HRHR


BANK PROFITABILITYBANK PROFITABILITY

• DRIVERS

– DELIVER ACTIONABLE CUSTOMER, BUSINESS LINE, AND PRODUCT PROFITABILITY INSIGHT

– HAVE MORE GRANULAR AND DETAIL INSIGHT IN KEY PROFITABLITY COMPONENTSCOMPONENTS

– INCORPORATE RISK INTO DECISION MAKING

– ABILITY TO ACT ON TIME


ORACLE FINANCIAL SERVICES ANALYTICAL ORACLE FINANCIAL SERVICES ANALYTICAL ORACLE FINANCIAL SERVICES ANALYTICAL ORACLE FINANCIAL SERVICES ANALYTICAL APPLICATIONSAPPLICATIONS


GOAL ENVIRONMENTGOAL ENVIRONMENT

AccountingFinancial

Consolidation Legal & RegulatoryReporting

INPUTS FINANCIAL PERFORMANCE RISK OUTPUTS

AccountingControl


Customers

Core TransactionalSystems

GeneralLedger Operational

Reporting

ManagementReporting

Asset LiabilityManagement

Funds TransferPricing

Profitability

Costing

Planning

StrategyBalance Sheet

Planning

DataWarehouse(s)

Ad HocMarts

OFSAOFSA

• ORACLE FINANCIAL SERVICES ANALYTICAL APPLICATIONS

– Oracle Financial Services Profitability Management

– Oracle Financial Services Profitability Analytics

– Oracle Financial Services Funds Transfer Pricing – Oracle Financial Services Funds Transfer Pricing

– Oracle Financial Services Pricing Management, Transfer Pricing Component

– Oracle Financial Services Asset Liability Management

– Oracle Financial Services Asset Liability Management Analytics

– Oracle Financial Services Balance Sheet Planning


OFSA OFSA -- ARHITECTUREARHITECTURE

• ORACLE FINANCIAL SERVICES ANALYTICAL APPLICATIONS

FINANCIAL SERVICES BUSINESS INTELLIGENCE

Reports Alerts Dashboards Embedded


Un

ifie

d A

na

lyti

cal M

eta

da

ta

FINANCIAL SERVICES ANALYTIC APPLICATIONS DATA MODEL

FINANCIAL SERVICES ANALYTIC APPLICATIONS INFRASTRUCTURE

Reports Alerts Dashboards Embedded

Purpose Built Engines Common Tools Business Rules Stochastic Modeling

Common Objects Common DimensionsPre-Integrated/

ExtensibleHigh Volume

UNIFIED DATA MODELUNIFIED DATA MODEL

Inputs Processing Outputs

Common Staging Area App-specific processing App-specific result tables

Facts Dimensions

Product Processors

COA

Product

ALM

FTP

PFT

MR

CR

OR

aCRM

Basel II

ALM MR

CR

OR

aCRM

Basel II

GRC


Shared ProcessingTables

Common Metadata

Transactions

Ledger

Product

Org

Customer

Exposures

Time Series Data (Rates, Indicators, risk factors etc)

Display Codes/Master tables

Master Data

PFT OR

Instruments (27)

LedgerStat Account

Summary Tables

Common Dimensions, Hierarchies, Master Tables

COA

Product

Org

Customer

OR

Campaigns

Time Series Data (Rates, Indicators, risk factors

etc)

GRC

ExposuresT2T

Shared output tables

INFRASTRUCTUREINFRASTRUCTURE

BUSINESS RULES RESULTS DATA MODEL ETL


SYSTEM

ADMINISTRATION

SECURITY

SHARED

COMPONENTS

FOUNDATION

HARDWARE

ANALYTICSANALYTICS


FUND TRANSFER PRICINGFUND TRANSFER PRICING


FUND TRANSFER PRICINGFUND TRANSFER PRICING

Funding Center

responsible for

• Margin = Credit for Funds less

Charge for Funds

• FTP & NII Forecasts

• Rate Risk Management

Organization Structure


Deposit Gathering Lending Operations

• Rate Risk Management

Interest Rate

Less Charge for Funds

Transfer Rate

less Credit for Funds

Net MarginNet Margin

OFSA OFSA -- FTPFTP

•• MultiMulti--currency User Interfacecurrency User Interface

•• TP Method EnhancementsTP Method Enhancements

•• TP AddTP Add--on Rateson Rates

•• Integration of RealIntegration of Real--time time PricingPricing

•• TP Methods Available for ALM TP Methods Available for ALM


•• TP Methods Available for ALM TP Methods Available for ALM ForecastingForecasting

•• TP Methods Available for BSP TP Methods Available for BSP ForecastingForecasting

PROFITABILITY MANAGERPROFITABILITY MANAGER


PROFITABILITY CALCULATIONPROFITABILITY CALCULATION

NET INTEREST INCOME

FTP

PLUS

NON INTEREST INCOME

ALL PRODUCTS

FEES & SERVICE CHARGES

Asset: interest income less the cost of funds

Liabilities: benefit of fund less interest expense

This would include all the fees, service charges

and commission income that can be attributed to

an account

ACCOUNT LEVEL (MILLIONS OF RECORDS)


MINUS

NON INTEREST EXPENSE

MINUS

EXPECTED LOSS

DIVIDE

ALLOCATED CAPITAL CHARGE

RAPM

RAROC – SVA

DIRECT EXPENSES

OPERATIONAL EXPENSES

ACCOUNT LOAN GRADE

EXPOSURE AMOUNT

ALLOCATED RISK CAPITAL

Sales & service cost allocated either using top

down methodology or activity based costing

Based on the quality of the obligator,

The probability of default and exposure at

default.

Capital charge calculated based on credit,

market and operational risk factors

+ OR - $’S PER ACCOUNT

MULTIDIMENSIONALITYMULTIDIMENSIONALITY

Account

CustomerProduct


Account

OfficerBranch

Total

Bank

Business

Units

PROFITABILITY MANAGERPROFITABILITY MANAGER

•• Improved Improved AuditabilityAuditability

–– Visual trace of allocation historyVisual trace of allocation history

–– Allocation interdependency and Allocation interdependency and ability to discriminate debits & ability to discriminate debits & credits in resultscredits in results

•• Model StructuringModel Structuring

–– Standardized model and seeded Standardized model and seeded


–– Standardized model and seeded Standardized model and seeded rules for account level rules for account level profitabilityprofitability

•• Performance & ScalabilityPerformance & Scalability

–– Capable of highest transaction Capable of highest transaction throughput of tier one banksthroughput of tier one banks

•• Account Level ProfitabilityAccount Level Profitability

–– Built for lowest level account, Built for lowest level account, transaction and customer level transaction and customer level profitabilityprofitability

–– Works with Hyperion Profitability Works with Hyperion Profitability & Cost Management for top& Cost Management for top--down and bottomdown and bottom--up profitabilityup profitability

ALLOCATION RULESALLOCATION RULES

• INCOME/COST ALLOCATION RULES

• DRIVERS? (SQM, FTE, PERCENTAGES, OTHER?)

• FLEXIBILITY

• EASY MAINTENTANCE AND MODIFICATIONS• EASY MAINTENTANCE AND MODIFICATIONS

• TRACEABILITY

• BASED ON BUSINESS DECISIONS

15. travanj 2010 OFSA – BANK PROFITABLITY 23

PROFITABILITY BI ANALYTICSPROFITABILITY BI ANALYTICS


OFSPAOFSPA

• TECHNOLOGY

– ORACLE BI EE PLATFORM

– ESSBASE CUBES

• PRINCIPLES• PRINCIPLES

– PERFORMANCE

– FLEXIBILITY

– STRUCTURED APROACH

• DASHBOARDS

– Account Level Profitability Dashboard

– Financial Accounting Dashboard

– Managerial Accounting Dashboard


DASHBOARDSDASHBOARDS


IMPLEMENTATIONIMPLEMENTATION


PROJECTPROJECT

• BUSINESS REQUIREMENTS DEFINITION (BU FOCUS)

– FTP METHODOLOGIES

– PROFIT/COST ALLOCATIONS

– REPORTING REQUIREMENTS– REPORTING REQUIREMENTS

– CUSTOMER HAS DW?

• SOLUTION DESIGN

– MODIFICATIONS & IMPLEMENTATION

– LOAD & TESTING

• PRODUCTION

– USE RESULTS IN DECISION MAKING PROCESS

• CONTINOUTS MAINTENANCE AND IMPROVEMENTS


IMPLEMENTATION STEPSIMPLEMENTATION STEPS

� Technical Architecture

for Profitability Solution

�Design Profitability

�Review and document

user requirements,

technical environment,

� Establish system

tables and table

columns and build

� Transitioning all

system processes to

a production

PreparationPreparationDesign Design

PhasePhase

Definition Definition

and and AnalysisAnalysis

Transition Transition

to to ProductionProduction

�Project Preparation

� Establish Initial Work

Plan

Solution Solution

Development Development (Build) Phase(Build) Phase


�Design Profitability

Business Rules

� Technical Architecture

for Budgeting and

Planning Solution

�Design Budgeting and

Planning Business

Rules

� …

Data requirements

and sources

�Define Template:

?Reporting Requirements

?TP Methodologies

and Yield Curves

?Unit Cost

Calculation

?…

and review reports

� Set up users, groups

and security access

rights and define and

create hierarchies

�Develop

Functionalities and

User Interfaces

where defined

� …

environment.

� The data conversion

programs will be

finalized

�Training and hand-

over to RI Staff

Plan

� Establish Staffing &

Organization Plan

� Establish Project

Scope, Objective &

Approach

� Kick-off preparation

� Kick-off and

Mobilization

� …

Project W

ork

•Solution Design Document

•MIS Solution GOING LIVE

•MIS Solution for Test

•Business Requirements

Document

•Kick Off Event

•Basic Information

prepared

Project Result

KEY POINTSKEY POINTS

• RISKS

– DATA UNAVAILABILITY

– DATA QUALITY

– RESOURCE UNAVAILABILITY– RESOURCE UNAVAILABILITY

– LOW EFFICIENCY IN DECISION MAKING

• IMPORTANT

– CLEAR STRATEGY ON FUTURE SYSTEM USAGE

– BUSINESS USERS COMMITMENT

– STRONG MANAGEMENT SUPPORT

– BALANCE BETWEEN SIMPLICITY – COMPLEXITY IN CONTRAST TO END VALUE


W W W . N E O S . H RW W W . N E O S . H R

Education

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