Rapid Development of an ALM System

Transcription

1 Rapid Development of an ALM System Irmantas Kamienas

2 CONTENT Tools developed by RMD Tools developed through the collaboration with the vendors Future plans

3 AB VILNIAUS BANKAS AB Vilniaus Bankas was established in 1990 Leader of Lithuanian financial market Member of SEB Group

4 ASSET LIABILITY MANAGEMENT Interest rate risk management Funding strategy and liquidity risk management Trading risk management Capital adequacy management Profitability management

5 TOOLS DEVELOPED BY RMD Repricing Gap Report Repricing Gap Report by Main Currencies Cash Flow Report Liquidity Report FX VaR

6 REPRICING GAP REPORT

7 TOOLS DEVELOPED BY RMD Repricing Gap Report Repricing Gap Report by Main Currencies Cash Flow Report Liquidity Report FX VaR

8 FEATURES OF REPORTING PROGRAMS General program for data import Separate programs for each report Options are changed in programming code Programming codes consist of: Option putting part Transformation and aggregation Information storing and exporting Formation of html reports Fixed reports supported by EIS applications

9 EIS APPLICATION

10 FX VALUE AT RISK Computation of Value at Risk Import of data Computation of statistics Time series analysis Matrix algebra Programming cycles Reporting Export of results DATA step SAS/STAT SAS/ETS SAS/IML Macro language SAS/GRARH PROC EXPORT

11 TREASURY DATA MART APPLICATIONS Balance sheet Turnovers of B/S and P/L accounts Cash flows Interest rate risk (repricing gap) Portfolio of trading securities FX open position

12 TREASURY DATA MART APPLICATIONS

13 ALM DEVELOPMENT Banking Book Trading Book Credit risk management Traditional ALM Trading risk management

14 Rapid development of ALM system Irmantas Kamienas Vilniaus Bankas Introduction In this presentation we will focus on SAS-based solutions of asset liability management (ALM) in Vilniaus Bankas. We will explain our initial needs and expectations, developed reports and applications, which allow to analyse the balance sheet, cash flows, interest rate gap, securities and FX open positions. Additionally, we will describe the usage of drill down facilities to strengthen data analysis and will present original technical solutions of fixed report creation and multidimensional report optimisation. The cases that will be presented come from the development of SAS applications by ourselves (the Risk Management Department) and from the cooperation between the Bank and SAS consultant. The presentation will also introduce future plans, automation of CAD reporting and application development for credit portfolio risk management. Vilniaus Bankas Vilniaus Bankas was established in 1990 and started its operations as a small commercial bank. Our bank has always been aiming to be a leader in the Lithuanian financial market. Now the Bank provides the widest rage of banking services, also a modern distribution network is developed. Vilniaus Bankas is the largest bank in Lithuania. At the beginning, the Bank focused in expending funding and lending activities. Currently, the assets and the number of transactions are comparably quite large, and one of the main issues is to develop a reliable ALM system with a high level of automation. Asset liability management and the needs of the Bank The asset and liability management is becoming the most critical function of Vilniaus Bankas. In the environment of growing competition, a profitable growth or even the survival of the organisation directly depends on an effective asset liability management. The main functions of ALM in Vilniaus Bankas are: Interest rate risk management Funding strategy and liquidity risk management Management of foreign exchange (FX) and other trading risks Capital adequacy management Profitability management A successful fulfilment of this function highly correlates with the possibility of the management to get appropriate information about the current situation of the Bank s assets and liabilities. To support decision making, the reporting to the Assets and Liabilities Committee (ALCO) was centralised and generally delegated to the Risk

15 Management Department. With regard to that, we demanded integrated, enterprisewide solution for risk and asset liability analytic measurement. It is possible to get inconsistent results by using silo approach with separate measurements. An integrated approach ultimately provides more flexibility and ensures the presentation of consistent information to the management. Tools developed by the Risk Management Department The Bank decided to build the system for the measurement of ALM analysis based on SAS. Using SAS software, the following reports are currently made for the ALCO: General Interest Rate Repricing Gap Report; Interest Rate Repricing Gap Report by Main Currencies; Cash Flow Report; Liquidity Report; FX VaR 1 Report Also, interest rate duration gap report will be soon introduced. One of the mentioned reports General Interest Rate Gap Report is presented in Exhibit 1. Exhibit 1 Data for all the reports are loaded from multiple sources. The bulk of the data comes from PLATON, the main transactional system of the Bank, in text tables format. The information about treasury transactions is accessed in Sybase database by using SAS/ACCESS. All data are unified and stored in SAS data files. After that, all data about products are converted into cash flows and stored in one denormalised data table. Additional variables such as expression in domestic currency, cash flow probability or dependence to particular time bucket are computed. The advantage of holding all data in denormalised shape is that it is possible to use the same transformed information for different reports. All mentioned reports are mainly tabulated using the cash flows data, only the level of instrument classification or rules of cash flow putting into particular time bucket differ (see Exhibit 1 and Exhibit 2). 1 VaR Value at Risk

16 Cash flows are mapped into time buckets of interest rate repricing report by repricing maturity and in case of cash flow report cash flows are mapped into buckets by time to maturity. Exhibit 2 The main features of reporting programs developed by the Risk Management Department: 1. General block (one program) for data import from different sources. It assures that all reports are formatted from consistent data. In case some changes in primary data sources are introduced or a new transactional system is implemented, we have to change only one data import program. 2. Separate programs for each report are created. Also there is possibility to include all report programs into one main program by using the statement %INCLUDE. When some particular report is changed, i.e. programming codes of this report are changed, that does not affect the rest of reporting programs. 3. All data import and reporting programs operate without frames, buttons, menus, so the interaction between the user or analyst and the program, in terms of the programmers, is not friendly. All options can be changed only in programming code. It is a drawback, but in case we are both developers and the final users, it is not difficult to put options directly into the programming code and it also saves the programming time. 4. All programming codes consist of the following parts: 1) Option putting. In this part of the program, the analyst can define such parameters as reporting date, numbers of time buckets and particular intervals of such buckets, data sources, Excel or html output paths and so on. So although the environment for option putting is not convenient, reporting programs are still quite flexible. 2) Transformation and aggregation. All data are aggregated and transformed into a form proper for analysing. 3) Information storing and exporting. Historical information is stored in SAS data sets. Also necessary information is exported into Microsoft Excel and Microsoft Access files. Additionally, MDDB files are made for EIS aplication. 4) Formation of html reports. Now we are working on moving the final reporting from Excel to html. 5. To support fixed reports, we developed a few simple EIS applications. In these applications data drill down facility is realised. It helps to investigate changes of risk

17 profile and reasons of such changes. Drill downing provides a possibility to analyse the data more deeply. Exhibit 3 presents the layout of EIS application. In this application it is possible to use various hierarchies and analysis variables like cash flows in original currencies or expressed in Litas, cash flows adjusted by their probabilities and so on. Exhibit 3 FX VaR report is a daily report. It is produced before every working day automatically running scheduled SAS batch job. VaR report is produced in html format (see Exhibit 4) and is distributed via Lotus Notes Management information system. Exhibit 4 VaR is quite a complicated risk measurement method and we do not want to go into details of such calculations, just will mention that we are using SAS/IML for

18 matrixes calculations and SAS/STAT for statistical analysis of market price volatility. FX VaR application stores historical market volatility as well as open FX positions of the Bank, so it is possible to analyse the historical VaR development. Tools developed through the collaboration with the vendors The reviewed reporting system has two main drawbacks: not strong enough control of primary data and restriction on reporting and analysis tool usage, application can be mainly used only in the Risk Management Department. These drawbacks will be solved with Data Warehouse project. This project started in February In the first stage of Data Warehouse project, treasury data mart and various applications for asset and liability management have to be implemented. Treasury data mart has to be done on Oracle software, while application will be developed with SAS software. In this project two vendor companies are involved, Oracle disrtributor in Lithuania and the official SAS system consultant in Lithuania Paspara Ltd. The written applications (we call them Treasury Data Mart applications) cover such areas of ALM: Balance sheet; Turnover of B/S and P/L accounts; Cash flows; Interest rate risk (repricing gap); Portfolio of trading securities; FX open position. Applications can be divided into: static reports; multidimensional reports; graphs. Contrary to the reporting programs described above, these applications take data from Data Warehouse, so the responsibility for data reliability and for ALM methods is clearly divided. Treasury Data Mart applications are developed in a user-friendly manner. It is not necessary to know SAS programming for working with these applications. All applications can be reached clicking buttons from the central menu window (see Exhibit 5). Exhibit 5

19 Advantages of Treasury Data Mart solution is that applications as well as primary data are physically located in a server and applications can be used in all terminals where SAS is installed. If some changes are made in applications, all updates in terminals are made automatically. In Treasury Data Mart we tried to develop application for reporting on capital adequacy. The size and structure of the Bank s capital is regulated by the central bank of Lithuania. Commercial banks have to report capital adequacy monthly. The form of the report is defined by the central bank regulations. To automate this reporting, the html template of capital adequacy report was made. Codes for all variables in this report were assigned. Variables are calculated from primary data located in data mart and then in DATA step codes of variables in report template are changed into real values of variables. To optimise performance of multidimensional reports (multidimensional applications), some character values of dimensions in MDDB files are replaced by numeric codes. Instead of using actual long character values, formatted values of class variables are used. For example, in balance sheet multidimensional application the user can see actual names of balance sheet accounts drill downing from one account level to another, but physically account numbers in MDDB file are stored and also balance sheet account format is created, which outputs balance sheet account names into computer screen instead of their numbers. Future plans Traditional asset liability management moves to a broader concept enterprise-wide risk management. As shown in Exhibit 6, enterprise-wide risk management integrates management of all main risk categories arising in the Bank s activities. Exhibit 6 Our vision is to expand ALM system to a risk management system by developing a wide range of risk measures, methodologies and applications. It also will require adapting Data Warehouse to credit exposure and performance measurement. We are especially interested in the development of applications for credit portfolio risk management. Introduction of such a system will allow to calculate risk capital and its allocation. Also, it will be possible to evaluate risk return trade-off better. It provides Vilniaus Bankas with competitive advantages in the Lithuanian banking market where falling of margins is observed.

20 Another aim of the future system development is to integrate risk reporting to the central bank into a general automated system of risk management. The Bank of Lithuania is changing old capital adequacy rules into new ones by including capital requirements from market risk side and trading activity. Maybe after some time we will also be allowed to use own in-house models for market risk measurement. Trademarks SAS and all other SAS Institute Inc. products are registered trademarks or trademarks of SAS Institute Inc. Other brand and product names are registered trademarks or trademarks of their respective companies.