<Insert Picture Here> Management Excellence in Financial Services Işıl Kılınç Gürtuna Director, Financial Services Business Unit,ECEMEA
The following is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for Oracle s products remains at the sole discretion of Oracle. 2009 Oracle Corporation Proprietary and Confidential 2
Russia Banking Market Has Been And Still Is One Of The Fastest Growing Markets On The Globe Aggregate net revenues before tax in the banking sector USD Bln Source: Sberbank: 2009-2014 Strategy Highlights, Analyst Presentation 2009 Oracle Corporation Proprietary and Confidential 3
Russian Banking Market Likely To Demonstrate Continued Strong Growth Maturity and Revenue Growth in Russia & Selected Countries Russia Revenue Pool Projection Retail & Private Banking Commercial & Corporate Banking US$7 0 Bn 36 US$2 12 9.5 Bn 17,5 19% 14% 34 2007 2012 F Russian banking market is growing much more quickly than those of its geographic neighbors By 2012, the percentage of mass affluent and affluent people in Russia will rise to 30% from 8% today In a country of 141 million people, that s an addressable urban market of more than 100 million Russian commercial banking is not as well developed as commercial banking in other major economies Rapid growth of new Russian industries will create new growth engines, beyond the existing ones of energy and mining Source: Booz & Co: Opportunities and Risks in the Russian Banking Market 2009 Oracle Corporation Proprietary and Confidential 4
Low Penetration Shows Strong Opportunities In The Russian Banking Sector Banking Penetration Volumes y/y % change Relatively low banking penetration an opportunity So far, the banking sector was strong in intermediation for retail, while large corporate was largely relying on international markets The liquidity shortage and limited access to international capital markets an important opportunity for strong banks corporate now turn to domestic banks for loans, while some weaker players might be constrained in their growth strategies Lending growth to decelerate, but still around 30% yoy CAGR Consumer credit (today accounting for 76% of total retail lending) a lively business, with 23% CAGR 2007 2010 Mortgage on a booming phase, with more than 60% annual growth in 2007-2010 Corporate Lending with 29% annual growth in next 3 years Source: UniCredit Presentation, June 2008
Strong Profitability, With All Russian Banks Focusing on Expansion Plans Profitability drivers 2007 2008 2009 2010 Net Interest Income 760.6 998.8 1313.9 1567.3 yoy change 38.6% 31.3% 31.6% 19.3% Non Interest Income 512.2 695.5 917.8 1280.8 yoy change 32.0% 35.8% 32.0% 39.6% Net Revenues 1272.7 1694.3 2231.7 2848.1 yoy change 35.9% 33.1% 31.7% 27.6% Operating Costs 616.6 856.1 1128.8 1405.2 yoy change 38.2% 38.8% 31.9% 24.5% Provisions 159.2 258.5 371.7 516.15 yoy change 26.4% 62.4% 43.8% 38.9% Profits (Before tax/ extr. items) 496.9 579.7 731.2 926.7 yoy change 36.4% 16.7% 26.1% 26.7% Profits y/y % change Key Highlights: Some widening of spreads, with moderation in volumes growth Strong network expansion program from all the banks in the market, to keep the cost/income ratio more or less stable Stronger risk aversion to lead to some more provisioning Profit growth to remain double digit 39,2 37,4 30,1 30,6 23,9 2006 2007 2008 2009 2010 Source: UniCredit Presentation, June 2008 2009 Oracle Corporation Proprietary and Confidential 6 6
Banks in Europe Are Facing Increased Commoditization 1. Increased Regulation SEPA Customer protection 1 Transparency on banking fees 2. Increased Competition INCREASED REGULATION New entrants with low price strategy on: Payments (Telco operators) 3 Traditional Retail Banking Model Under Pressure 2 Savings (ING Direct, HSBC Direct) Day to day banking (Boursorama, First Direct) Traditional banks multiplying discount offers INCREASED CUSTOMER PRESSURE INCREASED COMPETITION Aggregators pressuring margins 3. Increased Customer Pressure Consumer advocacy groups actions on prices, quality/ satisfaction Attracting clients Source: Retail Banking Trends 2009: Escaping the crisis (EFMA & Nordea) 2009 Oracle Corporation Proprietary and Confidential 7
Key Focus Areas Timely & Accurate Financial Information Real-Time Business Intelligence Customer Centricity Operational Efficiency 2009 Oracle Corporation Proprietary and Confidential 8
Key Focus Areas Timely & Accurate Financial Information Real-Time Business Intelligence Customer Centricity Operational Efficiency Banks need to develop a more holistic and flexible approach to governance, risk and compliance: Assess current processes and identify gaps or risks in documentation, data integration and management processes Redesign and automate key processes especially manual intensive processes Implement greater use of analytics build in flexibility to analytic processes and tools so future change in regulations are implemented timely and cost effectively. Implementation of a common data foundation, analytics platform, and accounting engine across the entire enterprise for finance, risk and performance management data. 2009 Oracle Corporation Proprietary and Confidential 9
Key Focus Areas Timely & Accurate Financial Information Real-Time Business Intelligence Customer Centricity Operational Efficiency Create an environment with flexibility to consolidate information into a trusted, single source of truth repository Synchronize data for a consistent enterprise view quickly integrate financial and HR systems and policies Leverage master data to improve customer and product centric business process and analytics Leverage a common integrated and flexible IT platform to reduce headcount and maintenance of data environments Provide management with analytics to support decision making and establish accountability Develop and deploy rule based process flows and standard interfaces to eliminate inconsistent and custom processing across the enterprise 2009 Oracle Corporation Proprietary and Confidential 10
Key Focus Areas Timely & Accurate Financial Information Real-Time Business Intelligence Customer Centricity Operational Efficiency Increase focus on payments mobile banking and demand for more pre-paid card payment options Improve customer onboarding to gain market share from declining institutions Deliver relevant customer information to all employees at the point of customer interaction common view of customer relationship across all channels Facilitate speed to change by leveraging an open source application framework to drive single view of customer across channels Shift to software as a service providing the ability to introduce new products and capabilities faster, reduce operating costs and deal with fluctuations in demand Enhance collaboration across business units to drive continuous creation of new generations of products and services Improve collections capabilities Perform customer profitability analysis and then tier offerings to customers 2009 Oracle Corporation Proprietary and Confidential 11
Key Focus Areas Timely & Accurate Financial Information Real-Time Business Intelligence Customer Centricity Operational Efficiency Drive standard global processes and best practices that are agile and flexible to changes in the business Shift costs from fixed to variable provide a comprehensive view of spend relative value and impact of identified costs Drive improved and enhanced what if scenario modeling capabilities Implement tools that provide visibility into costs and expenses and impact enable senior management to make both tactical and strategic decisions Embrace activities that can propel cash flow Evaluate projects with a short-term perspective projects need to justify investment in 90 days or less stress the business value, short-term return on investment and cost control 2009 Oracle Corporation Proprietary and Confidential 12
<Insert Picture Here> Management Excellence in Financial Services 2009 Oracle Corporation Proprietary and Confidential 13
The Next Wave: Extend Operational Excellence to Management Excellence Competitive Advantage MANAGEMENT EXCELLENCE OPERATIONAL EXCELLENCE Time 2009 Oracle Corporation Proprietary and Confidential 14
Pillars to Achieving Management Excellence SMART Rationalize Your Management Systems AGILE Integrate Management Systems with Operational Systems ALIGNED Share Insights Across the Extended Enterprise 2009 Oracle Corporation Proprietary and Confidential 15
<Insert Picture Here> Finance and Risk Adjusted Performance New Measurements for the Banking Business Model 2009 Oracle Corporation Proprietary and Confidential 16
Topics for Discussion Why Now Measurements Regulators Investors Employees Customers Architectural Scenarios 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 17
Industry Response to Lessons Learned from Financial Crisis Source: "Navigating the crisis: a survey of the world's largest banks, Ernst & Young, 2008 2009 Oracle Corporation Proprietary and Confidential 18
. Watch Out Needed the Crisis to Do Basic Reform of The Financial Sector Credit Risk Pricing and Management Liquidity Management - 6 th Oct 2009 announcement Balance Sheet and Capital Management (Stress Testing) Revision to Basel II Internal Capital Adequacy Assessment Process (ICAAP) Revision to IFRS Risk Adjusted Performance Management (RAPM) Fast Payout Deposit Guarantee Scheme 2009 Oracle Corporation Proprietary and Confidential 19 2009 Oracle Corporation Proprietary and Confidential Slide:19
Why Now The Alignment of the Planets Shared intent of Senior Management Technologies to address the data complexity and quality issues have arrived Disparity in analytical models is being addressed to share models, assumptions, and scenarios Knowledge that it can be done differently: planning, target settings, operating and monitoring activities can follow a similar pattern and linked to deliver an integrated result. Source: Accenture 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 20
Why Now The Role of the CFO To provide accurate and reliable information to the management, shareholders, and capital markets Strategic advisor and driver Risk aggregator 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 21
Financial Transformation Defining Concepts Best Practice is Achieved in Two Steps In day-to-day processing it refers to the incremental steps of converting individual transactions into accounting entries. As a strategic initiative it means the realigning the finance function so that it integrates across lines of business to provide better insight and advice to management for more informed decisions. To achieve these steps, a Ledger Architecture must simplify everyday processing, prove flexibility, and demonstrate scalability to support the company s structure now and in the future. 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 22
The New Architecture Begins with New Event-Based Accounting Flows 2010 Oracle Corporation Proprietary and Confidential
Each Business Event is Transparent and Account Applications Core Banking Subledger S&S BO HR Entities Loans Deposits Investments Lines of Credit Events Classes Real Estate Loans Consumer Loans Non Time Deposits Time Deposits Events Types Charge Off Fee Payments Template Charge Off Template Fee Payments Accrued Interest Receivable Credit Interest Accrual Reversal Late Payment Template Interest Accrual Reversal Template Late Payment Late Fees Credit Loans Cash Debit Account Derivation Rule * Line Description Loan Origination Template Loan Origination Loans Credit Loan Interest Accrual Template Loan Interest Accrual Journal Definitions Journal Lines Types Account derivation rule & Line Description 2009 Oracle Corporation Proprietary and Confidential 24
Measurements - Regulators IFRS Providing better view to Senior Management thinking Banks need a consistent picture between Pillar 3 and IFRS disclosures For credit and market risk, most qualitative disclosures can be aligned Reconciling differences Accounting Scope Frequency 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 25
Regulators Basel 2 and Basel 3 Present International standard that regulators can use to determine how much capital their constituent banks need to set aside to protect against loss. What is Coming Quality, consistency, and transparency of capital base raised Risk coverage of capital framework expanded Leverage ratios supplement measurement Capital buffers Global minimum international Liquidity standard 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 26
Measurements - Investors Flight to (Economic) Capital Comparing economic capital requirements with available capital to gauge whether the degree of leverage is appropriate for the amount of risk undertaken and the institution s desired credit quality Risk Adjusted Return On Capital (RAROC) placing an explicit cost on risk For example, a bank may require that a transaction that risks $100 million in bank capital must earn at least $25 million in present value. This cutoff percentage (25%) can be called RAROC One of the most important jobs of a CEO or CFO is capital allocation Wa 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 27
Analytic Applications Central to Decision Making Performance Customer Insight Profitability Planning Consolidation Marketing Insight Channel Insight Service Insight Risk Management Credit Risk Treasury Risk Regulatory Capital (BASEL II) Economic Capital Compliance Governance & Compliance Fraud Risk Regulatory Risk Operational Risk 2009 Oracle Corporation Proprietary and Confidential 28
Investors Ability to Manage Intersections Determines Management Excellence Performance Management Risk Management Customer Insight Governance & Compliance 2009 Oracle Corporation Proprietary and Confidential 29
Measurement - Employees Risk Based Compensation The Bonus Pool at Merrill Lynch in 2008/09 Thain called to testify on Merrill bonuses By Greg Farrell in New York Published: January 27 2009 John Thain was issued a subpoena on Tuesday to testify about Merrill Lynch s payment of nearly $4bn in employee bonuses last month just days before the closing of its sale to Bank of America. Merrill paid the bonuses even as its fourth-quarter losses were mounting Economic Capital as Compensation Tool for the Operational Level 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 30
Employees Capital Based Budgeting & Balance Sheet Planning Analysts Define Target Balances and New Add Volume Cash Flow Characteristics Features: Shift the focus from balance sheet aggregates to net new business More accurately forecast net interest margin Benefits: Plans and forecasts now have an unprecedented level of accuracy New business and earnings become the benchmarks, rather than total outstandings and volumes The institution has a useful tool for measurement, control and target setting Target Input Tools Help Generate Projected Balances Enter New Add Balances Directly or Enter Outstanding Balance and Let System Compute Required New Volume Maturity Mix Assumptions Define New Add Balance Cash Flow Characteristics Default Assumptions Can Be Centrally Defined Analysts Can Tailor Defaults to Their Business Mix New Add Balance Maturity Mix Assumptions for April: 25% - 120 Month Term, 1% Spread 50% - 240 Month Term, 1.25% Spread 25% - 360 Month Term, 1.75% Spread 2009 Oracle Corporation Proprietary and Confidential 31
Measurement - Customers Risk and Relationship Pricing Factoring in cost of capital and risk into front line pricing & decision could enable up to 1% increase in Economic Profit Accenture 2010 Pricing by Product Pricing by Customer 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 32
Customers Risk and Relationship Pricing RAROC Model - risk-based pricing of loans sets hurdle rate of return based on incremental costs of loan plus target profit margin Direct Costs of Origination Costs of Funding (borrowed funds plus incremental capital Taxes Overhead Set price based on the return/risk ratio of comparable benchmark portfolio no industry-standard benchmark portfolios for loan portfolios Use existing return/risk ratio of loan portfolio to define target return 2010 Oracle Corporation Proprietary and 2009 Oracle Corporation Proprietary and Confidential 33
Strategy and Architecture OFSAA 2009 Oracle Corporation Proprietary and Confidential 34
Components of Architecture for Risk & Finance Source Systems Common Staging Area Financial Accounting Hub General Ledger Financial Management Customer General Ledger (THICK) General Ledger (THIN) Financial Consolidation CRM Source Systers Core Systems Account Ledger Transactions Enterprise Dimensions Accounting Rules Thick GL Thin GL Daily Average Balance Financial Adjustments Analytical Applications for Management Reporting (Analytical data store and engines) Dashboards, Reports, Ad Hoc OLAP Analysis Data Quality Profitability Enterprise Performance Management FTP Planning ALM Other Systems Reference Data Financial Recon Adjustmnts Enterprise Risk Management Basel II ICAAP IFRS Stress Test Alerts & Exception Based Management 2009 Oracle Corporation Proprietary and Confidential 35
Unified Process Flow to Financial Systems Source Systems Sub Ledgers Billing and Revenue CRM Source Systers Core Banking Systems Common Staging Area Customer Account Ledger Transactions Enterprise Dimensions Data Quality Fernbach IFRS Financial Accounting Hub General Ledger (THICK) Accounting Rules Thick GL Thin GL General Ledger General Ledger (THIN) Daily Average Balance Financial Adjustments Financial Management Financial Consolidation Analytical Applications for Management Reporting (Analytical data store and engines) Enterprise Performance Management Profitability FTP Planning ALM Dashboards, Reports, Ad Hoc OLAP Analysis Other Bank Systems (Channel etc.) Reference Data Financial Recon Adjustmnts Enterprise Risk Management Basel II ICAAP Operational Risk Stress Test Alerts & Exception Based Management 2009 Oracle Corporation Proprietary and Confidential 36
Oracle Financial Services Analytical Applications Performance Management and Finance Profitability Funds Transfer Pricing Consolidation Accounting Hub Credit Risk Activity-Based Costing Budgeting and Forecasting Reconciliation Analytical CRM Retail Credit Risk Corporate Credit Risk Treasury Risk Loan Loss Forecasting Hedge Management IFRS 9 IAS 32/39 RAPM Performance Management Pricing Management Customer Profitability Portfolio Analytics Marketing Analytics Service Analytics Market Risk Balance Sheet Planning Asset Liability Management Liquidity Risk Stress Testing Regulatory Capital Basel II Retail Portfolio Risk Models and Pooling OFSAA Risk Management Customer Insight Channel Insight Channel Usage Channel Performance Economic Capital Stress Testing Know Your Customer Economic Capital Advanced (Credit Risk) ICAAP Governance & Compliance Operational Risk Economic Capital Regulatory Compliance (Financial Crime) Anti-Money Laundering Fraud Detection Broker Compliance Trading Compliance Governance and Compliance Operational Risk 2010 Oracle Corporation Proprietary and Confidential 2009 Oracle Corporation Proprietary and Confidential 37
Customer Advisory Board Members 2009 Oracle Corporation Proprietary and Confidential 38
Enterprise Performance Management Performance Dashboards & Reporting Enterprise Wide Performance MIS & Regulatory Reporting Performance Measurement & Management GL based Profitability Funds Transfer Pricing Customer Profitability Budgeting Forecasting Balance Sheet Planning Computations & Engines Cost Allocations Cash Flow Engine Yield Curve Mgt Online Data Acquisition Aggregations Data Preparation G/L Reconciliation Common Data Repository Bank s Data Sources Accounting Hub Operational Systems Market Data Sources Enterprise Data Warehouse General Ledger 2009 Oracle Corporation Proprietary and Confidential 39
Announcing Oracle Financial Services Enterprise Performance Management Oracle Financial Services Profitability Management Oracle Financial Services Profitability Analytics 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 Early adopter release in September 2009 GA release in December 2009 2009 Oracle Corporation Proprietary and Confidential 40
New Enhancements Oracle Funds Transfer Pricing Enabling Financial Institutions to Determine the Spread Earned on Assets/Liabilities, and the Spread Earned as a Result of Interest Rate Exposure for each Customer Multi-currency User Interface TP Method Enhancements TP Add-on Rates Integration of Real-time Pricing TP Methods Available for ALM Forecasting TP Methods Available for BSP Forecasting 2009 Oracle Corporation Proprietary and Confidential 41
Oracle Pricing Management, TP Component Enabling Financial Services Institutions to provide Real-Time Transfer Rate Indications in Support of Pricing Loan Transactions Self Service Real Time information generating deal-specific pricing information to help understand hurdle rates Inclusive of the transfer rate, multiple add-on rates, allocated expenses, loss estimates and required capital. Run for pre-defined standard products or custom products Queries leverage same engine as Oracle FTP 2009 Oracle Corporation Proprietary and Confidential 42
New Enhancements Oracle Profitability Management Enabling Financial Services Institutions to Calculate Profitability information by Products, Channels, Segments, and even Individual Customers, on a Risk-Adjusted Basis Improved Auditability Visual trace of allocation history Allocation interdependency and ability to discriminate debits & credits in results Model Structuring Standardized model and seeded rules for account level profitability Performance & Scalability Industry specific and purpose built solution for all financial services institutions Capable of highest transaction throughput of tier one banks Account Level Profitability Built for lowest level account, transaction and customer level profitability Works with Hyperion Profitability & Cost Management for top-down and bottom-up profitability 2009 Oracle Corporation Proprietary and Confidential 43
Financial Services Business Intelligence 2009 Oracle Corporation Proprietary and Confidential 44
New Enhancements Oracle Asset Liability Management Enabling Financial Service Institutions to Measure/Manage Interest Rate Risk and Liquidity Risk, Perform Balance Sheet Valuations, and Forecast Net Interest Income Extended Derivative Product Coverage Improved functionality for Liquidity Management and additional ALM outputs Improved ALM Reporting (OBIEE) Improvements to Parameter Estimation New Financial Measures Dependent Forecasting Compliant with latest FSA Liquidity requirements 2009 Oracle Corporation Proprietary and Confidential 45
Oracle Balance Sheet Planning Enabling Financial Services Institutions to budget for a full balance sheet and the associated Net Interest Income Based on Cash Flows Cash Flow Balance Sheet & Net Interest Margin Planning Built on top of Hyperion Planning, leveraging Essbase and User Interface Separate Hyperion Planning Module (Like CAPEX & Workforce) Integration with Hyperion CapEx and Workforce Planning Integrated with Oracle Financial Services Profitability Management, Funds Transfer Pricing, and ALM 2009 Oracle Corporation Proprietary and Confidential 46