The new Basel agreement seeks to fine-tune financial
and banking regulations by recommending prudent risk management
systems, with the expectation that this regulatory framework
will contribute to promoting sound financial systems that
support economic stabilization.
In view of the above, the Banking and Insurance Superintendency
of Ecuador, as the regulatory agency for the Ecuadorian
financial system, set standards to control market and
liquidity risks through resolutions 429 and 421, in 2002,
and is now in the process of setting standards to control
credit and operating risks via regulations 601 and 602
issued in December 2003. A 2004 timetable was thus prepared
for the establishment of a data base containing sufficient
credit risk management elements.
Impact of Basel III on Information and Technology
Systems
This capital adequacy agreement aims at comprehensive
risk management translated into recognition, ongoing monitoring,
and risk mitigation policies. Implementation requires
that financial institutions meet significant challenges,
such as: establish in their organizational structure a
section responsible for risk management; ensure development
in internal methodologies for credit and operating risk
management; conduct extensive data gathering and systematization;
and incorporate of risk control into business, pricing
and capital adequacy policies in order to achieve a "risk-profitability"
balance.
To meet these challenges financial institutions need
to store large amounts of historical data of different
types, apply statistical calculations generating useful
results for internal control and external supervision,
and rely on management information tools operated by a
structure that directs their maintenance, implementation
and use.
FINANWARE Technological Solution
There is a technological solution on the Ecuadorian
market called FINANWARE™ represented by GrupoCONTEXT, which
has enabled prestigious institutions in the domestic financial
system, such as Banco Internacional, Banco Bolivariano,
Banco de Guayaquil, Banco Solidario and Banco del Estado,
and in the international financial system , such as Banco
del Caribe-Scotiabank (Venezuela) and Bancafé (Colombia),
to be at the forefront of the regulations issued for credit
and market risks.
FINANWARE™ is a comprehensive solution combining a Data
Warehouse architecture with a data model specialized in
the financial industry to respond to business queries
that are channeled through the following approaches: financial
and benchmark analysis, market and liquidity risks, credit
analysis, financial and per customer profitability, CRM
analytical and money laundering prevention and control
(CYPLA).
Anticipating the changes in the credit risk regulations
in Ecuador, grupoCONTEXT rolled out for the market in
February 2003, its specialized module FINANWARE IRBa.
Among the main characteristics of this module are:
·
Consolidation of a data
base as part of a business model supporting the analytical
requirements of the IRBa methodology (Internal Ratings
Based approach). This database constitutes a source that
consolidates the risk management systems to prevent distortions
in decision-making between the financial and business
areas, and also facilitates internal audit and the supervision
of the banking control agencies.
·
Integrates calculation
processes to enable gradual adjustments of internal risk
control models in terms of the availability of the institution's
data. This approach conforms to the recommendations of
the Basel committee for the measurement of credit risks,
which do not insist in the implementation of one single
method that is suitable to every type of financial entity
but suggest increasing sensitivity methods, ranging from
the use of ratings by external specialized institutions
to the method based on internal ratings so as to more
precisely reflect the risk profile of each institution.
·
It generates two main results:
the rating of a customer associated with the risk he/she
entails for the institution and it calculates expected
losses (provision) in respect of operation. These results
can be the product of scenarios created under different
rating models that define the criteria used for the evaluation
as well as their specific weight.
· It displays results
in a multidimensional format, thus covering the requirement
of resolution 602 which establishes the risk profile analysis
of the institution according to the type of market and
products it supplies. It also makes available relevant
descriptive variables, such as types of guarantees, maturities,
regional, contractual and sectoral concentration.
·
In addition to the calculations
required under resolution 602, the tool includes the final
result of the credit risk exposure, an element that will
probably be used for credit allocations in cases of delinquency
and adjustments owing to unexpected losses.
The primary assurance of the appropriateness of the solution
is the success with which it has been used by international
financial institutions, for example in Colombia, where
regulations on credit risk management in the financial
system have been in place for the last two years and are
extremely demanding.
By María de Lourdes Guijarro and Víctor Manual
Battaini
