Portfolio Insight

Taking risks without knowing your risk is not a clever strategy, but understanding the difference between risk taken with eyes open and risk taken blindly is very important. So instead of pondering over the risk exposures of your assets, it is smarter to take a closer look at your asset acquisition and portfolio review process, to confirm that your organization is assuming the right measure of risk, with eyes open, and not just by default.

Different dimensions such as country risk, industry risk etc, complicate risk management, as well as the impact of risks on regulatory capital requirements and their effect on the bank's profitability. In such a scenario, Birlasoft offers organizations Portfolio Insight solution, which leverages the benefits of modern tools of Information Technology to view all these aspects in the proper perspective, through the benefit of a centralized risk warehouse.

CLIENT CHALLENGES

• Conducting the key performance (Revenues, Expenses, RARoC, IRR) analysis of loan portfolio (at Portfolio Level, Group level, Relationship level, etc), to ensure checks on the bank's profitability
• Ensuring accuracy in analyzing the impact of a proposal/deal on the existing portfolio, so that it helps in taking decisions on opportunities
• Analysis of domino effect of deterioration of credit rating, adverse interest rate changes and deterioration of country rating
• Monitoring bank's exposure to different risks like exposure to different industries, countries and relationships
• Achieving flexible reporting, facilitating accumulation of results with relevant parameters and in customized forms.

WHAT BIRLASOFT OFFERS

• Portfolio Sector Analysis and Reporting and ad-hoc concentration hierarchies
• Centralizing Credit Data in an integrated data repository
• Risk Adjusted Return on Capital (RARoC) Pricing including total relationship returns, return on equity, shareholder value added
• Integration of bank's internal credit risk models, as well as external and public models suitable for Basel II
• Scenario analysis and stress-testing of groups of loans or across sectors
• High-end decision support framework for visualizing and understanding the capital structure and risk / reward profile within a portfolio

Some of the features included in the Portfolio Insight solution are:

• Ability to "drill-down" and "drill-through" to the underlying transaction data such as, borrowers, facilities, instruments and even cash flows of loans, using dynamic hierarchies.
• Portfolio Insight comes with in-built Reporting Services (a powerful user reporting manager from Microsoft). Reports can be quickly built by non-technical business users, previewed interactively and deployed over the web or corporate intranet to a given audience of users.
• Pricing of new loans for key performance metrics - Return on Equity (RoE) and Risk Adjusted Return on Capital (RARoC). At the front office before the loan becomes finalized and enters the bank's portfolio, the user can enter a new obligor, loan scenario or CDS deal and then price it instantly for Economic Capital, RARoC ex-ante. Users can then adjust key values including fees and estimates of noncredit product income to produce the maximum returns for the bank on the risk capital.
• Portfolio Insight allows a business conglomerate (which covers all the underlying subsidiaries or related companies) to view its returns and profitability, individually for each entity & for the group as a whole.
• Reporting on the total profitability of a company or relationship group, including Non Credit Income products such as transaction services, non-credit fees and financial markets dealings.
• Portfolio calculations for key performance indicators can be embedded into the Portfolio Insight application by users, using Visual Studio for Applications environment.
• The user can build various "what if" or potential portfolios, where credit protection has been bought or sold on borrower names and then the profitability of those "scenario" portfolios over time can be seen in comparison to the current "baseline" portfolio. This allows the Portfolio Manager to see the effectiveness of various hedging strategies and approaches.
• OLAP and "slicing and dicing" data down to the facility and cash flow levels.
• Allows the user to change multiple inputs to a loan or a group of loans and see their effects on the resulting KPI's (Key Performance Indicators), including effects on Economic Capital, Basel Capital, RARoC and customer profitability, over time. The changes to multiple inputs can be combined; including changes in LGD (Loss Given Default), PD (Probability of Default), revenue drivers and interest rates across a user-defined segment of loans in the portfolio and the results can be analyzed as an OLAP cube and graphed using multiple dimensions.
• User defined sub-sectors can be tested with systemic shocks, in fact, the whole portfolio or particular industries can be shocked with iterative changes in key inputs such as changes in PD (Probability of Default) en masse for all obligors and facilities in that sector.

THE BIRLASOFT ADVANTAGE

• Keeping multiple "scenario portfolios" over time, which have been stress-tested for particular systemic shocks or "hedged" using a given hedging strategy. The "scenario portfolio" can be then compared to the "base-line" existing bank portfolio to see the effects over time in capital utilization, RAROC and overall profitability.
• Credit Risk Plus engine comes included with Portfolio Insight (as an optional component) to allow the calculation of Economic Capital, Marginal Risk Contribution and Unexpected Loss at the 99th percentile (or user defined percentile cut off).
• Portfolio Insight allows the placing of limits on segments of the portfolio including Industries, Countries and Relationships and their real-time monitoring for exposures that breach the overall limit.
• Portfolio Insight offers highly interactive reports where the user can have customized reports, drill down, "slice-and-dice", pivot the data and display results as interactive graphic displays.
• Portfolio Insight's Customer Profitability Reporting delivers profitability of a group, including Non-Credit products income such as marketing, servicing and underwriting expenses.