Transcript PowerPoint Proposal Intermediate Print Template

Credit management around Basel II
Rome, September 2004
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Copyright © 2004 Accenture. All rights reserved.
Agenda
PART I - BASEL II
– Why Basel II?
– A short insight
– Basel II running Roadmap
PART II - MAIN IMPACTS and OPPORTUNITIES
– Banks perspectives main issue
– Rating and information
– The importance of enterprise credit integrity
– Opportunities for credit integrity services market
– Summary
2
Copyright © 2004 Accenture. All rights reserved.
Why Basel II?
FINANCIAL TRENDS
1
Competitive landscape
• Increase of services demand
• Offer pressures
• Risk complexity
2
Regulation evolution
• Need to link bank credit
operations to risk- asset
covering ratio rather than
traditional methods
3
NEED and PERSPECTIVE
Investor pressures
Guarantee, through a
measured and
systematic risk
performance
approach, system
financial stability
and security.
Uniform system
banking regulation
diminishing inequality
competitive national
sources
3
BASEL II
APPROACH
Increase
Credit Risk
management
Supervision
Market
transparency
Copyright © 2004 Accenture. All rights reserved.
A short insight
The New Basel Capital Accord
Published in January 2001, the New Basel Capital Accord proposals are a
revision of the 1988 original (the current standard for capital adequacy in banks)
Pillar I – Minimum Capital Requirements
Stipulating capital charges to motivate banks to
improve their risk management and measurement
capabilities
Pillar II – Supervision
Creating a supervision framework to encourage best
risk practices and to ‘mop up’ other risks (e.g.
strategic, reputational)
Basel II
Pillar III – Market Discipline
Requiring banks to disclose, in detail, capital structure,
risk exposures and capital adequacy
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Copyright © 2004 Accenture. All rights reserved.
A short insight
Pillar I – Minimum Capital Requirements
The new Accord maintains the current definition of total capital and the minimum 8%
requirement*
Total capital
= Bank’s capital ratio
Credit risk + Market risk + Operational risk (minimum 8%)
Total Capital
Total capital = Tier 1 + Tier 2
Tier 1: Shareholders’ equity + disclosed reserves
Tier 2: Supplementary capital (e.g. undisclosed reserves, provisions)
Credit Risk
The risk of loss arising from default by a creditor or counterparty
Market Risk
The risk of losses in trading positions when prices move adversely
Operational Risk
The risk of loss resulting from inadequate or failed internal processes,
people and systems or from external events
* The revisions affect the denominator of the capital ratio - with more sophisticated measures for credit risk, and introducing an explicit capital charge for
operational risk
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A short insight
Pillar I – Credit Risk
Pillar 1 – Credit Risk stipulates three levels of increasing sophistication. The more
sophisticated approaches allow a bank to use its internal models to calculate its
regulatory capital. Banks who move up the ladder are rewarded by a reduced capital
charge
Advanced
Internal
Ratings Based
Approach
Foundation Internal
Ratings
Based Approach
Banks use internal estimations of PD,
loss given default (LGD) and exposure
at default (EAD) to calculate risk
weights for exposure classes
Banks use internal estimations of
probability of default (PD) to calculate
risk weights for exposure classes.
Other risk components are
standardized.
Standardized
Approach
Risk weights are based on
assessment by external credit
assessment institutions
Reduce Capital requirements
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Copyright © 2004 Accenture. All rights reserved.
A short insight
Pillar I – Credit Risk
Some analysis conducted by Bank of Italy suggested that, concerning Credit Risk model,
Large Corporate Banks aim to adopt IRB advanced and that projects are already started
Approach (first 20 groups) *
Standard
Start of program **
15%
70%
15%
IRB
Foundation
70%
18%
IRB
Advanced
12%
< 2000
Program situation *
2000-01
2002
Internal Rating sources **
Project not started
13%
Project started but ratings not
available
52%
Early ratings but just yet
adopted
18%
Ratings available and used
17%
(*) Information questionnaire on banks adequacy projects to Basel II requirements
(**) Panel interviews of 17 Banks
Internal staff + external
consulting +internal source data
58%
Consultancy + internal
source data
24%
External staff + external
source data
18%
Source: Bank of Italy, 2002
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Copyright © 2004 Accenture. All rights reserved.
A short insight
Pillars II and III - Supervision and Market Discipline
Pillar II sets the framework for strategic capital management, and outlines the
supervisory powers….
Key principles
Pillar II:
Supervision
Process for assessing capital adequacy
• Optimal level and composition of capital will depend on bank’s business
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Supervisor’s powers to review and evaluate bank’s capital adequacy assessment
• Supervisory review process: on-site examinations or inspections, off-site review, discussions with bank
management, review of work done by external auditors, periodic reporting
3
Banks expected to operate above minimum regulatory capital ratios
• Concept of economic capital reinforced
4
Supervisor’s intervention powers
• Provides supervisors with additional discretionary powers to intervene if they are concerned with the
bank’s failure to meet the requirements
…. whereas Pillar III will reinforce minimum capital standards and supervisory review process
Pillar III:
Market discipline
Key features
•
•
•
•
•
Qualitative & quantitative disclosure on capital and capital adequacy
Disclosure of risks and techniques used to identify, measure, monitor, and control key banking risks
Disclosure if using different approaches to assessment of regulatory capital
Disclosure based on the concept of materiality, at a minimum of a semi-annual basis
Management has discretion in the appropriate medium for disclosure (e.g website, regulatory filings) for those
that are not mandatory under accounting or other requirements
• Failure to comply with mandatory disclosure could result in remedial action, e.g cannot apply IRB
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Emerging evidences
Increased client credit
risk will be associate to a
major capital requirement
and, to guarantee a
profitable margin for banks,
a greater interest rate for
client
Illustrative interest rate
by 2007 Banks have to
adopt a rating system to
gain a closer correlation
between risk and capital
required to cover the risk
Capital Requirements
(% on Credit distributed)
A short insight
50
Capital requirements
vs. rating
40
30
20
10
0
AAA
Basel I (today)
Basel II: Foundation Approach (Internal Method)
AA+
AA
AA-
A+
A-
BBB+
BBB
BBB-
BB+
BB-
B+
B-
CCC
CC
Rating S&P equivalent
22%
20%
18%
16%
14%
12%
Interest rate vs.
Probability of default
10%
8%
6%
4%
Probability of Default
9
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Basel II running roadmap
The original 2004 date for implementation has been extended to 2006 to allow
time for an extended impact study and consultation period
2001
16 Jan Second
Consultative
Paper published
31 May Industry
comments and
responses
received
13 Dec Revised
2002
timetable
announced
2002
1 Oct
Initiation of
QIS 3
20 Dec QIS 3 response
deadline
2003
May
Publication of
the Third
Consultative
Paper (CP3)
End Jul Close of CP3
consultation
period
End Oct Publication of
New Basel Capital
Accord
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2004
2005
2006
1 Jan
Hiatus period for
regional and
national
rulemaking
procedures and
adaptation of
banks' internal
systems,
supervisory
processes and
regulatory
reporting
Start
parallel
running of
Basel II
31 Dec Start
live
application of
Basel II
To 2009 Transition
period
Copyright © 2004 Accenture. All rights reserved.
Agenda
PART I - BASEL II
– Why Basel II?
– A short insight
– Basel II running Roadmap
PART II - MAIN IMPACTS and OPPORTUNITIES
– Banks perspectives main issue
– Rating and information
– The importance of enterprise credit integrity
– Opportunities for credit integrity services market
– Summary
11
Copyright © 2004 Accenture. All rights reserved.
Banks perspective main issue
Basel II represents a “must” for the banks but also an opportunity
Compliance
• Committee requirements adequacy
• Review Portfolio performance measures
Opportunity
• Pricing risk strategy
Banks could have the opportunity to increase
portfolio margins through adequate client risk
information in order to interpret as best client
financial demand and activate right portfolio
strategies
• Re-engineering of Basel
II interested process
(such as Credit
management, Risk
monitoring and
governance,..)
Rating approach will determine a need to
standardize and to automate some critical Credit
management activities underling the need for the
Banks to have “day by day” quality information
and continuous updated client profiles to
support suitable credit policy and revision, efficient
monitoring and quick credit recovery
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Copyright © 2004 Accenture. All rights reserved.
Rating and information
Basel II inevitably involves Banks-clients business approach favoring a more
structured deal-view correlated to client rating importance and treatment….
Bank internal rating model
External data
• Balance Sheet
• Risk system information
Internal data
• Historical data flow (credit amount,
level of use,.)
Class
Each client is
linked to a class of
risk
• Credit Position Control Flows (CPC)
for the historical analysis of
anomalies
• Other qualitative ones
External rating supplied by international rating agency. Actually, only a part
of quoted company have external ratings
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1
2
3
4
5
6
7
8
9
Risk-Pd
0,10%
0,15%
0,35%
0,55%
1,30%
3,45%
5,85%
12,95%
33,80%
Illustrative
Copyright © 2004 Accenture. All rights reserved.
Rating and information
…. so, for the client, is definitely crucial to control the variables, apart from ones
bank-related (credit amount and level of use, guarantees,..) that can contribute to
rate
Which variables?
Strategic Potentials
•
•
•
•
Strategic plan
Market penetration
Customer value
Business process
Economics
•
•
•
•
•
•
Financials
Break-even
Margin analysis
Profit & Loss
Variances
Non operating results
Fiscal events
•
•
•
•
•
Balance sheet
Cash flow
Financial ratios
Shareholder value
EVA, FCF….
During the afternoon workshop
There will be a focus on the added value of Debt
Collecting Agencies on managing financial and
credit information and data
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Copyright © 2004 Accenture. All rights reserved.
The importance of enterprise credit integrity
More then before, with Basel II, enterprise credit management area will
represent a main company lever to drive ratings variables; moreover, it will be a
consistent opportunity for the companies to substitute traditional debt source
(especially for small-medium companies), reduce risk and gain a better bank
credit access
Some main benefits
associated to credit
optimization




Rating Variables and
estimated Credit
contribution
Economics
Working capital effectiveness improvement
Growth perspective
Treasury and cash-flow benefits
Economic Margin uplift
Financials
15
Copyright © 2004 Accenture. All rights reserved.
The importance of enterprise credit integrity
According to facts, more than 70% of a panel of 70 Italy north-east companies
find that credit risk has felled as of a primary importance area…
....reinforcing the concept and underlying a needs in this area of business
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Credit integrity services opportunities
So far, we can suggest, Basel II correlated and as enterprise point of view, an increase of
the demand of services associated to credit, that could enlarge the traditional market width
of credit services involving new opportunity areas (Credit and risk management, Financial
planning, Training) and potentate the size of the basic (primarily credit surveillance and
credit information)…
Opportunities areas
IT support and
integration solutions
Financial
Planning
Credit and
risk
managemen
t
Credit surveillance
Data and
information
Learning
&
Training
….within a model of business that could/should integrate all the services above supported
by IT layer
17
Copyright © 2004 Accenture. All rights reserved.
Summary
Basel II enterprise-wide risk management will require modification to behaviors, processes and IT
systems to accommodate data collection and disclosure requirements
Companies will have the opportunity/need to review their financials requirements as credit management
processes and information requirements to affect ratings
That will determine a renewed attention to:
• financials in order to enforce treasury
• organization in order to acquire competences (internal or external) and re-modulate financial
processes
• information in order to guarantee bank needs and clients monitoring
By doing, we see in the new Basel II scenario a company approach that emphasizes:
• Outsourcing of credit collection/surveillance process (to reduce risk and increase collection
effectiveness)
• Attitude for a nonstop measuring and updating clients risk
• Growing focus on information and data, both internal and external
• Appeal model to plan and risk measuring
• IT investments to meet new processes required and information need
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Copyright © 2004 Accenture. All rights reserved.
During the afternoon workshop, you can focus on:
How changes the relationship bank-industry
The impact of Basel II
on the management model of you customer
New business opportunities:
the present and future role of collecting agencies
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Copyright © 2004 Accenture. All rights reserved.
Credits
 Prof. Manlio D’Agostino – author of book “Gli effetti di Basilea
2 sulle imprese”
 Avv. Marco Recchi – general secretary of UNIREC and author
of book “Manuale della gestione dei crediti in outsourcing”
 Accenture team for Basel II
20
Copyright © 2004 Accenture. All rights reserved.
ANNEX
21
Copyright © 2004 Accenture. All rights reserved.
Credit management process involves several services and players. A critical factor is
represented by integration and monitoring activities during the overall credit
management process
Payments reminder
• Dunning
• Phone collection &
customer care
Specific services
required
• Contact management
• Notification
• Mailing Connectivity
Contact
Center
• Dispute resolution
• Legal recovery
• Bad debt certification
BPO
opportunity
area
Mail provider
Judge
Credit
owner
Court
 Payment collection
 Interest calculation
 Success fees
 …..
• Recovery evaluation
• Dispute resolution
• Credit recovery
Lawyer
Info Provider
•
Core services
required
•
•
Collection
agencies
Infrastructure, HR
Information technology
Process organization and solution engineering
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• Credit recovery
• Collection application
• Client accounting
• Analysis of information
flow and credit policy
• Client rating and
evaluation
• Accounting services
Accenture’s
consulting
and system
integration
oportunity
area
Copyright © 2004 Accenture. All rights reserved.
The holistic approach of pursuing all the points of cash leakage from a customer risk perspective can
drive significant benefits to the bottom line
Main Needs
Increase credit
recovery
effectiveness
Actions
Target savings
Benefits
• Business process re-engineering by innovative
framework and one-to-one client contact
approach
• Improve quality and speed of customer credit
risk measurement
• Net bad debt reduction
• Aging improvement
5-15%
• Decrease time to collect
• Improve customer stability
• Improve Credit policy enforcement, review and
controls
Increase process
efficiency
• Centralize AR/Collections management
• Decrease credit management
operational cost
• Automate & standardize processes
• Workflow management & increased customer
segmentation
10-20%
• Increase workforce performances
• Stimulate and measure workforce performance
Working capital
optimization
• Credit collection continuous improvement, innovation • Release Cash-flow
and learning
• Reduce cost of capital
• Increase Payment Channel efficiency
5-20%
• Review billing strategy timing and frequency
• Financial operations (Credit securitization)
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Copyright © 2004 Accenture. All rights reserved.
Dunning process - Accenture’s solutions
Our framework and capabilities uniquely position Accenture to help client to drive
benefits and achieve collections objectives through a business process reengineering and a Phone Collection system solution
Phone Collection Objectives
Client’s experience
•
•
•
•
•
% credit collected
100%
• Increased productivity through workflow
management & increased customer
segmentation
• Improved collections agent desktop tools
• Measured agent performance
• Less line suspension and line cuttings
• Less recovery external credit agency actions
26.000 daily contacts
90% collection rate
6 operating locations
400 agents
3,8 Mln € late payments daily
managed
80%
Business Targets
60%
•
•
•
•
•
Traditional model
40%
20%
Phone Collection
0%
15
50
100
Reduce Losses
Credit recovery cost flexibility
Decrease Time to Collect
Increase Amount Collected
Increase Customer Satisfaction
Days from due date
24
Copyright © 2004 Accenture. All rights reserved.
Vindication process - Accenture’s solutions
Accenture has developed a custom solution, fully integrated with SAP RM-CA
system, for the external credit collection management
Architecture
Mail Provider
Info Provider
Info Provider Users
Remote
External Agencies
External Agency's Users
Mail Provider Users
Remote
Remote
Company
Lawyer Office
LAN
Lawyer office Users
Company’s Users
SAP RMCA
Remote
25
Copyright © 2004 Accenture. All rights reserved.
Accenture Client penetration approach
Accenture
Project
Value
Program Extension
Credit Management Program
Phone collection
(6-12 months)
Front-End
(4-6 months)
(2-3 weeks)
Diagnostic
phase
(2-3 months)
Credit
Management
System
transformation
implementation
Business
Process
Outsourcing
(1-2 years)
& integration
Process Reengineering
High level
consulting
Project Management/Reporting
• Free of charge
Credit
Management
assessment
• Credit
Management
strategic consulting
and/or performance
assessments
• Credit
Management
technology reviews
• Credit management
• Implementation of
process re-engineering Accenture’s Front End
feasibility
solution:
•Analysis
• Process Re•Development
engineering analysis
•Deployment
and design
• Business case
development
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• ERP system
implementation:
•Feasibility
•Analysis
•Development
•Deployment
Credit
projects
Copyright © 2004 Accenture. All rights reserved.
Deal structures/options
Multiple business arrangements may be selected or combined to realize the value offered
depending on Credit Management project extentions, client infrastructure and evaluation
of project risk
Greater
Risk
assessment/Estim
ated add value
Value-based
consulting
(Co sourcing)
Business transformation
(OUTSOURCING)
• High Level
Consulting
• Process Reengineering
• Application
solution
Accenture performs the
business function for the client
using one or more Accenture
Finance Solutions Delivery
Center
Resources from Accenture
and the client temporarily
team to jointly deliver a
project
Consulting and system integration
(TRADITIONAL)
Lower
Accenture is partially or
fully compensated based
from actual savings
delivered to the client
• System
transformation
Credit Management projects
27
Copyright © 2004 Accenture. All rights reserved.
Focus on BPO opportunity
Finance and accounting (F&A) outsourcing is picking up speed at a dramatic rate
Accenture is the dominate player in the F&A Outsourcing market with 41% of the total market share. While
the average deal size was $92 million in total contract value, Accenture led the pack with deals valued at
$3.25 billion (Everest Group reported by Accenture Outsourcing Journal)
Main issues
• Accounts payable and receiveable are the most
common F&A processes outsourced but a new trend in
full-services outsourcing of F&A functions is
emerging
• Cost reduction continues to be the primary driver to
outsource, but executives are increasingly outsourcing to
focus on core activities
• Finance & Accounting Outsourcing primary goals:
– reduce bad debt
– cut day sales outsourcing (DSO) by 5 to 25 days
– cut working capital requirements
28
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Contacts
Antonio Cianci – Senior Manager - Strategy and Business Architecture
Accenture, Rome Office, Via del Tintoretto 200
[email protected]
Mobile: +39 335 8101905
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Copyright © 2004 Accenture. All rights reserved.