CASE STUDY

About the ClientAskari Bank Limited is a mid-sized commercial Bank in Pakistan providing a full set of banking services to more than 700,000 customers through 250 branches throughout the country. The Bank is publicly listed and provides a full range of products to its customers.

In 2008, Askari Bank embarked on an ambitious IT upgrade project. In addition to other areas, it was decided to automate the Risk Management Department’s func-tions by leveraging the state of the art Oracle Reveleus modules. Risk Management calculations are generally very complex and require a robust system to handle large amount of data. Two modules, Basel II Regulatory Capital and Market Risk VaR were selected to be implemented.

Techlogix was engaged by Askari Bank to take primary responsibility for the imple-mentation; the first of its kind in Pakistan. A team of Functional and Technical resources was engaged by Techlogix to accomplish the task. The project was completed in 18 months.

CustomerAskari Bank Limited

IndustryFinancial Services

OfferingOracle Reveleus

Harmonizing People | Process | Technology

Askari Bank adopts Basel II Risk Management

Solution Features

Basel II

The solution offers banks a standard approach, to achieving Basel II compliance by using a set of analytic applications with pre-built data structures, computational engines and information delivery templates. Below is the list of approaches configured by Techlogix at Askari:

◉ Basel II Standardized approach for Credit Risk with CEM approach for Non-market related exposures and Simple approach for Credit Risk Mitigation.

◉ Standardized approach for Market risk with Duration method for General Market risk capital charge for fixed income instruments.

◉ Basic Indicator Approach and Standardized Approach for Operational Risk.

Market Risk VaR

Market Risk provides extensive and robust computations that enable institutions to effectively evaluate and manage risk across interest rate, commodity, equity & currency exposures through calculation of measures such as Value-at-Risk (VaR), Conditional Value-at-Risk (CVaR) and Compo-onent VaR and covers a wide range of instruments types.

The ChallengeThe biggest challenge in implementing a Basel II solution is gathering and cleansing of data in required formats for further processing. Our understanding of the local banking practices helped us in configuring and customizing an otherwise international solution to local requirements. The following are some of the tasks performed, challenges faced and remedial actions taken to achieve the objectives:

◉ Assigned codes to 250+ On-Balance sheet products and mapped to the Reveleus Basel II products.

◉ Mapped 50+ off-balance sheet products to Reveleus standard products for CCF calculation.

◉ Added local credit rating agencies codes and mapped to Reveleus standard rating codes.

◉ Evolved data gathering and cleansing processes by interacting with the Askari team.

◉ Helped develop a complete validation model for assuring authenticity and accuracy of the reports generated by Reveleus. It will also help Askari Bank in justifying the calculated figures to its Auditors.

◉ Created multiple runs to cater to the needs of Stand-alone / Consolidated CAR reporting.

◉ Developed additional runs for Credit, Market and Operational risk depending on the availability of data and responsibility of resources.

Techlogix Case Study

Implementing Reveleus02

◉ Developed a framework for handling the interest rate risk arising out of Derivatives in Market Risk charge calculation. Techlogix built rules for automatically creating cash flows and calculate price sensitivities for these synthetic positions on a net off basis.

◉ Rules were created to identify the insignificant currencies and calculation of risk charge.

◉ Configuration of reports is one the most challenging tasks in the whole process. Standard outputs provided by the system had to be conformed to State Bank of Pakistan (SBP) required formats. It was a significant milestone achieved to develop a complete set of customized quarterly and annual CAR reports. The system is now capable of generat-ing these reports on Stand-alone as well as on Consolidated basis. The solution purchased by Askari did not support the consolidation, which was completely developed by Techlogix. The bank only needs to upload the data and the system itself generates all the reports ready to be submitted to SBP.

Solution – Market RiskAskari Bank was generating Market Risk (VaR) for three Portfolios using Analytical and Historical Simulation Models in Excel:

◉ Equities

◉ Forex

◉ Fixed Income

However, it could not achieve the real purpose of these calculations i.e. Analytics built around these measures. It was a primary requirement of this project that the solution should provide granular level of details and drill down capacity that could help the users identify the impending risks with accuracy.

Keeping in view the bank’s specific requirements:

◉ A Total of 53 Portfolios were configured which cater to VaR, P&L, Conditional VaR, MtM values along with other risk measures for:

○ All 35 sectors defined by Karachi Stock Exchange

○ All the rating grades for fixed income instruments

○ Four major currencies

○ Different trading desks in the treasury

○ Equity Portfolio

○ Fixed Income Portfolio

○ Foreign Exchange Portfolio

○ Trading Book

Techlogix Case Study

Implementing Reveleus03

All the portfolios were mapped for each of the following models:

◉ Analytical VaR for 1-day 95 percent

◉ Analytical VaR for 1-day 99 percent

◉ Analytical VaR for 10-day 95 percent

◉ Analytical VaR for 10-day 99 percent

◉ Historical Simulation VaR for 1-day 95 percent

◉ Historical Simulation VaR for 1-day 99 percent

Besides, Stress Testing and Back Testing frameworks were configured as per the requirements of the bank. The following list of reports were also configured:

◉ Reports

○ Portfolio Risk Measures

○ Component VaR – Instrument Level

○ Component VaR – Vertex Level

○ Cash Flow Matrix

○ Portfolio Profit and Loss Distribution

○ Back Testing

○ Stress Testing

The SolutionTechlogix and Askari Risk Management teams worked in collaboration to achieve the tasks assigned. The following activities were performed:

◉ Requirement gathering from all business users and stakeholders

◉ Identification of gaps in requirements and functional-ities offered

◉ Proposed resolutions to fulfil the requirements

◉ Identification of data gaps and resolutions

◉ Customizations in configuration according to local regulator

◉ Design and Parameterization of the bank’s products

◉ Configuration of Basel II regulatory reports

◉ Design and configuration of Market Risk reports

◉ Training for the Bank’s Core Team and End Users

◉ Testing Strategies, test cases and reconciliation tools (aimed at User Acceptance Testing, Test data conversions, business simulations etc.)

BenefitsRisk calculation automation has brought the following benefits among others:

◉ A significant reduction in turnaround time for capital calculations

◉ Automated generation of regulatory reports based on the rules configured according to SBP guidelines

◉ Complete audit trail of all the processes, rules and data

◉ Drill down capability to find out the risk pain points

◉ Robust calculations to handle large amounts of data

About Techlogix

Techlogix is an IT Services, Consulting and Business Solutions company that helps its global clientele achieve enterprise transformation by harmonizing people, process, and technology. Techlogix builds high performance solutions using practice-specific delivery methodologies that utilize its globally distributed development teams. Our people combine the spirit of engineering excellence with a strong commitment to end-to-end customer experience. Techlogix employs approximately 300 people in 5 delivery centers worldwide.

Visit us online at www.techlogix.com

ContactFor more information, contact info@techlogix.com

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Techlogix implements a full range of solutions for the Financial Services industry focusing on Commercial, Islamic and Microfinance Banks. Our implementation portfolio includes FLEXCUBE Core Banking, Risk Management solutions, Compliance and Anti-Money Laundering and Reporting and Data Warehousing. We also provide Application Management Services for these solutions with both onsite and offsite models. We also implement BPM and workflow solutions which automate and improve operational processes within Banks.