The solution enables the bank to assess its overall asset liability profile over a period of time based on a variety of factors such as liquidity, interest rate impact, earnings, and economic value. The solution undertakes various analytical functions & reports for static and dynamic analysis, both for standing data and multiple scenarios making it useful at a strategic, tactical & regulatory level.

Product Overview

  • Advanced liquidity and interest rate risk: Estimation, Forecasting, Monitoring, Reporting system & Management.
  • Key benchmarks cover liquidity gaps, buffers, key regulatory ratios such as Maturity gaps, liquidity coverage ratio, Net stable funding ratio, Interest Rate Gaps & risk in banking book, Duration & PV01 analysis etc.
  • Liquidity results based on contractual cash flow details, behavioural patterns, business rules, sensitivity and scenario approach including correlation between liquidity and credit deterioration / defaults risk.
  • Scenario modelling, business assumptions, comprehensive risk based view on liquidity position under normal and stressed conditions
  • Integration with other risk modules capital calculation, IFRS 9 ECL portfolio management pillar II ICAAP, risk rating, capital consolidation,
  • Stress testing, including scenario analysis through historical sampling or conditional event mapping to incorporate expert judgment

Key Features

  • Liquidity risk management
    • Cash flows (inflows and outflows) generation engine
    • Configurable time buckets, Bucket wise liquidity gap
    • Liquidity Bench Marks: Maturity Gaps, LCR, NSFR, Survival Horizon
  • Interest rate risk management
    • Traditional rate gap analysis - Earnings perspective
    • Duration gap & PVBP analysis: NII & Economic value perspective
  • Multiple yield curves for basis and yield curve risk
  • Detailed asset & funding risk profile: Cash flow analysis like discrete, cumulative, dynamic etc.
  • Scenario generation based on unencumbered assets value post volatility and value adjustments through haircuts to estimate forward liquidity exposure and coverage of obligations.
  • Allows aggregation of facilities and dynamic scenario simulation capabilities for comprehensive scenario analysis for stress testing
  • Flexible user configurable reporting & cash flow gap analysis through asset liability combinations, maturity gaps, survival horizon, currency wise NII & EVE analysis
  • Granular Modelling Capability: Cash flow, account, facility obligor level
  • Rule engine which defines
    • Cash flow splitting and bucketing
    • Cash flow assumptions for various products with distinct and accurate general ledger mapping
  • Batch processing for one touch execution & reporting
    • Separation of data management from rules engine
    • Ability to define and configure multiple time horizons / bucketing assumptions
    • Ability to apply multiple business rules on single data set for calculation & differentiated reporting
  • Ability to apply multiple scenarios on data sets for multi impact analysis
  • Sensitivity and scenario analysis
  • Flexible Analysis & Reporting Configurations: Define & configure multiple reporting configurations, report lines across user defined dimension sets.

Case Study: Implementation of Liquidity & ALM System

Commercial Bank based in the Middle East having exposures across various asset and Liability classes such as Placements, Corporate Finance, Securities and Deposits
Broad Scope
As part of the Strategic Risk Transformation Program, the Bank wanted to implement best practices in Asset Liability Management manage short, medium and long term liquidity and interest rate risk for senior management and ALCO reporting. The client desired to implement daily and monthly reporting cycles for liquidity and interest rate risk.
Our Approach & Solution
To achieve Client objectives we have implemented the Asset Liability Management (ALM) product module as part of RiskCube Platform Implementation. During start of the initiative, we helped the client prepare a comprehensive roadmap to identify various activities for ALM and Liquidity Risk Implementation. Data and process mapping was conducted with Core Banking System for required activities, data and business processes. This led to significant improvement and optimization of existing business processes and implementation of new processes within the Bank in order to rectify and improve existing core banking processes to get required information. We were able to achieve desired integration with core banking system without need for any manual intervention or process. Our flexible product platform ensured accurate configuration of business rules for cash flow generation and mapping for all on and off balance sheet assets and liabilities. These were parametrized through easy-to-navigate front end screens without resorting to any hard coding or change in core RiskCube product. We were able to achieve 100% automation for generating more than 50 daily and monthly reports for liquidity and interest rate risk covering cash flow projections, statutory liquidity reports, interest rate sensitivity reports, Net Currency overnight position report, modified duration and Price Value Basis Point reports at consolidated group level and individual branch entity level. The reports were also produced for each currency making it a reporting pack of more than 200 reports. The Product was implemented with further capability to generate additional user defined reports for multiple user defined bucketing configurations and drill down capability at deal level for user defined reports through capital reporting cube with deal level drill down capability. A thorough UAT was successfully conducted by Bank’s internal Risk Management department for consistency and accuracy of results. 100% reconciliation to General ledger and Trial Balance was achieved during this implementation post which the project was successfully signed off for production movement and Go-Live transition.
Business benefits
Significant business benefits were achieved post project implementation. Apart from implementing global benchmark best practices, the Bank was able to engage in active liquidity and interest rate risk management. It was able to accurately identify short – medium term liquidity position with possible future gaps to ensure active fund management. Regarding Interest rate risk, it was able to accurate assess impact of interest rate movements on its rate sensitive portfolio and based on economic US Dollar value. The Bank has been able to move to daily assessment of liquidity and interest rate risk for the 1st time with greater insight into pattern and impact of such movement. Additionally, all data and reports during RiskCube implementation was reconciled 100% to the to the General Ledger covering complete Trial Balance and Balance Sheet at customer deal and individual GL level. This has helped the client to successfully create a strong foundation for Risk Data Mart which has become the repository of comprehensive risk data for conduct of future risk analytics.
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