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The Credit Risk Management - Credit Portfolio Management ES bundle helps banks to actively manage the credit risk in their portfolios by gauging risk and return levels.
Using the credit portfolio data processing tool from SAP, which is part of SAP Bank Analyzer, in conjunction with a third-party party credit portfolio management system such as Risk Frontier from Moody's KMV, managers have a tool with which they can quantify and align risk and return level of portfolios, subportfolios (for example, region or industry branch), and even individual deals.
These risk-return ratios help portfolio managers in financial institutions to more effectively make decisions with regard to hedging (credit risk mitigation) strategies, on the one hand, and investments in their portfolios, on the other hand, in order to obtain a better asset allocation in terms of an enhanced diversification level or improved risk return ratios.

The Credit Risk Management - Credit Portfolio Management ES bundle leverages enterprise SOA by integrating SAP Bank Analyzer with third-party credit portfolio management systems using enterprise services.

Credit Risk Management - Credit Portfolio Management (click to enlarge)

System Landscape

The system landscape for this ES bundle encompasses four systems:

  • SAP Bank Analyzer, which offers a highly sophisticated process for selecting and preparing data in such a way that it can be used by a credit portfolio model. A single business object, Credit Portfolio Model, is used to transfer various aspects of the data to the third-party system.
  • SAP NetWeaver Process Integration (SAP NetWeaver PI), which handles mapping of the data elements of SAP Bank Analyzer to equivalent elements in the third-party credit portfolio management system.
  • The credit portfolio management system itself, which receives data from SAP Bank Analyzer via enterprise services and delivers results back again using enterprise services.

System Landscape (click to enlarge)


Audience

Portfolio managers at banks who require information concerning their risk/return levels with regard to the credit risk of their portfolios will find this ES bundle highly useful.

Senior managers will also find this ES bundle very helpful. Rather than using this ES bundle from a profit center perspective portfolio managers would do, this ES bundle is also very useful from the perspective of controlling risk, enabling the creation of integrated of risk and return reporting for the bank's senior management.

For details on Service Operations, Business Objects and Process Components, please check the ES Workplace.


How To Use This ES Bundle

Previously, banks were often not able to determine key risk/return figures of their portfolios. In many cases, their analyses addressed only the risk side.

In most cases, banks lacked information on aligning risk and return levels since all-important return figures were often unavailable for the portfolio under consideration. Thus, portfolio management was more difficult for managers because their decisions were not supported by sophisticated software providing detailed risk/return information.

The SAP Credit Risk Management - Credit Portfolio Management ES bundle now offers an integration between SAP Bank Analyzer and third-party credit portfolio management tools. Together, these systems provide a highly sophisticated analytical toolset for assessing risk and return in credit risk sensitive portfolios of loans, bonds, derivatives, and other financial instruments. The bundle analyzes a number of key figures, such as unexpected loss and credit value at risk and risk/return measures such as the Sharpe and Vasicek ratio, respectively.

Managers can use these results to make decisions about which portfolio assets to hedge or in which to invest in order to diversify risk and obtain an enhanced risk/return ratio.

The enterprise services in this ES bundle provide application-to-application communication of all the data for seamless integration between SAP Bank Analyzer and third-party credit portfolio management tools such as Moody's KMV Risk Frontier.

Use Case: Integrating Third-Party Credit Portfolio Management Systems

As a precursor to this use case, a system administrator must, using SAP NetWeaver Process Integration, map the data from the interface of SAP Bank Analyzer to the interface of the third-party portfolio management application, allowing the data transfer back and forth to go smoothly.

In SAP Bank Analyzer, the credit manager selects the data to be sent and prepares it for the credit portfolio analysis. (Some of this is done by preprocessing in the SAP Basel II application.)

After the data is selected, the credit manager invokes Request Credit Portfolio Management Process Control. This enterprise service alerts the third-party credit portfolio management tool that data requests will be coming.

Then, depending on the data selected, the following enterprise services may be invoked to transfer the data to the third-party credit portfolio management application. Some banks do not have all the financial instruments handled by these services in their portfolio and therefore do not invoke all of the following services; as many as are relevant will be invoked in that case.

  • Request Input Data Credit Spread Matrix as Bulk
  • Request Input Data Bond as Bulk
  • Request Input Data Business Partner as Bulk
  • Request Input Data Credit Derivative as Bulk
  • Request Input Data Credit Portfolio Analysis Data as Bulk
  • Request Input Data Exchange Rate as Bulk
  • Request Input Data Loan as Bulk
  • Request Input Data OTC Derivative as Bulk
  • Request Input Data Exposure Profile as Bulk
  • Request Input Data Probability of Default Calibration Matrix as Bulk
  • Request Input Data Rating Transition Matrix as Bulk
  • Request Input Data Securities Financing Transaction as Bulk
  • Request Input Data Stock as Bulk
  • Request Input Data Traditional Off Balance Sheet Item as Bulk
  • Request Input Data Yield Curve as Bulk

The credit portfolio management analysis tool now has all the data it needs (with the exception of a few local settings), and that tool processes and analyzes the data. The third-party tool returns the results, when finished, by calling:

  • Create Result as Bulk
  • Create Result Item as Bulk
  • Create Result Loss Value as Bulk

Create Result as Bulk returns one total key risk figure (including the loss distribution) in a business object called Financial Instruments Analytical Results Management. The Create Result Loss Value as Bulk provides overarching information for loss figures, in the business object Credit Portfolio Analytical Result. This business object is also used by Create Result Item as Bulk, which provides information on the detailed level of the instruments for which risk contributions with respect to the overall portfolio risk are available.

The final step is to take the results of the analysis and transfer them to a business intelligence tool, such as SAP NetWeaver Business Intelligence, to create reports. The transfer of results data to the business intelligence tool does not require enterprise services in the case of SAP NetWeaver Business Intelligence; if other business intelligence tools are integrated, this requires additional effort.

The following table summarizes the steps in this use case.

Step

Enterprise Service Invoked

Step 1: Select the credit portfolio data in SAP Bank Analyzer

(no enterprise service is invoked during this step)

Step 2: Prepare credit portfolio management tool to receive data from SAP Bank Analyzer

Request Credit Portfolio Management Process Control

Step 3: Invoke enterprise services to send credit risk management data to credit portfolio management tool

Request Input Data Credit Spread Matrix as Bulk; Request Input Data Bond as Bulk; Request Input Data Business Partner as Bulk; Request Input Data Credit Derivative as Bulk; Request Input Data Credit Portfolio Analysis Data as Bulk; Request Input Data Exchange Rate as Bulk; Request Input Data Loan as Bulk; Request Input Data OTC Derivative as Bulk; Request Input Data Exposure Profile as Bulk; Request Input Data Probability of Default Calibration Matrix as Bulk; Request Input Data Rating Transition Matrix as Bulk; Request Input Data Securities Financing Transaction as Bulk; Request Input Data Stock as Bulk; Request Input Data Traditional Off Balance Sheet Item as Bulk; Request Input Data Yield Curve as Bulk

Step 4: Apply the credit risk portfolio management engine

(no enterprise service is invoked during this step)

Step 5: Send analysis results to SAP Bank Analyzer

Create Result Item as Bulk; Create Result Loss Value as Bulk; Create Result as Bulk

Step 6: Create reports using a business intelligence tool

(no enterprise service is invoked during this step)

Future Directions

In the future, additional enterprise services may be added to this bundle to analyze asset securitization and CDO tranches, in which risk is transferred to third parties such as other banks, hedge funds, for example.

System Requirements

Related ES Bundles

SOA Homepage on SDN
SAP Service Marketplace
SAP Solution Brief: Improving Bank Credit-Risk Management with SAP® Basel II

Moody's KMV Risk Frontier