Risk management DWH BI solutions

1. BI Studio LLC
Risk Management and
ETL/DWH/BI
solutions for banks

2. MAIN COMPETENCES AND EXPERIENCE
BI/ DWH/ ETL
for banks
Risk management,
consulting for banks

3. BANKS
INSURANCE
COMPANIES
RETAILERS
FINANCIAL SERVICE
PROVIDERS
BUSINESS DIRECTIONS MARKET SEGMENTS
• Complex ETL/DWH/BI solutions
delivery based upon proven and
scalable platforms (IBM BDW
industrial model for banks, SAS
Institute solutions)
• Consulting support in building of:
o CES (Controllability
Enhancement Strategy)
o DSS (Decision Support systems)
o Enterprise level risk
management systems

4. Gartner Predicts Business Intelligence and Analytics Will
Remain Top Focus for CIOs Through 2017
http://www.gartner.com/newsroom/id/2637615
BUSINESS IS IN THE TREND

5. OUR SOLUTIONS
RISK MANAGEMENT CONSULTING FOR BANKS
• Enterprise Risk Management
o Credit Risk Management
o Liquidity Risk Management
o Market Risk Management
o Operational Risk Management
• Basel II/ Basel III
We own the following well-known and author's
approaches in:
• Balance sheet statement analysis
• Asset Liability Management (ALM)
• Liquidity and Cash Flow Management
• Funds Transfer pricing models
• Portfolio management

6. IT MARKS A TRANSITION
FROM MIS (MANAGEMENT INFORMATION SYSTEMS)
TO DSS (DECISION SUPPORT SYSTEMS)
ENHANCEMENT OF CONTROLLABILITY
We propose new generation systems based on :
 Decision-centric system and processes
 Action-oriented system and processes
 Predictive analytics

7. We provide our customers with:
 Decision making effectiveness control at each
management level
 Shifting from rational decisions to optimal ones
ENHANCEMENT OF CONTROLLABILITY
We consider management processes holistically:
Finance – Business – Treasury – Risk Management – Marketing.
Our solutions focus on:
 Decision-making
 Optimal automatic control
 Modern finance theories

8. RETAIL DEPOSIT PORTFOLIO MANAGEMENT
We have competence in addressing the full range tasks of managing a
portfolio of retail bank deposits, including :
 the construction of arbitrage-free and risk-free zero-coupon yield curves
 building up marketing supply curves of deposits (total and across to
maturities)
 assessing the early withdrawal and rollover risks of deposits based on
"cash flow at risk“ approach
 deposit pricing taking into account the mutual influence of early
withdrawal and rollover risks, migration between the deposit products and
embedded options

9. RETAIL DEPOSIT PORTFOLIO MANAGEMENT
…CONTINUATION…
Thus, we can solve daily problems - how to achieve planned, target volumes (or deposit
market share) with a minimum interest expense and controlled levels of deposit risks.
The application of these approaches in the largest Ukrainian banks allows
increasing its competitiveness by providing planned inflow of deposits at
lower interest expense and controlled levels of deposit risks. Interest rates fell
by 0.2 ... 0.5% at a general level interest rates of 18%
 building the dynamic optimal pricing of deposits based on automatic control
theory that allows increasing the controllability of attracting the retail deposits
 an novel estimates of lifetime of cash on non-maturity accounts, and their
present value (which differs from the well-known Jarrow-van Deventer model)

10. RETAIL LOANS PORTFOLIO MANAGEMENT
We have the competencies to meet the challenges of portfolio
management of retail loans, including:
 pricing loans based on "cash flow at risk“ approach and the continuous time model
(continuous accrual of interests and assessment of default) taking into account the
liquidity premium (otherwise the loan remains undervalued as Bohn & Stein said)
 obtaining direct, explicit analytic function for the borrower’s survival probability that is
free of assumptions about the type of default process, unlike the standard approaches
suggesting that the default process subjects to the Poisson, Cox, Markov laws or others;
assessment of the new unified measure taking simultaneously into account the both
prepayment and default events
 stochastic modeling defaults by Monte Carlo Techniques
 for the first time the dynamic optimal pricing and cut-off scoring for the retail loan
portfolio based on automatic control that allows increasing the controllability of retail
lending including the quality of the loan portfolio

11. FORECASTS BASED ON FINANCIAL ACTIVITIES
MODELS
We have experience in modeling of the bank’s financial activities including the
prediction of the balance sheet, income and cash flow statements
In particular, the original models for the forecast of the bank's ability to create
provisions for loan losses taking into account the balance sheet and profitability
requirements were developed
Due to using these models the large (by the Ukrainian standards, with a
balance-sheet of 2.6 BLN US dollars) Ukrainian bank was successfully
restructured its debt to international financial institutions (80% discount)

12. LIQUIDITY CUSHION
Construction of internal models for integrated assessment of liquidity
cushion for coverage of credit, deposit, market and off-balance sheet risks
It fully meets the requirements of Basel III
This approach declares principle: having this cushion “may
sleep quietly”

13. ASSET AND LIABILITY MANAGEMENT (ALM)
 This is the only method that uniquely distributes cash flows from assets and liabilities between them
by terms remaining to maturity
 It allows directly allocating the funding cost on the loan price
 It takes into account the specific characteristics of a bank to attract and allocate resources
 The approach seamlessly integrates risks, in particular, credit risk and liquidity risk, as well as the
capital requirement imposed RAROC-approach
 It is suitable for both pricing of new assets and liabilities, as well as to evaluate the effectiveness of
existing deals for performance measurement
 The matrix is useful for funding transfer pricing
 The method is applicable to both the banks and insurance companies
We have competencies in the building a two-dimensional funding matrix
for solving problems in asset and liability management :
Using the matrix in control of a large Ukrainian bank allowed it to optimize the pricing assets and liabilities
taking into account the regulatory requirements of the Central Bank to the capital adequacy.
We developed rigorous mathematical integral models to modeling cash flow streams occurred in banks.

14. BASEL II
 Building internal models to estimate capital under
credit, market and operational risks including
creditworthiness ones
 Assessment of provisions for credit losses from non-
homogeneous loan portfolio with dependent defaults
 Collateral management

15. LIQUIDITY AND LIQUIDITY RISK MANAGEMENT
(BASEL III)
 The estimation of the Liquidity Coverage Ratio (LCR) and the Net Stable
Funding Ratio (NSFR) in accordance with the requirements of Basel III
 Building the internal models for integrated assessment of liquidity
cushion size for coverage of credit, deposit, market and off-balance
sheet risk, that is fully compliant with Basel III
 The development of bank’s cash flow models
 The evaluation of behavioral streams of cash flows
The LCR and NSFR calculations were implemented in a large
Ukrainian bank and worked successfully during 2008-2013

16. BUILDING YIELD CURVES
 The direct, explicit extraction of forward and spot
yield curves from fixed coupon bond prices
 The evaluation of survival probabilities of bond
issuers that is free from any assumptions about kind
of default process
 The estimation of credit spreads from fixed coupon
bond prices
We own knowledge and experience in :

17. SOLUTION ARCHITECTURE EXAMPLE (IBM)

18. WE KNOW WHAT TO DO WITH THE DATA

19. CONTACTS
VASSILY BUZUYEV
CTO, HEAD R&D
Skype ID: buzuyev
Tel. +380672321645, +380919596253
E-mail vassily.buzuyev@bistudio.com.ua
Linkedin ID https://ua.linkedin.com/in/vassily-buzuyev-
788b0916