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Liquidity Risk Management Powered by SAP HANA


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Provides an overview of SAP HANA and how in-memory technology helps banks solve the business challenges around liquidity risk management.

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Liquidity Risk Management Powered by SAP HANA

  1. 1. Liquidity Risk Managementpowered by SAP HANA
  2. 2. Legal disclaimerThis presentation is not subject to your license agreement or any other agreementwith SAP. SAP has no obligation to pursue any course of business outlined in thispresentation or to develop or release any functionality mentioned in thispresentation. This presentation and SAPs strategy and possible futuredevelopments are subject to change and may be changed by SAP at any time forany reason without notice. This document is provided without a warranty of anykind, either express or implied, including but not limited to, the implied warranties ofmerchantability, fitness for a particular purpose, or non-infringement. SAP assumesno responsibility for errors or omissions in this document, except if such damageswere caused by SAP intentionally or grossly negligent.© 2012 SAP AG. All rights reserved. 2
  3. 3. AgendaWhat is HANA?Challenges in Liquidity Risk ManagementLRM@HANA Overview© 2012 SAP AG. All rights reserved. 3
  4. 4. What is HANA?
  5. 5. Banks face an information availability problem Data volume ? ? ?Calculation speed is exploding is stagnating Requirements on information availability are increasing Traditional approach of OLTP and OLAP fails© 2012 SAP AG. All rights reserved. 5
  6. 6. Boundary conditions for high performance computingCPUs do not get faster Number of cores on the rise CPU clock speed – memory bandwidth –Memory and storage prices (1955-2010) memory latency© 2012 SAP AG. All rights reserved. 6
  7. 7. In-memory computing – the time is NOWThe elements of In-Memory computing are not new. However, dramatically improved hardwareeconomics and technology innovations in software has now made it possible for SAP todeliver on its vision of the Real-Time Enterprise with In-Memory business applications.HW Technology Innovations SAP SW Technology Innovations Multi-Core Architecture Row and Column Store (8 x 8 core CPU in one server) Massive parallel scaling with many blades Compression + One blade ~$50.000 = 1 Enterprise Class Server Partitioning 64bit address space max at 2TB in current servers 100GB/s data throughput Dramatic decline in No Aggregate Tables price/performance© 2012 SAP AG. All rights reserved. 7
  8. 8. SAP HANA appliance software SAP BusinessObjects SAP NetWeaver Other query toolsSAP HANA™ tools In-Memory software + hardware (HP, IBM, Fujitsu, Cisco, Dell) SQL BICS SQL MDX Data Modeling and Data Management SAP HANA Real-time Data Replication SAP BO Data Services for ETL capabilities from SAP HANA Studio and Modeler SAP Business Suite, SAP Business Warehouse (SAP NetWeaver BW), and 3rd Party Systems SAP In-Memory Database SAP NetWeaver as In-Memory app. server Calculation and Row & Column Planning Engine StorageCapabilities Enabled Analyze information in real-time at unprecedented speeds on large volumes of non-aggregated data SAP Business Real-Time Data Objects Data Create flexible analytic models based on real-time Replication Services and historic business data Build new category of applications (e.g., planning, simulation) to significantly outperform current SAP NetWeaver applications in category SAP Business Business Other data Suite sources Minimize data duplication Warehouse© 2012 SAP AG. All rights reserved. 8
  9. 9. Memory in TB area is becoming available oncommodity hardware 32 bit Systems 2^32 = 4.294.967.296 4GB limit per CPU 64 bit Systems 2^64 = 18.446.744.073.709.551.616 Only constraint by physics (64/128 modules) Capacity per module grows Price per module shrinks with new production processes with new production processes (8GB – 16GB – 32GB) (-30% with 32nm) 1 blade with 64 modules can hold up to 1TB (16GB)© 2012 SAP AG. All rights reserved. 9
  10. 10. Thinking in-memoryDelegation of data intense operations to the in-memory computing High performance apps delegate data intense Application Layer operations to the in-memory computing Today‘s applications execute many data Data Layer intense operations in the application layer In-Memory Computing Imperative Avoid movement of detailed data –calculate first, then move results© 2012 SAP AG. All rights reserved. 10
  11. 11. SAP HANA in action – tier 1 bank(see below for SAP LRM-specific performance results) Standard System 73 GB In-Memory System 5,2 GB 60 minutes 10 seconds© 2012 SAP AG. All rights reserved. 11
  12. 12. How HANA helps banksOpportunities for your business Sales, Service,Human Resources Corporate Services Finance & Risk Transactional Banking Marketing Strategic Workforce Advanced and Fast and accurate Transaction history Sales Analysis Planning and optimized Finance Reporting and advanced across all channels Reporting Purchasing analysis capabilities Liquidity Risk Customer Invoicing analysis Management Real time fraud segmentation and and acceleration Accelerated detection & action exploration for cross- Accounting Loan portfolio selling and marketing analysis campaigns Integrated Profitability Monitor mission Know your customer Management critical processes by a consistent, up-to-date 360° view© 2012 SAP AG. All rights reserved. 12
  13. 13. Categories of usage scenarios of SAP HANA AFI RDL Extension CO-PA Accelerator Accelerators Transaction History BW on EDW for SAP and Financial Reporting Reporting HANA Non-SAP data Database Analytics on High Liquidity Risk any data source Technology Performance Management Applications Fraud SAP HANA Management Business Suite on HANA© 2012 SAP AG. All rights reserved. 13
  14. 14. Available usage scenarios of SAP HANA for banks CO-PA BW on AFI RDL Fraud Technology Accelerator HANA Extension Management Q1/2013 Q3/2012 Q4/2011 Q4/2011 Q2/2011 …/… Q4/2012 Q1/2012 Q4/2011 Q3/2011 Planned Transaction FI/CO Accelerated Liquidity Potential History Accelerator Financial Risk Future Reporting Management FunctionsNot exhaustive © 2012 SAP AG. All rights reserved. 14
  15. 15. SAP HANA™ provides the solution to the informationavailability problem Manage high ? ? ?Increase data volume calculation speed Reduce information latency Next Gen Platform for SAP Apps integrating OLAP+OLTP© 2012 SAP AG. All rights reserved. 15
  16. 16. Challenges in Liquidity RiskManagement
  17. 17. Funding Liquidity RiskInternal Risk Management Risk that the firm will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs* A first step of a funding liquidity risk calculation consists in calculating the Forward Liquidity Exposure in terms of the Legal Cash Flow Gap. In a second step hypothetical cash flows should be taken into account as well. These simulations should be driven by market development, customer behavior and bank strategy to generate a more realistic Economic Cash Flow Gap. If liquidity gaps are detected when analyzing the economic cash flow gap, a third step consists in calculating the Counterbalancing Capacity. All assets like bonds or committed lines are used to resolve potential liquidity bottlenecks.* Basel Committee on Banking Supervision – BCBS 144 Principles for Sound Liquidity Risk Management and Supervision © 2012 SAP AG. All rights reserved. 17
  18. 18. Market Liquidity RiskInternal Risk Management Risk that a firm cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption*. This risk could come up in conjunction with OTC trades or when solving liquidity gaps with the release of huge positions exceeding usual trading volumes. Market Liquidity Risk is currently not in focus.* Basel Committee on Banking Supervision – BCBS 144 Principles for Sound Liquidity Risk Management and Supervision © 2012 SAP AG. All rights reserved. 18
  19. 19. Funding Liquidity Risk to be based on cash flowsbeing the least common denominator Funding Liquidity Risk Management needs to be done comprehensively, all on- and off-balance sheet positions have to be taken into account. Cash flow view supports New Product Procedure in terms of flexibility. Relevant reporting and steering could be done on Cash Flows. Cash Flow roll out for complex instruments to be done by dedicated systems. – Consistency with other risk categories crucial (e.g. different risk types based on the same curves). – Actual market data needed, due to illiquidity traders’ expertise sometimes required – Complex pricing algorithms needed, difficult to replicate – Banks often do not want to disclose pricing algorithms© 2012 SAP AG. All rights reserved. 19
  20. 20. Liquidity Risk ManagementRegulatory requirementsIssue date/issuer 2008 2009 2010BCBS BCBS 136 Liquidity BCBS 155 Principles for sound stress BCBS 188 Basel III:(Basel Committee Risk: Management and testing practices and supervision International framework foron Banking Supervisory Challenges BCBS 157 Enhancements to the Basel II liquidity risk measurement,Supervision) BCBS 144 Principles framework standards and monitoring for Sound Liquidity BCBS 158 Revisions to the Basel II Risk Management and market risk framework Supervision BCBS 159 Guidelines for computing capital for incremental risk in the trading bookEBA CEBS (CP 28) Guidelines on Liquidity CEBS (CP36) Guidelines on(European Banking Buffers Liquidity Cost BenefitAuthority) CEBS (CP 31) Guidelines on aspects of Allocation the management of concentration risk CEBS (CP 32) Guidelines on Stress TestingUK FSA CP 08/22 CP 09/13 Strengthening liquidity BIPRU Chapter 12:(Financial Services Strengthening standards 2: Liquidity reporting Liquidity standardsAuthority) liquidity Standards CP 09/14 Strengthening liquidity CP 08/24 Stress and standards 3: Liquidity transitional measures scenario testingUS Dodd-Frank Wall Street Reform and Consumer Protection Act© 2012 SAP AG. All rights reserved. 20
  21. 21. BCBS 188: Basel IIIIntern. framework for liquidity risk measurement, standards and monitoring Level 1: Cash, Sovereign and Central Bank Debt High Quality (usually 0 % Risk Weight*), … Liquid Assets Level 2: Sovereign and Central Bank Debt (usually 20 % LCR Risk Weight*), AA- or higher rated bonds, … Ratio: Net Cash Cash Outfllows: Retail deposits, Unsecured Wholesale Outflow Funding, Repos, CCLs, Derivative Outflow (30 D Cash Inflows: Reverse Repos, Obtained Credit Lines, Horizon) Other Inflows Liquidity Risk > = 100 % Regulatory Capital Available Stable (Less) Stable Deposits, Wholesale Funding Funding (Sources) All other Liabilities NSFR Ratio: Cash, Securities, Debt, Off-balance Sheet Exposures Required Stable Bonds, Equities, Gold, Specific Loans Funding (Uses) All other Assets* Risk Weights could be retrieved from SAP Basel II Credit Risk Solution © 2012 SAP AG. All rights reserved. 21
  22. 22. Challenges in Liquidity Risk alongdifferent dimensionsBASEL III requirements New Liquidity Rules under Basel III Reduzierung des Ut enim ad Moving Target as full Basel III Implementation runs to 2018 minimBASELZeithorizontes veniam, III quis Market LRM EnvironmentMarket situation nostrud exercitation Mortgage crisis, European debt crisis, what´s next? Increasing costs for refinancing and liquidity procurement LIQUIDITYOrganization & processes Organi- RISK Data Strong collaboration between different LoBs required zation & MANAGEMENT volumes Change in liquidity management processes possible processes Aktualität derHigh data volumes Planungsgrundlage mit entsprechend Cash flow orientation causes huge data volumes konkreten Analytics How to handle these volumes for ad hoc steering purposes? ZielvorgabenAnalytics Simulations, predictive analytics, scenario analysis required A solution needs to cover compliance, analytics and steering Multidimensionality impacts the entire banking and liquidity arena© 2012 SAP AG. All rights reserved. 22
  23. 23. LRM@HANA overview
  24. 24. SAP LRM@HANA meets the challenges SAP LRM@HANA content supports Predict liquidity needs on basis of Basel III compliance scenarios, simulations and stress testing in real-time Ut enim ad Reduzierung des minim veniam,III BASELZeithorizontes quis Market nostrud exercitation Intuitive User HANA technology allows LIQUIDITY Interfaces Organi- RISK for intraday processing Data of large data volumes Collaborative zation & MANAGEMENT volumes processes support processes ... in atomic granularity Aktualität der holistic handling of Planungsgrundlage liquidity risk mit entsprechend konkreten Analytics Zielvorgaben Stress testing, scenario analysis and simulations Seamless drill-down from group-level results to individual cash-flows© 2012 SAP AG. All rights reserved. 24
  25. 25. LRM@HANA –enabling real time Liquidity Risk Management Extreme aggregation of 200+ Mio. cash flows in 1 second performance real time load and analysis extensible architecture for modeling of customer Open platform for specific logic specific models extensive configuration capabilities for complex filtering, aggregation and calculation rules what-if analysis on behavioral and marketAd-hoc simulation parameters and drill down single contract level including full drill down© 2012 SAP AG. All rights reserved. 25
  26. 26. SAP Liquidity Risk Management Test Results >60 minutes290MCashFlows 4000x faster Aggregated & Selected <1 seconds Standard System In-Memory System© 2012 SAP AG. All rights reserved. 26
  27. 27. Product Scope LRM 1.0 SAP LRM@HANA, enables banks to perform real time, high-speed liquidity reporting and risk management on large volumes of individual cash flows The application allows for pooling all types of cash flows, including operative, simulated, and stressed data from various SAP and non-SAP source systems Framework to calculate risk key figures including regulatory requirements like Basel III ratios Users can apply basic stress factors to the data, for example to gauge the effect of varying haircut and run-off rates, or the re-classification of certain assets Intuitive UIs enable business users to analyze and compare scenarios© 2012 SAP AG. All rights reserved. 27
  28. 28. SAP Liquidity Risk Management 1.0 Architecture BI Comprehensive Liquidity Risk Reporting Netweaver High Performance Cash Flow SAP Liquidity Risk App Aggregation and Key Figure Calculations ETL SAP HANA Cash Flow Pool (non-SAP) SAP Bank Analyzer Upload of Stressed / Unstressed Cash Flow Engine SAP Cash Flow Engine/ Cash Flows for Current and Strategy Analyzer Simulated Business Operational Systems (SAP and non-SAP) Loans Deposits Securities Derivatives© 2012 SAP AG. All rights reserved. 28
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