Building a risk-conscious culture

Danske Bank gains more transparent view of relationships and assumptions

A bank’s risk and capital management are closely connected as the capital should ultimately be able to withstand any probable loss arising from its customers. Danske Bank’s work with both areas is supported by SAS® Risk Management for Banking. The philosophy is that the complex calculations must reflect the bank’s business reality and should inform the bank’s decision making.

Initially, Danske Bank chose SAS Risk Management for Banking to get a more transparent view into its data. But the solution has also given the analysts in the risk analytics department more autonomy, explains Executive Vice President Mikko Laukka, who is Head of Risk Analytics. He says that now the bank’s portfolio credit risk team can work on the platform without the help of the IT department, ensuring faster decision-making.

The solution quickly proved its worth by giving us transparent insight and management over all parts of our calculations, and it enables us to develop, change and understand the analysis behind the figures ourselves.

Mikko Laukka
Executive Vice President and Head of Risk Analytics

The solution is tailored to the risk analysts, who use it on an everyday basis. This means that it gives them the exact tools they need to construct and test hypotheses, as well as produce the relevant key numbers and analysis for decision making. Additionally, the bank’s strategic stress tests can now be performed using the analytical platform.

“When we started working with SAS on the solution around four years ago, our aim over time was to ensure better interaction between the bank’s portfolio risk experts and the front office,” says Laukka. “The solution quickly proved its worth by giving us transparent insight and management over all parts of our calculations, and it enables us to develop, change and understand the analysis behind the figures ourselves. We wanted to get a much better understanding of how each element in a portfolio could influence the rest, and how we could use this knowledge across departments.”

Calculating risk scenarios

Economic capital is computed by Danske Bank in a complex and demanding calcula­tion using SAS Risk Management for Banking. The aim is to calculate the capital the bank must have on hand to cover 9,997 out of 10,000 scenarios with unexpected – but realistic – losses. The calculations are based on the bank’s historic data on individual, large custom­ers and pools of small customers. For the major calculation, SAS is used. SAS Risk Management for Banking runs on SAS 9.3 on six servers, with a total 304 cores and 1024 GB RAM.

“By moving away from the ‘black box’ toward a transparent and open solution in which all dynamics can be followed and under­stood by our analysts, we can better understand the details and act and react quicker and on a better foundation,” says Laukka.

A natural part of the office discussion

Gradually, the solution has evolved to becoming much more than a tool, giving the Risk Analytics Unit the needed insight to carry out its function with more certainty outside the “black box.” Recently, it has grown to a much more firm element in the general risk discussions across relevant departments in Danske Bank.

“The information possibilities have become a natural part of the bank’s discussions about risk assessment,” explains Laukka. “While we in the risk department for a while have seen the advantages, it has now spread out to become a more natural integrated part of assessments in more general terms. It has actually created a little bit of a buzz in the office. We have even had account managers come to us for advice on how to use their capital and portfolios, so the benefits of the solution have definitely caused ripples. If we boil it down to the essentials, it is all about knowing how we’d like our portfolio to look in the long run. With this solution, we have the best basis for making that judgment. With the option to create very specific and tailored simulations, we can assist the bank by being able to get sort of a glimpse into the future.”

Challenge

Risk management and capital calculation took place in a “black box,” where all relationships, dynamics and assumptions were not readily apparent to decision makers.

Solution

SAS® Risk Management for Banking

Benefits

The bank now has a platform for stress testing and capital adequacy, and a transparent view of relationships and assumptions. Analysts can work without IT involvement, and risk calculations can be performed by one unit using an integrated approach. The bank has full visibility through the entire process from data to risk measure outputs.

The results illustrated in this article are specific to the particular situations, business models, data input, and computing environments described herein. Each SAS customer’s experience is unique based on business and technical variables and all statements must be considered non-typical. Actual savings, results, and performance characteristics will vary depending on individual customer configurations and conditions. SAS does not guarantee or represent that every customer will achieve similar results. The only warranties for SAS products and services are those that are set forth in the express warranty statements in the written agreement for such products and services. Nothing herein should be construed as constituting an additional warranty. Customers have shared their successes with SAS as part of an agreed-upon contractual exchange or project success summarization following a successful implementation of SAS software. Brand and product names are trademarks of their respective companies.

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