Bank guards itself with operational risk management

PKO Bank Polski uses  SAS® to comply with Basel II requirements, improve risk management

One of the largest and oldest banks in Poland – and one of the country's most recognized brands – PKO Bank Polski offers banking and investment services to domestic and foreign entities, individual clients, large enterprises and government institutions.

Risk management rules under Basel II require banks to incorporate additional elements, including operational risk, into their solvency ratio. To comply with the provisions, PKO Bank Polski began using simplified methods of calculation of the capital requirement for operational risk, such as the basic indicator approach (BIA).

The bank deployed a range of methods and procedures for operational risk identification, assessment, monitoring, restriction and reporting. Internal rules were adopted to regulate the classification and registration of operational events.

For several years, the database was maintained in a Microsoft Excel spreadsheet. The collected information was aggregated and reported in a quarterly summary report.

The reporting process was laborious and time-consuming. Selecting information for individual report sections and classifications, as well as updating and confirming previously collected information, required extensive manual effort. This approach produced inadequate results, given the size of the institution.

In pursuit of regulatory approval

PKO Bank Polski decided it was time for a change. The bank knew it could obtain considerable advantages by using the advanced measurement approach (AMA) to calculate the capital requirement for operational risk. Hoping to gain consent from the Financial Supervision Authority, the bank's leadership began preparing the organization to meet all of the requirements for AMA implementation.

Along the way, the bank experienced difficulties with the availability and management of information on events as well as the requirements for implementing the AMA. Its manner of collecting and distributing risk information was not fully efficient and did not ensure adequate data quality.

The scope of registered information was limited, and the general functionality would be unable to suit the bank's future needs. Moreover, there was a risk that the applied IT solution would not receive the required approval from the banking supervision authorities who oversee the AMA.

PKO Bank Polski needed more comprehensive analytical and reporting tools dedicated to operational risk. The bank began its quest for an IT solution that could meet its needs.

Why SAS® ?

After thorough analysis of the solutions available on the market, PKO Bank Polski selected SAS® OpRisk Management. Analysis confirmed that the solution met the bank's expectations and could fulfill its current and future needs.

The aim of the implementation was to provide the bank with a complete IT environment to execute major operational and analytical processes related to risk management.

SAS OpRisk Management automates the processes for managing internal operational risk information, provides the ability to analyze operational loss data and model operational VaR, and contains a comprehensive global repository of information on publicly reported operational losses in excess of US$100,000.

Also, SAS implemented functionalities that aligned with PKO Bank Polski's needs concerning the European Banking Authority's common reporting guidelines (COREP), compatibility with needed databases, and an extended catalog of statistical distributions.

Quality improvements, remarkable benefits

SAS OpRisk Management enables the bank to measure key risk indicators for operational risk. The module incorporates the existing indicators of the organization, has assigned owners, established alert limits, electronic notification of exceeding the limits, and a range of reports showing the variability of indicators over time. The solution specifies preventive and remedial actions for irregularities diagnosed at the organization.

With the SAS platform in place, PKO Bank Polski achieves a significant improvement in operational process quality. The solution enables effective collection and processing of risk data and an effective and active use of such data in current tasks. From senior executives and managers to analysts and branch employees, thousands of staff members are using and benefiting from SAS OpRisk Management.

A glimpse ahead

PKO Bank Polski plans to implement the solution in select subsidiaries of the banking group, using the existing SAS infrastructure to enhance the software with new functionalities for needs related to operational risk management, and to expand the scope of collected information on operational events related to credit risk.

Challenge

Comply with Basel II requirements and obtain a complete technological platform to execute major operational and analytical processes related to risk management.

Solution

SAS® OpRisk Management

Benefits

The bank is better equipped to protect its business, improve its operational risk management and optimize its workflow.

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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