With SAS Analytics, Bank Leumi reduces risk while ensuring high returns
Johannesburg, South Africa (09 May 2011) – Using software from the leader in business analytics, Bank Leumi is effectively combining credit risk management with portfolio management.
"Our credit risk management approach goes beyond regulatory requirements, which do not necessarily add business value," said Boaz Galinson, Head of the Credit Risk Modelling and Measurement Group at Bank Leumi. "Rather, our role is providing information that will help the business make the right decisions."
Galinson believes that risk management analysis must be integrated into the business. A key lesson from the credit crisis is that risk management should answer questions raised by senior trade officers and not remain on the sidelines.
Bank Leumi has developed a competitive advantage through innovative management of the risk profile of its commercial and corporate credit portfolio. More complex than retail banking, corporate portfolios reflect more varied business needs. In addition, concentrations of credit risk (ie, the risk profile of a group of connected obligors, a sector, a geography or a significant obligor) can affect the bank's total portfolio.
This is particularly challenging when the commercial and corporate portfolio includes untraded companies with no external credit rating.
Bank Leumi developed its own commercial and corporate credit-risk methodology supported by advanced risk architecture. The bank needed a solutions provider with deep experience building best-fit solutions for credit risk management to build a single credit-risk database to support all aspects of the credit-risk management system.
"No system on the market meets all the generic requirements for both credit rating and portfolio management, let alone those specific to Bank Leumi," said Galinson. "These two criteria clearly pointed to SAS as the provider of choice."
To build a robust risk management database, the bank deployed the SAS Detail Data Store for Banking, a data model that ensures consistent data flow. Data that is updated or refreshed by one function is immediately ready for use by all others; information is optimised continually.
Bank Leumi also developed a lab for building statistical models to generate risk parameters, such as probability of default (PD), loss given default (LGD) and exposure at default (EAD). With SAS, Bank Leumi can rerun all credit risk questionnaires to derive new PDs should the sector risk, financial ratios or any other forecasts change.
"SAS real power lies in the integration across all modules," said Galinson. "The strong modelling and scenario analysis and stress-testing capabilities within SAS help us evaluate the credit risk of the obligor/portfolio, while the SAS Detail Data Store feeds results of one analysis to the next. SAS' ability to analyse a variety of concentration risks from many different perspectives enables us to identify weak points and decide how to bring the portfolio back into balance.
"The bank's next big step is to optimise our Risk-Adjusted Return on Capital (RAROC) modelling," said Galinson. "SAS helps Bank Leumi manage based on RAROC, which brings much greater discipline to lending decisions and ensuring that reward is consistently and accurately linked to risk, thereby maximising real returns."
The announcement was made at SAS Global Forum, the world's largest gathering of SAS users, attended by more than 3 500 business and IT users of SAS software and solutions.
Bank Leumi le-Israel, founded in 1902, is the preferred gateway to Israel for international executives and investors, and is part of the Leumi Group, Israel's leading banking group. The Leumi Group, with assets in excess of $86 billion, serves multinational companies operating in Israel and Israeli firms operating abroad. Within Israel, the bank actively supports all key sectors of the economy with a full and innovative range of financial services.
Bank Leumi le-Israel is recognised as a significant force in international finance. Bank Leumi le-Israel's primary banking supervisor is the Bank of Israel. The Leumi Group serves clients around the world through more than 300 branches and offices in Israel, major world financial centres in 20 countries, and a broad network of correspondent banks.
SAS is the leader in business analytics software and services, and the largest independent vendor in the business intelligence market. With innovative business applications supported by an enterprise intelligence platform, SAS helps 50,000 organizations improve performance and deliver value by making better decisions faster. Since 1976 SAS has been giving customers around the world
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