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Small but perfectly formed: Nottingham Building Society focuses on credit risk and improved service

Nottingham Building Society uses SAS® to manage risk, make informed credit decisions, meet regulatory demands and treat customers fairly, driving improved business performance and enhanced customer service

Founded in 1849, Nottingham Building Society has 32 branches across Nottinghamshire, Derbyshire, Lincolnshire and South Yorkshire. Focused on residential and buy-to-let mortgages, secured business lending, investments and insurance, it’s the UK’s 12th largest building society. “We’ve always been prudent in who we lend to, and proud of the fact our approach meant we fared better than some other institutions in recent times,” says Diane Grundy, Credit Analytics Manager, Nottingham Building Society. “SAS® Analytics enables us to offer even better risk management through improved knowledge of customers. We can identify potential losses and calculate capital requirements. We also use SAS to report to the Financial Services Authority (FSA) and the ratings agency, with the ability to react quickly in providing complex information, whilst SAS also helps us to identify financial crime and fraud risks.”

Improving efficiency - and effectiveness

In 2005-6 the Society took a strategic decision to enhance its credit risk management capability, to aid business decisions, risk management and satisfy enhanced regulatory demands. An added factor was providing the future ability to apply to the FSA for an advanced internal ratings-based (IRB) waiver under Basel 2 capital adequacy standards.

To meet both the standardised and future IRB requirements, Grundy says, “SAS was essential. I considered other solutions but knew SAS was right for us. I’d used it at a major bank so I knew SAS as a leader in business analytics and an industry standard. I’ve always found it to be very effective and excellent value for money - I couldn’t think of not working with SAS.” The business case presented to the Finance Director focused on efficiency gains and the provision of vastly improved information, including the ability “to drill deep into the book”. I was guided by SAS on the right solution for our needs, which were obviously different to those of a big bank and meant using SAS in different ways. And we always look to maximise our return on investment therefore we simply wanted just a ‘lean and mean machine’ - which is what we got. And we were up and running in no time.”

Grundy says SAS was also an investment for the future, to better support the business and its lending strategy: “To see, for example, if we were lending to the right people and identify their risk profile. We also wanted to attract the right audience for certain products, help ensure borrowers could meet their commitments and Treat Customers Fairly. We were doing these before, but SAS has brought greatly improved efficiency to all those areas, bringing them together in one place, saving time and supporting better decisions.” Analysts benefited from SAS® Education training courses and, Grundy says, “We’ve also received excellent support from the SAS Helpdesk, which is brilliant when you have inexperienced analysts.”

The desktop-based SAS® Analytics Pro solution was first deployed in credit risk but is gradually moving through the business, most recently into Compliance. Data sources include all the Society’s application processing systems and behavioural monitoring systems. A recent addition to the solution is SAS/ACCESS® Interface to Oracle that, Grundy says, enables the team to easily access the transactional database for savings accounts. To comply with legislation the Society has to have systems in place to prevent its products or services being used to further financial crime, so it is imperative that unusual patterns of behaviour are quickly identified. “Accessing this information so easily and regularly means we can look at patterns of behaviour that suggest a problem to enhance service and allow appropriate action.” In this way, SAS can reveal possible fraud and criminal activity such as money laundering and any potential targeting of vulnerable people.

Satisfying the ‘risk appetite’

SAS is also providing extensive management information for executives and the board, so they can focus even more on key issues around performance and risk. Areas covered include arrears, new business coming in, risks evident in the books as that business moves through, and more. “We have a number of portfolios, so it’s quite comprehensive,” Grundy says. An important area is the ‘risk appetite’ for the business set by the board – “For example, that we won’t lend a certain amount to an individual in a certain situation. We can show if we’re failing to comply with that in a particular area, then drill down and find out why. So there’s a big monitoring and control aspect.” These insights are provided to the Society’s credit committee and board far faster than previously. “Because doing this in SAS is so fast and we’ve automated the process, the information is available within days of month-end, something you often don’t see in other organisations,” Grundy adds. “If we didn’t have SAS, what takes us days would take weeks. So we can be very responsive, as well as being flexible and agile. It’s helped us be more responsive during the recent market volatility – for instance, monitoring collections more easily, to see arrears, how long people are in arrears, then we can focus our attention on those customers that may need our help. That’s another way SAS is being embedded throughout the business, providing real savings that are also difficult to quantify. We can also provide capital adequacy reports to the FSA far more easily, to ‘stress test’ the mortgage book by, for example, exploring the effects if property prices fell dramatically. We can respond to that very quickly and do it ourselves with SAS, which is great.”

Ultimately, SAS is helping the society to protect its business and focus on performance while providing customers with a faster, more personalised and fairer service. “The more information you have, the better informed are decisions you make involving customers,” says Grundy. “SAS has clearly provided us with advantages. Our Compliance Team, for example, appreciate just how useful the solution is and have plans to extend its usage. It’s so important to be able to provide evidence to the board, external regulators and law enforcement agencies, quickly and accurately. You can’t put a price on that.”

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Nottingham Building Society

Business Issue:
Enhance credit risk capability to improve business decisions and risk management, focus on customers and satisfy regulatory capital requirements and Treating Customers Fairly
Solution:
SAS® Analytics to access, manipulate, analyse and present information from multiple sources
Benefits:
New insights are delivered in days rather than weeks, with the society better placed to manage risk and protect its business and members and focus on performance, address regulatory requirements and give customers a more personalised service

SAS is a leader in business analytics and an industry standard. I’ve always found it to be very effective and excellent value for money. I couldn’t think of not working with SAS

Diane Grundy

Credit Analytics Manager, Nottingham Building Society

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