Bank Islam: Better risk management for competitive advantage with SAS®

Bank Islam Malaysia Berhad (Bank Islam) is a leading Shari'ah-based financial institution providing consumer and business Islamic banking products and services. With an impressive record of growth, its vision is to be the global leader in Islamic banking, serving as the ultimate source of guidance and reference for innovative Shari'ah-based products and services.

Using a credit risk management solution from SAS, the bank can discover problems before they turn into losses, develop competitive products and services and make fast, fact-based decisions that give it a real competitive edge.

According to Jeroen Thijs, Chief Risk Officer for Bank Islam, "The risk management function is quite cyclical. When we are in boom times, risk management moves more to the background and the function becomes increasingly facilitative. We have seen this before the recent crisis, where the role of the CRO had been increasingly undermined due to the strong demands of business to grow the business at all cost and as we now know within unacceptable risk parameters. However, when crisis hits, and this is more often than people tend to think, risk management takes a much more proactive role with a stronger voice in the decision-making process."

No more 'firefighting'
Bank Islam needed to move its risk management monitoring from a reactive to a proactive function. As Thijs says, "We needed to be able to discover stresses in the portfolio before they became significant problem areas. We needed a dynamic system that is updated regularly so we could do proper analytics on our portfolio and discover red flags. If we hadn't addressed this issue, then we would be driving more or less blind and would be firefighting as we had no way to address potential problem areas proactively."

The SAS® Credit Risk Management solution was chosen by the bank to enable it to do detailed segmentation analysis across its portfolio, and discover potential problem areas before they turn into actual losses. Thijs adds, "For instance, we are now able to see that a person in a certain age bracket from a certain state, earning between x and y, renting his property and having high credit card usage and deteriorating CCRIS (Central Credit Reference Information System) record is contributing the most to delinquency levels, and as such we stop financing this client profile. Moreover, we can put extra attention to this group of customers to prevent delinquency levels from deteriorating further. This is very powerful."

Effective risk management allows the bank to be more competitive when pricing its products and services, and improves the asset base of the bank. "The challenge is to ensure that you know where your risks are in the portfolio so that you can manage them proactively. It is also important that you dynamically adjust underwriting criteria to ensure that you continue to finance the right clients," says Thijs.

The SAS solution provides regulatory reports as well as management reports for internal use. It automatically generates the monthly CAFIB (Capital Adequacy Framework for Islamic Banking) reports for the central bank. The management reports are also reviewed weekly and monthly as part of the overall management and governance of risk at Bank Islam.

Thijs says, "The system's robust analytical capabilities enable us to do granular analyses on our credit portfolios and identify potential risk areas. This proactive risk management capability will translate into improved underwriting criteria, enhancing the quality of our overall asset baseand eventually moving to risk-based pricing."He adds that the capability to do analytical reports, which slice and dice the portfolios, is a differentiator among Islamic banks and gives the bank a competitive edge.

Dashboard reporting
The power and simplicity of SAS makes it very practical for business usage, according toThijs. "I have a dashboard that allows me personally to drill down and slice and dice information whenever I need." He adds, "We are now able to do detailed customer profile information. Moreover, through the CRO dashboard, I am receiving weekly refreshes on the portfolio and PNPF/NPF levels per risk category. The value is that I can now quickly adapt underwriting criteria to reflect new realities."

Thijs says that SAS was selected based on its outstanding data integration and data management capabilities and track record of implementation in the risk management space. He adds, "I appreciated SAS' flexibility in adapting to changing requirements during the project. There were some major unforeseen changes, but the SAS team just went on with it and still managed to deliver within the originally set deadline."

The whole implementation and the first risk management report produced by using SAS was very well-received by senior management and the board risk committee. Business users appreciate the additional capability to do enhanced customer profiling.

When thinking about the future, Thijs says that the strong data integration and data management capabilities are key strengths of SAS. This makes it an excellent foundation to serve as a risk data warehouse to provide further risk management and analytic capabilities. Other departments, such as finance, have expressed interest in using the information within SAS to supplement financial management decision making.

"SAS has delivered an excellent and robust risk data platform from where we can build additional enhanced risk functionality. I would certainly consider SAS risk functionality for risk data modeling, calculating credit risk VaR and implementing economic capital calculations and risk-adjusted performance management," says Thijs.

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.

Copyright © SAS Institute Inc. All Rights Reserved.