BFBP chooses SAS® to manage and control risk

Banque Fédérale des Banques Populaires (BFBP) is a distinct organization within the Groupe Banque Populaire. BFBP's primary activities include supervision, control and central-office functions under French banking law. Additionally, BFBP manages the group's cash surpluses and handles those of its subsidiary Natexis Banques Populaires, which is listed on the Euronext Paris premier marché (top market). Focusing on tasks related to strategy, control, coordination and organization of the entire group, BFBP is also responsible for guaranteeing the liquidity and solvency of the Banques Populaires network, which is dependent on the equity capital of all the institutions in the network. To help control risk, in particular within the framework of the new Basel II Accord, BFBP has called upon SAS.

Beginning in 2000, BFBP launched a project to provide the group with systems and methods compatible with Basel II. As Thierry Croiset, director of risk control, notes: "We implemented this project not only to respond to the new requirements of the Basel II Accord, but also for internal needs." Managed by BFBP, the project brings together all structures of the entire group, with the aim of promoting common methodologies and solutions. It also allows BFBP to improve its management tools while consolidating its resources within a highly decentralized group.

Speaking the same language
The initial work consisted of demonstrating whether the banks' current rating methods were compatible with the Basel II reform. As the project proceeded, however, concern arose over BFBP's ability to communicate efficiently with other banks in the group, which were already using SAS to generate scores. The objective – to share means, resources and techniques to build united and long-term systems – also involved ensuring that teams could use the same language and statistical laws, as well as work with the same results.

For this reason, the BFBP chose SAS for a common rating systems based on scores. "The objective of our project is to implement rating tools that are based on proven and robust scores to calculate our equity capital in accordance with regulations," explains Croiset. "The level of equity capital required is dependent upon, among other things, customers' probability of default. With SAS, we can now achieve better risk management, better adapted pricing and better knowledge of our equity capital requirements in each line of business."

All BFBP's rating systems are defined from data analysis of the group's banks along with the Basel II specifications. Using SAS, BFBP assigns default probabilities in each risk scale – 1 to 10, for example – to each customer and then calculates the corresponding equity capital to be applied. By bringing all the data together into a single SAS solution, the bank is able to develop better scores, integrate them more easily into the rating engine and monitor score quality more effectively.

Implementation steps
First, BFBP set up its own data warehouse and rating systems to assess the amount of equity capital necessary to cover credit risks. From scoring design to production, BFBP optimized flows, shortened production startup times, and reduced Java reprogramming and error risks. SAS enabled the company to quickly create scores with the variables present in its data warehouse. Next, BFBP encapsulated the script in Java programs to guarantee the integrity of developments between the design of the scores and their operational use in a customer rating application. This approach also contributes to reducing the time needed for production startup when scores change.

The SAS solution is fully integrated into the system's technical architecture. "SAS brings more flexibility and power to our users and enables us to facilitate dialog with end-users. Since it gives us a global overview of the performance of our risk measurement tools on a regular basis, SAS really helps to make decisions," notes Croiset.

The benefits of a business intelligence platform
"In addition to developing scores, SAS Enterprise Miner makes it possible to document in parallel the work of our statistics teams, which will prove invaluable during the phase when our scores are approved by supervisory authorities. Overall, the capacity of the statistical tools contributes to optimizing our consumption of equity capital by finding the best variables to differentiate between customers," adds Croiset.

Eventually, BFBP plans to rely on SAS technology to establish internal credit models. For example, SAS allows the bank to perform analyses, make predictions or even run default probability simulations. BFBP also plans to implement methodologies and solutions common to the group in the form of "best practices." Croiset explains, "We are going to use SAS to establish management rules with the banks within our network to build stress scenarios. For instance, we will be able to rate a portfolio in time of crisis and study correlations over time. Such information will enable us to study customers' independence from each other so we can better understand the effect of portfolio diversification."

• Cooperative – 25 Banques Populaires, the local banks, which are the group's customer contact points.
• Federal – Banque Fédérale des Banques Populaires, the group's central office and a Natexis holding.
• Capital-intensive – Natexis Banques Populaires, listed on the Euronext premier marché and involved in financing, investment and service activities.

BFBP has 2,511 offices, 41,500 employees, 5,700,000 customers and 200,000 Natexis Banques Populaires shareholders. The company maintains more than €101.8 billion in outstanding loans. 

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