Swedish mortgage company SBAB relies on SAS® for Basel II compliance

Banks the world over are faced with the challenges of complying with the new Basel Capital Accord, otherwise known as Basel II. Established by the Basel Committee on Banking Supervision, Basel II is aimed at improving the safety and soundness of the European financial system.

However, it has also been criticized by some for placing too much responsibility directly on the financial institutions. In spite of these challenges, Swedish mortgage company SBAB has faced this responsibility head-on by investing in SAS software.

Advanced risk measurement
According to the current rules, the capital coverage requirement is calculated according to a standard ratings approach, but this has been seen by some to be too inflexible to measure actual risks. The new rules under the Basel II accord give institutions another risk measurement possibility alongside the standard method. Based on many years of historical data, organizations can build statistically established credit risk models that more accurately reflect the actual risk.

SBAB plans to achieve its goal of developing and refining its internal rating models faster, more efficiently and more accurately by using SAS software. "The advanced analytical capabilities and the ease of creating internal statistical rating models for credit risk using SAS will facilitate SBAB's adjustment to Basel II, and at the same time simplify our credit issuing process," says Bengt-Olof Nilsson Lalér, credit director at SBAB. "We realized early on that if we focused on a powerful tool to create an internal ratings system according to Basel II, we would gain several positive effects. Therefore, we talked with several consultants and experts who had an understanding of the systems that other Swedish and foreign banks have implemented. All the consultants we talked with specified SAS' solution as one of the most used and most well known. So, it was natural for us to choose it.

"It is very interesting to find a solution which not only produces quality assurance analyses, but which also documents the rating model so that it can be approved by the Swedish Financial Supervisory Authority (Finansinspektionen)," continues Nilsson Lalér. "And with the SAS software, we have achieved this. In the long term, these statistically secured risk calculations will also give us major opportunities to rationalize the credit issuing process. Used correctly, this can cut our costs and make us even more efficient."

Complying with the Basel II regulations may actually strengthen SBAB's position in the mortgage loan market. Due to having developed advanced analytical capabilities and good statistics, SBAB can easily and accurately establish its risk level, thereby complying with the risk-adjusted capital coverage requirement.

About SBAB
SBAB is the foremost challenger in Sweden's housing market, with around 10,000 customers and a market share of 18.3 percent in the property-company market and with approximately 230,000 customers and a market share of 7.7 percent in the retail market.

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