Building a risk-conscious culture

Danske Bank gains more transparent view of relationships and assumptions

A bank's risk management and capital adequacy requirements are closely connected as the capital adequacy ratio ultimately should be able to withstand the risk of any loss arising from the customers. Danske Bank works with both areas within the same organizational unit, and they are now both supported by SAS® Risk Management for Banking. The investment in a new IT platform – for the bank's risk and capital calculations analysts – is part of a new, ambitious and more business-integrated line. The philosophy is that the complex calculations must reflect the bank's business reality and affect the bank's decision making.

"We are working on developing a better interaction between the bank's risk experts and the bank managers, as well as the interaction between IT and business in this area," says First Vice President Simon Haldrup, who is Head of the Risk and Capital Management Unit consisting of 35 employees. "One important element is that we are able to manage all parts of our calculations and develop, change and understand the analysis behind the figures ourselves. We want to drill down and understand the dynamics, and at the same time become better at compressing and communicating this knowledge to the management of the bank.

The important thing is that we now have an open solution in which all dynamics can be followed and understood by our analysts. Earlier we had a black box that delivered some results, but not all relationships and assumptions were clear to us.

Simon Haldrup
First Vice President

According to Haldrup, risk is “the wolf in sheep’s clothing.” “The long-term goal is to build a risk-conscious culture in the bank. We have to be razor-sharp on recognizing and understanding the risk we are exposed to,” he says. “Basically, it is about telling the good customer from the bad customer, and knowing the risk-adjusted profitability of the customer. We can measure and analyze it, and we have to move in that direction.”

Analysts more autonomous

One reason Danske Bank chose this SAS solution was to gain a more transparent view into its data. With this solution, the group's analysts can work on the platform without IT's help. This gives the bank faster time-to-market. Additionally, the latest stress test was performed using the new platform (stress testing is part of the bank's new risk management approach).

The implementation was carried out in less than 12 months by a small team of SAS consultants and bank IT employees. In practice, Danske Bank and SAS shared the risk of the project.

"The important thing is that we now have an open solution in which all dynamics can be followed and understood by our analysts. Earlier we had a black box that delivered some results, but not all relationships and assumptions were clear to us," says Haldrup.

"The framework solution from SAS has an interface that fits our analysts very well with regard to competencies. They do not have to be IT experts to carry out analyses, and as economists they possess the required knowledge for using the solution," he explains.

The financial crisis rightly questioned the quality of banks' risk management. Some banks focused on highly complex software-based models, and for some banks this presented great difficulties. However, Haldrup does not see the models as the problem.

No return to stone tablets

"The banking industry should not panic and return to stone tablets because some banks experienced problems due to their models. Instead we can learn from it – and we can become better at understanding and developing the models," says Haldrup. "This is exactly the approach we have chosen at Danske Bank. We do not win anything if we abstain from using the most appropriate tools."

Economic capital is computed by SAS in a complex and demanding calculation. The aim is to calculate the capital the bank must have on hand to cover 9,997 out of 10,000 scenarios with unexpected – but realistic – losses. The calculations are based on the bank's historic data on individual, large customers and pools of small customers. For the major calculation, SAS is used. SAS Risk Management for Banking runs on SAS 9.2 on two Sun servers, each with 24 cores and 64GB RAM.

"We possess a goldmine of knowledge as we have a huge data foundation. It is thus possible to work with relevant business scenarios. We can simulate house prices, unemployment rates and the consequence of a national bankruptcy in Ireland," says Haldrup.


Risk management and capital calculation took place in a "black box," where all relationships, dynamics and assumptions were not readily apparent to decision makers.


SAS® Risk Management for Banking


The bank now has a platform for stress testing and capital adequacy, and a transparent view of relationships and assumptions. Analysts can work without IT involvement and risk calculations can be performed by one unit using an integrated approach.

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.

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