Dresdner Bank
Automated Credit Risk Analysis Leads to Improved Loan Recovery
"Reviewing the portfolio for risk used to take 50 to 60 man-days. Today, we can get these overviews within minutes, directly from our PCs, and with extra high-value analyses."
Torsten Boehme, Manager, Risk Assessment Team, Dresdner Bank.
Challenge
The Dresdner Bank Group has around 1,120 branch offices and 50,000 employees, and is active in over 70 different countries. In terms of assets, market value, and number of customers, Dresdner is one of the leading banking groups in Europe.
To get to the top, however, Dresdner had to face many challenges. Recently, these included increased credit risks in the public and private sector, the implementation of the new Basel Capital Accord (Basel II), and the new reporting requirements of the German financial authorities. The Basel II financial accord, which is an update of "The 1988 Accord," was established to give banks general policy guidelines and recommendations for best practices in managing credit market and operational risk. The accord is designed to reward banks that take the time to upgrade their risk management and information systems to meet its complex reporting requirements.
For Dresdner - because its existing information systems made credit risk analysis a slow and manual process - this meant finding a new solution that would improve the speed and fluency with which it could view and analyze customer business.
Approach
In the banking industry, the ability to recognize risk early can dramatically improve competitive advantage. That's why Dresdner sought to implement a new technical architecture: one that could serve as a foundation for the development of analytic applications.
After comparing two "proof-of-concept" scenarios side-by-side, Dresdner selected best-of-breed components for the new infrastructure: an IBM data warehouse with BusinessObjects as the BI front-end tool for accessing and analyzing information from the data warehouse. Together, these components introduced a new technique in the area of loan portfolio man-agement based on credit risk indicators, and are helping Dresdner update its approach to information management.
Using business intelligence, Dresdner is able to get a current, comprehensive view of its customer relationships, as well as a detailed look at customers' exposure to risks. Throughout the bank, including all different branch levels, users can easily create ad hoc queries and reports and recognize possible defaults much more quickly. Additionally, Dresdner hopes to use BI to lower costly capital reserves, whereby positioning itself to take advantage of new opportunities to increase shareholder value.
According to Heinz Schöttler, department director and IT head for credit reporting at Dresdner, "Business Objects was chosen, among other reasons, for its higher scalability (important for the planned international expansion of the solution), markedly better perform-ance, more open API, and more mature reporting functionality."
Results
The replacement of the old system was a huge leap in innovation for the risk assessment team. Having taken only eight months to deploy, the new system has already increased department efficiency and profitability. Today, more than 50 risk factors are constantly monitored per creditor and per product, and the results are used to calculate the credit risk indicator (CRI). The CRI reflects the probable risk of a customer relationship and is set in reference to the customer's current net risk (i.e., what the customer owes minus the customer's assets).
The CRI can be analyzed and aggregated along many different dimensions - including customer segment, branch, and region - to isolate and track credit risk over time. The biggest benefit of these new CRI measurements is an enhanced view over customer accounts. This improved transparency enables an advanced estimate of portfolio credit risk and helps Dresdner reduce its risk costs.
To determine the accuracy of the credit risk indicator results, the risk management assess-ment team reviewed them against known existing cases. According to the team, "The hit quota of the CRI was remarkable. We can now get a very precise picture of the risk situation."
The risk-based approach has meant a significant change in process for the team. Moving away from a simpler approach based on the total portfolio performance, the overall effect has been better risk management. The team now spends less time accessing information, and more time on qualitative analysis. And users are able to analyze available information in ways that were not before possible.
Dresdner considers the current solution only the first of many projects to come. Future plans include the expansion of the BI system to international risk divisions, the integration of extra data feeds, and extensions to cover new processes emerging as a result of the Basel II agreement.
Quick Facts
Industry
Banking
Business Pain
Existing information sys-tems made credit risk analysis a slow and manual process, hindering preparations for the new Basel II reporting requirements.
Why Business Objects?
"Business Objects was chosen, among other reasons, for its higher scalability (important for the planned international expansion of the solution), markedly better performance, more open API, and more mature reporting functionality."
Heinz Schöttler, department director and IT head for credit reporting at Dresdner
For More Info
Visit Dresdner website www.dresdner-bank.com