14 Deloitte Presentation 2 Slide Per Page

7/28/2019 14 Deloitte Presentation 2 Slide Per Page

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Impairment and provisioning under IFRS.

Methodology and solution implementation

practical experience

Natalia Cierna

Adam Koaczyk

Bucharest, 11 April 2007


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- 1 - Deloitte 2007

I n t r o d u c t i o n 1

3 Ex p e r i e n ce f r o m im p l em e n t a t i o n p r o j e c t s

2 I m p a i r m e n t m e t h o d o l o g y



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- 2 - Deloitte 2007

Advantages of implementing provisioning under IFRS

Apart from meeting reporting requirements relating to IFRS introduction, implementing provisioningaccording to IAS 39 and IAS 37 will result in:

1. Convergence of provisioning methodology with the approach used in credit risk managementand Basel 2 e.g. use of PD, LGD, recovery rates, EAD)

2. Better collateral management, ability to analyse collateral efficiency and credit riskmeasurement.

3. More accurate estimation of loan provisions:

Accounting for banks specifics in the area of exposures, internal credit risk assessmentmethods, effectiveness of receivables and collateral collection processes.


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Our experience

Experience in the development of effective interest rate and financial asset impairment methodologiesgained in both local and international financial institutions.

Possessing dedicated, tested and working IT solutions IRR Tool and Impairment Tool hence we can assureefficient, competent and timely project realization.

Playing active role in Polish Banking Supervision Commission (KNB) and Polish Banking Association workinggroup developing KNBs impairment implementation recommendation.

Capacity to provide complete services due to possessing a unique team representing comprehensiveknowledge and expertise acquired in local and Central European environment in the areas of IFRSimplementation, financial instrument accounting, Basel II, risk management, and developing own IT tools relatedto these areas.

Experience in managing projects which covered both development of methodology and implementing it in ITsystems.

Experience in implementing integrated risk management systems covering ALM, FTP, Basel 2 and IAS 39.

Experience in building and implementing IT solutions which support accounting in accordance with IFRS in banks

and non-financial institutions: Impairment tool - system for specific and portfolio provisions according to IFRS;

IRR Tool - system for measurement of debt instruments using effective interest rate;

CRD Synergy Engine integrated IT solution for Capital Adequacy EU Directive (CRD).


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Our experience

Methodology: BRE Bank (Commerzbank Group)

InvestBank (Poland)

DZ Bank Poland

Fortis BankPolska

OTP Bank Slovakia & Romania EFL Leasing (Credit Agricole Group)

Santander Consumer Bank (Poland)

Hypo-Alpe-Adria banks in Serbia & Bosnia

Cacanska Banka (Serbia)

GE Money Bank (Czech Republic)

IT supporting tools: BRE Bank (CommerzbankGroup)

InvestBank (Poland)

Impairment

Methodology:

Raiffeisen BankPolska

Bank BISE (Poland)

InvestBank (Poland)

DZ Bank (Poland)

Hypo-Alpe-Adria banks in Serbia & Bosnia

OTP Bank Romania

Cacanska Banka (Serbia)

GE Money Bank (Czech Republic)

IT supporting tools:

Raiffeisen Bank Polska

Bank BISE (Poland)

InvestBank (Poland)

Effective interest rate


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Impairment a reduction of the asset value (recoverable value) below its book value due to theincrease in credit risk.

Default inability to fulfill the contractual obligations. A delay in payment over 90 days is anexample of a default indicator.

Loss event objective evidence of impairment - an event indicating an increased risk of default,e.g. a breach of contractual obligations, bankruptcy, distressed restructuring.

LGD (loss given default) loss on a loan that has defaulted (1-LGD = recovery rate).

PD (probability of default) probability of a loan to become defaulted.

IBNR (incurred but not reported) losses losses which based on statistical data has alreadyoccurred but have not been identified individually by the bank

IAS provisioning approach Terminology

Financial assets and off balance sheet exposures


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In most jurisdictions IFRS provisioning requirements replace provisioning rules for loans and off-balance

sheet exposures, hence new approach must cover both types of exposures:

On-balance sheet exposures

1. Extended loans (all types)

2. Credit card receivables3. Forced receivables (for example arising from letters of credit, guarantees, debit cards,

breach of limits etc.)

4. Breach of limits debits in current and settlement accounts

5. Current account loans

6. Interbank loans

7. Reverse-repo transactions/ buy-sell-back transactions,

8. Commercial papers

Off-balance sheet exposures

1. Guarantees

2. Letters of credit

3. Undrawn amounts (including credit cards, credit lines, loans, refinancing lines for banks

Financial assets and off-balance sheet exposures

concerned


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Main topic areas regarding IAS 39 / IAS 37 provisioning methodology include:

1. Individual vs. portfolio assessment individually significant and insignificant exposures

2. Client segmentation into homogeneous credit risk groups for example, according tointernal rating, type of product, type of client, past due status

3. Impairment identification:

Occurrence of loss events

Application of PD (Probability of default)

4. Provision calculation

Estimating cash flows from payments made by debtor and collateral realizations(recovery rates, LGD) and calculate provision

Discounting using effective interest rate

5. Recognition of interest income on impaired loans, so called impairment interest

No suspended interest concept under IFRS

IAS provisioning approach major topics


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Individual vs portfolio assessment segmentation


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- 10 - Deloitte 2007

In order to establish individual significance the following should be considered:

Credit risk type of given transaction/portfolio and credit risk management method employed bythe Bank: retail vs. non-retail exposures when dividing exposures into those assessedindividually and collectively it is important to account for the actual method used to managegiven exposures;

Financial report materiality (value of transaction / portfolio individually / collectively);

Number of transactions of a given type and availability of data relating to those transactions portfolio approach cannot be used if there is a small number of transactions of a given type.

Individual vs. portfolio assessment segmentation

into portfolios


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The next step after dividing exposures into those which will be assessed individually and collectively is the

identification of exposures/portfolios where a loss event occurred. Some loss events are universal regardlessof client type and product, whereas some are specific to a given client or product type. A sample list of lossevent for corporate clients is presented below.

Past due status in principal or interest payments past due 90 days or more.

Significant breach of contract.

Distressed restructuring:

Change in payment schedule of credit/transaction arising from lack of financial ability on thepart of the borrower to make payments specified in the original contract,

The Bank has requested payment of the obligation (in whole), buthas not started collateralrealization proceedings,

Contract cancellation (in whole or in part) and /or start of collateral realization proceedings.

Decrease in the borrowers rating.

Information regarding account blocked as of the date of the analysis (for significant reasons).

Decrease in borrowers rating (into default category or by two grades or more).

Decrease in the value of collateral: increase in LTV (transaction exposure amount / value ofrealizable collateral) above a certain threshold for project finance transactions and brokerage loans.

Identification of impairment examples of loss events

P i i l l i b l h


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Provision calculation balance sheet exposures

Impairment occurs only when a loss event(s) occurring after the initial recognition of an asset

negatively impacts the amount and/or timing of cash flows related to the asset. In this case, the Bank

should measure the potential impairment loss amount and related provisions.

Expected losses which may arise due to future events, no matter how likely, are not recognized.

However, need to recognise incurred but not reportedlosses (IBNR).

Impairment loss = Carrying amount recoverable amount

recoverable amount = PV (expected cash flows from the asset) + PV (expected cash flows

form collaterals) PV (collection expenses)

The discount rate used to calculate PV of expected cash flows is the assets effective interest rate atthe impairment measurement date (for restructured assets effective interest rate from the moment

of restructuring).

Under IFRS interest income is calculated and recognized in income statement on impaired assets

(concept of suspended interest is not present in IFRS).

If there is a decrease in impairment loss in a future time period which is caused by events which

occurred after the initial impairment recognition, provisions for impairment should be decreased.

P i i l l ti ff b l h t


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Provision for guarantees, letters of credit and unused credit lines calculated under IAS 39 & IAS 37.

The approach to off-balance sheet exposures entails calculating the provision which should be the

larger of two values:

best estimate of current obligation calculated under IAS 37 or

fair value as at initial recognition (usually premium received for granting guarantee) adjustedfor amortization of the initial fair value according to IAS 18.

Provision amount is decreased by expected recoveries from collateral, unless the collateral

constitutes a guarantee or insurance policy provided by a different entity in this case the collateral

is accepted only if its realization is virtually certain.

Credit Conversion Factor (CCF) applied for measuring provisions for off-balance sheet exposures.

Provision calculation off-balance sheet exposures

B k l f l d IFRS


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LoanOrigination

fees and costs

Provisioncalculation

(Risk)

Principal andinterestpayments

Nominal interestaccrual

Bookingprovisions

(P&L + balancesheet)

Loan book value according to IFRS

Interest income atthe contractual rate

EIR Adjustment

Interest adjustment

to impairmentinterest levelInterest incomeaccording to IFRS

Loanvaluefortheclient

Book value of a loan under IFRS

Impairment under IAS 39 example


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A bank extended a 2 year loan for 100 PLN. The Bank did not take any commissions at

loan origination. Consequently, the contractual interest rate on the loan of 10% isequal to the effective interest rate (EIR). The principal is to be repaid in two equalinstallments at the end of each year.

One year after loan origination, the loan was identified as impaired (the debtor went

bankrupt). The book value of the loan at the time of impairment amounted to 110 PLN(100 principal + 10 accrued interest).

The bank assessed the recoverable amount from collateral at 66 PLN to be received inone year. After discounting the recoverable amount using EIR (10%), the presentvalue (PV) of the recoverable amount equals to 60 PLN (66/(1+10%)=60).

Consequently, a 50 PLN (110 60) provision was created, and consequently the netbook value of the loan after provision amounts to 60 PLN.

From this moment interest should still be accrued using to the original EIR (10%), butnow applied to the 60 PLN basis. Consequently, after one year accrued interest will

equal 6 PLN and the net book value of the loan will equal to 66 PLN (60 + 6), which isthe amount the bank estimates to obtain from the collateral realization.




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1) 100 2) 10 10 2)

4) 10 10 4)

5) 4

6 6)

50 3) 4 5) 3) 50

1) Loan extension

2) Contractual interest accrual for first year (before impairment)

3) Creation of provision

4) Contractual interest accrual for second year

5) Interest income adjustment to impairment interest level

6) Interest income for second year according to IFRS (impairment interest)

Provision calculation: Impairment interest:Principal 100 Contractual interest 10

Accrued interest 10 Loan net book value 60

Book value of the loan 110 Interest rate 10%

Minus: discounted recovery -60 Impairment interest 6

Provision 50 Interest adjustment 4

Loan principal Accrued interest Interest income (P&L)

Provision costs (P&L)ProvisionInterest adjustment

to imp. int. level



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Standard scope of impairment projects methodology


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Methodology stream:

Analysis of currently used by a bank methodology for assessing and measuring loan provisions inthe light of IFRS provisioning requirements.

Verification of sufficiency of data collected by the bank in the light of IFRS provisioningrequirements.

Advisory on developing impairment methodology in accordance with IFRS: identification of product for which IFRS provisioning methodology should be developed,

segmentation of portfolio into exposures for which impairment will be assessed on individualand collective basis,

methods for creating homogeneous portfolios (for collective impairment analysis),

defining loss events (objective evidence of impairment losses),

methods for estimating future cash flows form principal, interest, and collateral for impairedexposures,

PD, LGD and EAD parameter calculation / estimation methods,

methods for impairment loss calculation and presentation including application of effectiveinterest rate,

rules for recording impairment losses in the Banks books, balance sheet and profit and lossaccount.

Methodology developed in the steps described above considers data and credit process limitations.

However, we define necessary data requirements i.e. data that needs to be collected in the future inorder to satisfy IFRS impairment requirements.

stream

Standard scope of impairment projects IT stream


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IT stream:

Implementation ofImpairment Tool supporting identification, assessment and measurement ofimpairment losses and IRR Tool supporting effective interest rate calculation and EIRadjustments or alternatively

Supporting internal or external development, implementation, and acceptance test of IT tool

supporting impairment identification and measurement of impairment losses and effectiveinterest rate.

Standard scope of impairment projects IT stream

Special cases


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Special cases

During implementation there is a need to cover special cases for which IAS 39 does not provide

direct treatment, for example:

Mismatch between currency of loan (e.g. EUR) and collateral value which is usually assessed in

local currency (e.g. RON). Should it be converted using:

spot rate or

forward rate?

Which interest rate use for discounting of recoveries from a loan after troubled restructuring? IAS

39 requires to use the rate prior restructuring. But what to do if, for example:

the rate prior restructuring was floating?

the currency of the loan has changed?

Impairment interest on exposures for which IBNR provision has been created.

Major implementation obstacles


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Major implementation obstacles

The major obstacle is quality of data:

Lack or insufficient quality of data on historical recoveries, default rates (PD), credit conversion

factor (CCF) extended use of expert judgement.

Too small homogenous portfolios impossible to apply collective approach.

Lack or insufficient quality of data on current collaterals e.g.:

difficulties in linking collaterals with loans,

inaccurate collateral value entered in the systems,

Difficulties in linking interest rate used for discounting with appropriate loan.

However, there are other problems as well:

Changing mindset of staff involved in assessing individual impairment (e.g. sale staff - credit

officers responsible for loans).

Interest income after impairment adjusting contractual interest calculated by core banking

systems conceptual (e.g. treatment of repayments and other events) and technical

(infrastructure) problems.

Lack of data often enforces need for simplifications to methodology.

Additional scope of impairment projects


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Assistance in calculating provisions at opening balance and any other dates.

On going consultations on impairment methodology after completing the project.

Organization of the impairment measurement process.

Preparation of internal procedures.

Data mining gathering data on historical default rates (PD), recoveries (LGD), collaterals etc.

Data cleansing e.g. collateral data.

Implementation of validation procedures to assure high quality of data.

Implementing work flow for bad debt collection department. Modifying KPI affected by impairment (provisions and interest after impairment).

Modifying budgeting and controlling processes affected by impairment (provisions and interestafter impairment).

Additional scope of impairment projects

Experience from a working group developing NationalB k f P l d i i t d ti


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Polish Banking Supervision Commission (KNB) aimed at developing recommendation

(Recommendation R) that would present best practices in implementing impairment requirementsunder IFRSs, including:

defining roles and responsibilities of banks Supervisory Board and Management Board in theimpairment process e.g. establishing the process of impairment identification and

measurement and internal controls for this process, defining elements of internal impairment identification and measurement rules and

procedures,

defining impairment methodology, including use of expert judgement, valuation models, rules

for creating homogenous portfolios, valuation of collaterals, validation tests, collectinghistorical data,

defining roles of internal audit in relation to impairment process,

explaining IAS 39 impairment concepts especially in the areas where IAS 39 does not provide

direct guidance. The Recommendation is not a binding law approaches other than those presented in the

Recommendation are also acceptable (provided they are in accordance with IFRSs).

Bank of Poland impairment recommendations


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4 I m p a i r m e n t To o l

Impairment Tool


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The Tool allows to maintain the existing process related totransactional systems operation and processing, that arecurrently implemented in a bank (IFRS requirements donot override the need to obtain data using the existingmethods, e.g. tax, legal, business line performance, client

communication).

No significant changes to the banks reporting process arerequired: the existing reporting systems and theorganization / reconciliation process still apply, but with anew (not critical) component added.

The output data may be delivered on various levels toseamlessly integrate with the current banks environment:

analytical data extracts required for reporting,

stand alone GL as an adjustment to local GAAP GL,or

direct adjustments accounted in the banks GL byusing the existing interfaces.

The solution is focused on events, which have impact onIFRS valuation (all unadjusted values remain only in thecore systems).

Effective implementation, fastest processing (less data),transparent and verifiable, integrated into existingarchitecture.

IFRS adjustments

GL Core system

(local GAAP)

IFRS Tool

(GL adjustments)

Nominal values

10

8

10

BBB

10

8

10

AAA

6

4

6

BBB

6

4

6

AAA

IFRS G/L

6

4

6

BBB

6

4

6

AAA

10

8

10

10

8

10

Impairment Tool implements a transparent and real life proven concept of IFRS adjustments:

p

Impairment Tool the core functionality


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Customizable / asynchronous processing

Data extraction and loading processes (ETL) forexposures, collateral and contract/client data areimplemented on the data layer.

The system enables definition of unique processingcalendar based on which of the dedicated EOD,EOM, EOY processes are performed.

Build in functionality for systematic management ofresults of all calculation processes and their approval.

Historical application results are backed up forreporting and audit.

Automatic notification via e-mail, bounded to the

chosen events.

Exposure management

Covers broad range of Banks assets (installment

loans, overdrafts and revolvings, credit cardreceivables, interbank transactions) with unifiedset of data for all B/S products and all off-B/Sproducts.

Multi-level data access: the system enables to

operate on the level of elementary balances(principal, interest, off-balance) as well as on asingle transaction or a group of transactionsconstituting one clients exposure. Drill down toindividual transaction and its risk parameters (e.g.provision) both for individual and portfolio

assessment. Dedicated user interfaces for gathering

supplementary data, to be used directly by theoperational units i.e. defining recovery rates andcash flow schedules for principal, interest,

collateral and off-balance sheet exposures. Collateral management module enabling collecting

actual recoveries to build own database ofhistorical recoveries.

Automatic default identification for the portfolio-managed exposures, and manual for exposuresassessed individually (loss events on thetransaction or client level).



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Calculation methods

Different methods of impairment calculationenabling convergence with the approach used incredit risk management (expected cash flows individual method, transition matrices portfoliomethod based on risk pools, optional direct input of

risk parameters: PD, LGD). Portfolio management basing on characteristics of

the chosen transaction and on the expert modelparameterization.

Analysis of scenarios and approval of parameters

for calculation (PD, RI). Collection of historical recovery data and calculation

of historical LGDs.

Easily modifiable / extendable (on implementationlevel) event handling mechanisms for EODprocessing.

Preparation of reports for the accounting purposes.

Built in GL functionality

Maintaining history of individual postings,triggers (events) for postings, account balanceson transaction level.

Revaluation mechanisms for foreign currencyexposures and other residential processes

EOM / EOY on single transaction / accountlevel.

Possibility of exporting account balances inpre-defined structure (file/DB)

Flexible parameterization (on implementation

level) of accounting schemes for each definedevent

Recognition of interest income on impairedloans and adjustments to bring interest incometo the level of impairment interest.

System structure and components


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The application is centrally-maintained and is available for the end users via an ergonomic WWW

interface (thin client).

The main menu of the system consists of the following sections:

Administration (available for the technical administrator) enables the administration of usersaccounts and changes to the databases.

Exposures (available for the business users) for the purpose of the individual assessment.

Calculation (available for the business administrator) for the purpose of the calculation ofprovision for the individual assessment.

Calculation retail (available for the business administrator) for the purpose of the calculation ofcollective provision.

Parameters used to define parameters necessary for provision calculation.

Work out process (collection process) allows gathering actual (historical) data on recoveries.

Reports for the purpose of the report generation.

Requests for the changes of the user rights.

Individual exposures


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Suitable user interface enables user to search(including multiple criteria search), browse anreview of the Banks exposures. Availableexposures may be limited based on usersassigned rights.

Exposures matching searchcriteria listed together withmajor transaction details (e.gdefault and default acceptance

status)

For the chosen exposure theuser chooses the loss-eventfrom the predefined list(causing appearance of defaultflag).

Default has to be approved bysupervisor.

Changes made by the user arestored for supporting of audit

trail.

Individual provisions loss events and recoveries


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When the user marks the exposure with adefault flag, all other exposures of the givenclient are automatically marked with thedefault flag.

Classification and default-flaggingofexposure (including approval process) takes

place automatically for the exposures thatare portfolio-managed and manually for theexposures assessed individually.

For the exposures that are individuallyassessed loss-events that can beautomatically derived from transaction

systems (e.g. days overdue) are alsoprocessed automatically.

For defaulted transaction the user:

Estimate estimated recoveries fromprincipal (repayments expected from the

borrower), supported with presentedcontractual repayment schedule.

Estimate recoveries from interest(estimated repayments expected fromthe borrower).

Individual provisions off-balance sheet exposures and collaterals


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off balance sheet exposures and collaterals

In case of off-balance sheet exposure (e.g.

unused credit limit for a loan or issuedguarantee) the user, additionally torecovery assessment, assess (or usepredefined) CCF parameter (creditconversion factor).

In case of collateralized exposures thesystem provides details of collaterals andthe user is required to estimate recoveryfrom those collaterals (amount and timing).

After all recovery data is entered the

system presents transaction and provisionsummary based on the providedrecoveries.

In case of estimating recoveries from tangible assets collaterals (e.g. property, plant and equipment, inventories)

the system provides functionality allowing for additional verification of estimated recoveries by experts (banksvaluators) in particular type of collateral.

Collective impairment portfolio parameterization


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In collective impairmentapproach the system enablesdefinition of new portfolios forthe calculation of PD and RI,basing on chosen transactionscharacteristics (product type,

client rating etc.)

Each available product can beassigned to a chosen portfolio.

Definition of particular portfolios

is available for the systemadministrator.

For each type of productadditional parameters can be

defined to be used in thecalculation (CCF, type of thediscount rate).

Collective impairment collateral parameterization


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For each collateral category the

user defines recovery rates andduration of collection process(used for LGD calculation basedon discounted collateral value).

The system enables collectinghistorical data on collateralrecoveries and collection costs,on which recovery rates wouldbe calculated by the system.

Collective impairment matrixes calculation


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Calculation of provision is preceded

by the configuration and calculationof transition matrices.

Results of calculation of particulartransition matrices performed by thesystem are available for preview and

comparison with each other.

Collective impairment provisions calculation


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Calculation ofprovision is based ongiven computationalset of data

All results of provisioncalculation areavailable in thesystem. The lastaccepted provisioncould be also seen in

the detailed view foreach separatetransaction.

Before generatingfinal report onprovisions anapproval is required

Recording of historical recoveries and collection costs


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The system includesfunctionality of collectingactual recoveries andcollection costs andlinking them to particularcollateral, customer andexposures. Hence, the

system may produceanalysis of actual(historical) recoveriesand collection costs invarious breakdowns e.g.by collateral type,

customer type etc.

This functionality enables abank to build its own database

of historical recoveries.

Data collected on actual(historical) recoveries andcollection costs are available in

various reports.

Interest income after impairment GL module


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The system generates predefinedpostings based on defined atimplementation level configuration ofevents, measures and accountdefinitions.

The system maintains history of

individual postings, triggers (events)for postings, account balances ontransaction level.

It uses in-built revaluationmechanisms for foreign currency

exposures and other residentialprocesses EOM / EOY on singletransaction / account level.

Enables exporting account balances

in pre-defined structure (file/DB)

Interest income after impairment GL module


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In-built functionalityenables the user to inputdirectly information onaccount numbers (whensystem is unable toextract it from sourcedata)

The system enables tomanually trigger certainevents both on globallevel (EOY) andtransaction level (stop).

Administration


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The system enables user and privilegesmanagement, stores users e-mail addresses

and allows automatic notification via e-mail.

During processing and computations thesystem presents the progress and status ofcomputations.

Additional features


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Integration

Web user interface can be simply adjusted to different look and feel or translated to a local language(Custom Style Definition and resource bounding are used). Currently Polish version is available due to theclients requirements, an English version is planned.

Application outputs are available in both an extract file (text, Excel), relational data set, or MQ messages.

Either the internal ETL procedures or an external ETL tool may be used to integrate with the data sources.

Security

Impairment Tool takes advantage of the company global users repository (e.g. LDAP) to align usersaccess with global privileges.

Users roles are used to define access to the Tool functionality (specific modules and specific functions in

modules). Restrictions on transactional data scope might also be implemented.

Security functions are performed at the application server layer and are configured by a systemadministrator. That allows to define user groups (e.g. managers, operators, administrators) and then toassign users to those groups.

The Tool record the users activities in a data base log, providing an audit trail option.

Performance

The Tool can be deployed on various system configurations scaling their performance to the provided ITinfrastructure.

The Tool implements a multi-tier architecture: each tier can be run on dedicated server in order to achievethe required performance

Impairment assessment processes


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(np.

Gwny cykl obliczeniowy

( etap zatwierdzenia miesica w cyklu miesicznym)

Niezalenie od

gwnego cyklu

oblicze

Automatically(e.g. daily)

According to theworking cycle of aBranch, at least as

often as maincalculation cycle

Regardless of themain calculation

cycle

Main calculation cycle (monthly cycle other frequency is possible)

Sourcedata

loading

Automatic defaultclassification

proposal (past duestatus or lost NB

category)

Classification asdefault (on a

proposal basis)

Recoveries fordefault

exposures

Verification and

confirmation ofdefault

classificationand recoveries

calculation

Verification ofrecoveries

fromcollaterals for

exposuresclassified as

defaults

OK ?

NIE

OK ?

NO

YES

YESNO

Calculationparameters and

data control

Resultsarchiving, start

of the newmonth

Confirmation ofthe month

Modification of

defaultclassification,recoveries,parameters

Provisionscalculation andresults review

Freeze thechanges in

recoveries till theend of the month

Architecture

h l b il h l hi h i


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The Tools are built on J ava technology which means itcan be deployed on various hardware and softwareplatforms.

Accessible to the end-users via a thin web based client,from any workstation in the local or wide area network.Internet Explorer required only.

Presentation tier and the workflow logic run on an

application server (J 2EE compliant). The source data is loaded into an internal data store,

with use of the application ETL procedures, or anexternal ETL tool.

Computations are performed on the Tools internal

operational data store, independently from any bankingsystems (does not influence other banking systemsperformance nor security). For Impairment Tool,calculation logic is implemented as SQL procedures rundirectly on systems operational store.

Tools have built-in basic reporting functionality. Forfurther analysis relational data sets are available.

Computing results are accessible for any externalsystem (e.g. for reporting and further analysis) in theform of relational data sets, extract files, or directbookings.

Client layer

Application layer

Data layer

Application server

Database server

IRR Tool / Impairment Tool

DATA WAREHOUSE /

TRANSACTION SYSTEMS

System 1 System 2 System 3

We suggest use of a data warehouse as the datasource. Obtaining through a data warehouse enables

the system to be implemented and maintained at thelowest cost. Outputs from the system might be pushedto a data warehouse as well, to build a single goldencopy for the overall Banks reporting.

Oracle

Client Client Client

ETL procedures are implemented at thesource data layer for Impairment Tool andat the application layer at IRR Tool.

Logical architecture

SOURCE DATA LOADING


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System has a clear-cut layeredstructure that enables effectivefunctional customization.

Adjusting the system to customrequirements might be done effectivelydue to system layering.

It is possible to change one aspect ofthe system while others are leftuntouched.

It is possible to adjust the system to analternative impairment calculationmethodology.

The computation process is runasynchronously, i.e. other functionsare still available to the users whiledaily/monthly computations are beingperformed.

CALCULATION OF PROVISIONS

MODEL PARAMETRISATION

PD MODULE IMPAIRMENT ANDREPORTS

PORTFOLIODEFINITION

PREPARATION OF CALCULATION DATA

AUTOMATICPROCESSES

MANUAL DATACOMPLETION

PROVISIONS CALCULATIONS IMPAIRMENT INTEREST RATECALCULATIONS

REPORTING AND DATA EXPORT

REPORTS DATA

INTEGRATIONINTERFACE

SCENARIO

ANALYSIS

COLLATERAL DATA MANAGEMENT

COLLATERALRECOVERY

DATACOLLECTION

BAD DEBTRECOVERY

DATACOLLECTION

LGD MODULE

DATA LOADING FROM EXTERNAL DATA STORE

LOSS-EVENTSDICTIONARY

DATA SETS

RESULT ARCHIVING

COLLATERALRECOVERY

VERIFICATION

MANUALVERIFICATION


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Deloitte

ul. Piekna 18

00-549 WarszawaPoland

tel. +48 22 511 0077

fax. +48 22 511 0813

For any questions contact:

Adam Kolaczyk [email protected]

Deloitte

4-8 Titulescu Road, 3rd floor,

sector 1, Bucharest, 011141Romania

Tel. +40 21 222 1661

Fax: +40 21 319 5100

For any questions please contact:

Natalia Cierna [email protected]


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14 Deloitte Presentation 2 Slide Per Page

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