the evolutjon of alm
play

The Evolutjon of ALM June 2019 How will ALM change The Evolving - PowerPoint PPT Presentation

Nov 27, 2023 •45 likes •275 views

The Evolutjon of ALM June 2019 How will ALM change The Evolving External Increasing Strategic ALM Environment Sophistjcatjon 1 2 3 Yousef Ghazi-Tabatabai www.ukalma.org.uk 1 The Evolving External Environment The Evolving

  1. The Evolutjon of ALM June 2019

  2. How will ALM change… The Evolving External Increasing Strategic ALM Environment Sophistjcatjon 1 2 3 Yousef Ghazi-Tabatabai www.ukalma.org.uk

  3. 1 The Evolving External Environment

  4. The Evolving Regulatory Environment IRRBB Jun 2015 Apr 2016 Oct 2017 Jul 2018 Basel IRRBB BCBS 368 EBA IRRBB EBA IRRBB consultatjon consultatjon revised IRRBB paper paper guidelines standards CRD V/CRR 2 Further technical papers Basel standards and EU regulatory framework Liquidity Jan 2013 Jun 2013 Oct 2014 Feb 2018 Basel III CRD IV Basel III PRA Statement Liquidity of Policy - Pillar NSFR Coverage Ratjo 2 Liquidity Stress testjng technical papers Basel standards and EU/UK regulatory framework Yousef Ghazi-Tabatabai www.ukalma.org.uk

  5. The Evolving Market Environment The long period of low and stable rates ended as central banks enacted hikes across major economies GDP (YoY growth %) Central bank policy rates % 7% 5% 6% 4% 5% 3% 4% 2% 3% 1% 2% 0% 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 1% -1% 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 -2% 0% -3% -1% -4% 9 8 7 6 5 4 3 2 1 0 9 8 7 6 5 5 4 3 2 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 -5% 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 EU GDP UK GDP USA GDP ECB lending rate FED Funds rate BoE Rate Customer behaviour may be afgected: • Decreasing mortgage or loan prepayments if rates rise. • Customers switching to high interest accounts if margins widen. • Customers lengthening duratjon of savings products if curve steepens. • How applicable is historical data based on a stable and low rates environment? • Structural Hedging : Some banks are choosing to reduce their structural hedges in antjcipatjon further rate rises. How should this decision be made? • Funding challenges : Some banks do not fund through deposits. Will these instjtutjons be at a disadvantage as rates rise? Yousef Ghazi-Tabatabai www.ukalma.org.uk

  6. The Evolving Customer Environment Changing means Changing Changing customer of access demographics expectatjons 1. Online and mobile 2. Less use of branches 45% of young 2/3 of UK bank 52% of people uses only branches have customers want a their mobile for closed in the past wider variety of banking 30 years online services Source: Financial Empowerment in the Digital Source: Which? Source: FICO, 2013 Age, ING, 2013 Yousef Ghazi-Tabatabai www.ukalma.org.uk

  7. The Evolving Competjtjve Environment Challenger banks Non-bank competjtors Open banking 1 2 3 • • There has been a proliferatjon of Fintech : Banks now face competjtjon Deposit stjckiness : CMA July 2014 new entrants to the industry in from a range of bespoke fjntech fjrms Market Study update on Personal recent years. Many have now gone which might focus on partjcular services Current Accounts – Switching rates beyond the initjal ‘start-up’ phase to such as payments and peer-to-peer (in 12 month period) at 3%, Churn become established players. fjnancing. rates at 7%. Compared with 10-15% in energy, 10% mobile, 30-35% • Challengers have adopted a variety A series of fjntechs have acquired car insurance). of business models , with some banking licenses , and so transitjoned • focusing of tech while others have into challenger banks . This may change if the primary shunned the traditjonal deposit customer relatjonship is no longer Unbundling banking services is key to funding model. with the bank. the business model of many fjntechs, • • Nevertheless the industry remains who focus on partjcular aspects of what Robo-switching : Consider a PISP highly concentrated (UK). used to be a bundled package of which managed a customers services. accounts across multjple banks, with the customer having Non-fjnancial tech fjrms can also litule to no interactjon with become competjtors, as they “ rebundle ” the underlying banks. these services with their existjng (non- fjnancial) platgorms or ofgerings. Yousef Ghazi-Tabatabai www.ukalma.org.uk

  8. The Evolving Role of a Bank From distributjon Banks as networks to technology and risk customer management fjrms experience 1 2 Product unbundling Brand and and rebundling customer loyalty 3 4 Yousef Ghazi-Tabatabai www.ukalma.org.uk

  9. 2 Increasing Sophistjcatjon

  10. Risk Management Framework Efgectjve risk management Frameworks include a hierarchy of capabilitjes and principles that are deemed as core to driving control and accountability. Risk Clear alignment between strategic, business and operatjonal Risk appetjte clearly artjculates the Group’s risk tolerance 1 strategy plans and risk strategy. Underpins capital management, risk 2 fully refmectjng its business strategy, expansion plans and appetjte and performance management. fjnancial resources. Risk appetjte Identjfjcatjon, assessment and management of current and Risk focussed external communicatjons strategy emerging risks arising out of business lines/regions. Robust Risk 4 centres around actjvely managing internal and 3 processes in place to aggregate, prioritjse and report risks on profjle external stakeholders (Board, Regulators, Ratjng an enterprise wide basis. Agencies, Financiers). External communicatjon and stakeholder management Risk management at the centre of business Governance structure including senior performance. Actjve assessment of risk and management ownership and accountability, fully reward fully integrated within key business 5 Governance, organisatjon and policies 6 supported by a comprehensive risk management steering processes (strategic optjons evaluatjon, policy framework. M&A actjvity, quarterly business reviews, large projects etc.) Business performance, risk monitoring, reportjng and KRIs Ensuring that risk is adequately Risk quantjfjcatjon and stress testjng to embedded in key business processes support business planning, strategy, 8 7 (e.g. strategy settjng, incentjves, capital management, etc. business planning etc.) Risk analysis and response selectjon Ensuring the framework is Management Atuaining the desired risk supported with appropriate informatjon, culture through combinatjon of infrastructure (e.g. Data, systems, 9 technology and Business People, change 10 having the right numbers of the capital models, productjon of infrastructure process and reward right people in the right functjons MI, etc.) and ensuring they are appropriately incentjvised. Business strategy Business management Business platgorm Yousef Ghazi-Tabatabai www.ukalma.org.uk

  11. Modelling Customer Behaviour Retail products do not have an equivalent to the no arbitrage framework, leading to a multjplicity of approaches and models of varying sophistjcatjon across the industry. Whereas some models are data driven, many are highly dependent on expert judgement. Key products Issues Cashfmow forecasts • “Double optjonality’’ NMDs • Core vs non-core balances • Separatjng liquidity & rate risk • Margin compression • Segmentatjon • No industry standard model Maturity Bucketing (t) Overnight 1d-3m 3m-6m 6m-12m 1-3yr 3-5yr 5yr-10yr Core - Non-Core - - - - - - • Prepayment modelling Mortgages • Rate structure • Caps and fmoors • Internal rates and optjonality • Factor models Yousef Ghazi-Tabatabai www.ukalma.org.uk

  12. Data and Systems Current status – Systems Current status – Data • • A proliferatjon of legacy systems with multjple patches. Infmexible, with Though banks hold a wealth of granular data, it is ofuen not available for expense and tjme consuming change cycles. MI or modelling. • • ‘Manual’. Inappropriate use of excel models. Data is dispersed across many systems, using a variety of data architectures. • Models which take hours to run, using ‘large’ quantjtjes of data, unsafe • and hard to validate and control, tjme consuming. Multjple transformatjons (ofuen manual) are applied to the data as it fmows up from source systems to MI. • Separatjon of IT and business. • There is no single view as to how a product (e.g. a mortgage) should be represented. Potentjal improvements – Systems Potentjal improvements – Data • • Use of modern technology for fmexible systems. Use of modern data solutjons for effjcient storage, access and distributed calculatjon. • From Excel to coded models – Safe, controlled, testable, much faster. • Fast, high level access to granular data - both in terms of • Increased computatjonal speed opens doors to new levels of analysis, and records and fjelds. frees up expert tjme for higher level tasks. • Single view across systems of the representatjon of a product. • Quant model brings business and development together. • Ratjonalised data architecture. Yousef Ghazi-Tabatabai www.ukalma.org.uk

More recommend