Solidify Your Liquidity Risk
Banks must often quantify risk across multiple dynamic dimensions. With new Basel III requirements, regional mortgage crises, high-volume cash flows, and changing compliance needs, liquidity risk is a major concern. Liquidity risk management becomes a strategic priority for banks needing to refinance loans, cover late payments, or adjust for loans called earlier than expected. Such cash flow variations, which affect all financial institutions, make it imperative that banks manage liquidity risk daily – including measuring, monitoring, controlling, and stress-testing liquidity exposures.
Need A Solid Solution?
Banks must capture and analyze cash flow across a complex array of financial products, generating information that supports better market decisions. For example, a bank may receive and analyze regional investment rating information each week, then make recommendations to buy, sell, or hold. The problem: week-old (or even day-old) data can reflect outdated economic or political conditions. In contrast, a bank that can access rating information and cash flows in real time can adjust its financial products, or suggest that customers change their investments, before the situation changes.
To offer employees and customers this level of real-time information, a bank must be able to manage, process, and analyze millions of cash flow, payment, and interest-rate data points in real time. In addition to managing this staggering amount of input, it must also forecast and calculate complex cash-flow statements. And beyond simulating daily changes, banks must constantly plan and forecast for mid- and long-term liquidity needs. Throughout this complex process, they need quick and accurate identification of all cash flow gaps, asset and funding concentrations, cash flow projection assumptions, and key early warning or risk indicators.
A complete liquidity risk management solution allows banks to:
- Improve forecasting of future liquidity needs
- Optimize funding decisions
- Predict future liquidity exposures and risks
Solidify Your Liquidity Position
SAP helps you strengthen risk resilience and build a more robust liquidity cushion with deeper visibility into your liquidity profile. SAP Liquidity Risk Management software uses powerful in-memory technology to instantly measure key liquidity risk ratios such as the Basel III Liquidity Coverage Ratio and Economic Cash Flow Gap. You can create scenarios based on the most granular cash flow data from assets and liabilities. You can pool cash flows, including operative, simulated, and stressed data from multiple SAP and non-SAP systems. SAP Liquidity Risk Management helps reduce borrowing and funding costs, minimize regulatory compliance costs with predefined Basel III ratio calculations, predict the impact of market volatility on cash and liquidity positions, and take counterbalancing action to reduce liquidity exposure.
SAP Liquidity Risk Management based on SAP HANA gives banks in-the-moment access to deep customer insights, risk exceptions, and issues, so they can leverage real-time data. The result: more accurate planning and budgeting, faster reporting, and better investment decisions.
Using Big Data for Big Banking Insights
Instant transparency into massive amounts of cash flow and liquidity risk data gives you responsive intraday liquidity risk management, real-time access to liquidity information, and the ability to stress-test scenarios as needed. Consider the average daily balance calculation that focuses on parts of the (or even the entire) balance sheet, including key figures such as daily (monthly, quarterly, or yearly) average. A real-time calculation of these averages is necessary for liquidity positions, and forms the basis for both daily yield calculations and regulatory reporting. Real-time insights help you identify opportunities and risks by actively managing your balance sheets.
A second valuable use for in-memory computing is credit card analysis. You can analyze millions of transactions per month, gaining insights into geographic, shopper, and customer profile trends. Use the information to negotiate fees and charges and to inform future financial, marketing, and customer service operations.
The most successful banks have a comprehensive liquidity risk management process, using predictive analytics and high-speed in-memory computing to identify, monitor, and manage cash flows. Analytics Services from SAP can help you develop a comprehensive strategy that balances risk and reward. For more information on how SAP Liquidity Risk Management software can help unlock business value, visit us online.