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Credit Risk Management Systems for the Banking Book 2016

Banks, vendors of systems and regulators all recognize that the design and implementation of systems to manage credit risk in the banking book is a major undertaking. Three factors, namely changing regulation, uncertain economic outlook, and possibly deficient systems are challenging vendors of systems to review and improve their product offerings.

A ramification is that banks are reassessing their system strategy for measuring and managing credit risk in the banking book. Some banks have concluded that they may not have adopted sound principles of credit risk management and thus have not had appropriate credit risk management systems for the banking book. A key aspect of that reassessment is comparing the functionality provided by the principal vendors of credit risk systems and benchmarking their offerings against the bank’s unique business strategy.

Regulators, investors and banks - that use the Standardized Approaches - are challenging the role of Internal Ratings Based (IRB) models. The Basel Committee on Banking Supervision (The Committee) has recognized this also. In July 2013 it published a discussion paper: “The Regulatory Framework: Balancing Risk Sensitivity, Simplicity and Comparability” that is influencing the current and proposed prudential regulatory framework. It is now more widely recognized that modeled RWAs - no matter which approach is used - are merely one estimate of exposure to credit risk. Banks are renewing their efforts to develop Economic Capital models and active portfolio management. Stress testing is now a mandatory pre-requisite in larger institutions and is becoming widespread in others. A new accounting standard outside the US - IFRS 9 - is having a profound impact upon the design of risk models and data collection. This in turn has impacts for Pillar 3 disclosures, the reconciliation and reporting of Risk and Finance data to central repositories e.g. EU COREP and FINREP and regulators to facilitate stress testing.

This report provides an update to the Chartis 2013 Credit Risk Management Systems report and focuses exclusively on credit risk management for the banking book. It provides selected key market updates, credit risk IT expenditure numbers and the vendor landscape.

This report uses Chartis’s RiskTech Quadrant® to explain the structure of the market. The RiskTech Quadrant® uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant® does not simply describe one technology solution as the best credit risk management solution; it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.

This report covers the leading vendors offering credit risk management systems for banking, including AxiomSL, BearingPoint, Fernbach, FICO, FIS, IBM, Misys, Moody’s Analytics, Oracle, Prometeia, QRM, Rockall Technologies, SAP, SAS, Wolters Kluwer Financial Services and ZEB.