Transcription
When you have to be rightSolutionPrimerFinancial ServicesOneSumXCredit RiskCounterparty credit risk (the risk to each party of a contract that thecounterparty will not live up to its contractual obligations) and credit risk(including Credit VaR) are driven by several parameters which are highlysensitive to market and behavioral risk. Both credit and counterparty riskappear in all types of financial contracts, from simple bonds to creditderivatives, and impact most financial events arising during the lifetime offinancial instruments.The analysis of credit and counterparty risk is applied in risk managementand capital adequacy, pricing, profit and loss, is also crucial in defining thestrategies of business evolution.
2OneSumX Credit RiskOneSumX Credit RiskFinancial institutions are heavily exposed tocredit risk and thus failure to managecounterparty risk will result in major losses.This will impact not only the financial industryitself but more importantly the counterpartiesthat are linked and supported by financialinstitutions; in other words the entire market.Credit and counterparty risk analysis is partof business across most departments infinancial institutions; it links and supportsthe front office management, back officeanalytics, treasury office, asset liabilitymanagers, regulatory compliance, riskmanagers, and the board of directors.
3OneSumX Credit RiskInstitutions must be able to identify and model underlying parameters of creditand counterparty risk, together with their integration to other financial risks;moreover, they should be able to estimate and report the current and futurepossible impacts of credit and counterparty risk with regards to value andliquidity measurement and risks under both normal and stressed conditions.A safe and robust financial system isepitomized by firms displaying steadyprofitability with minimal losses, and resultsthat enable increased confidence of both themarket and the regulators. This can only beachieved when firms have in-depth andthorough insight into their credit andcounterparty risk. OneSumX Credit Risk canenable firms with all the elements neededfor such comprehensive insight.Risk managementCredit and counterparty risks appear in allfinancial instruments that are placed in bothon and off balancing accounts and creditportfolios, which can result in both expectedand unexpected losses. OneSumX Credit Riskcalculates both expected and unexpected lossesand applies stress testing scenarios in all creditand counterparty risk parameters to measureand manage credit and counterparty risks.Counterparty credit worthinessTo gain accurate insight into the maximumexposure of credit losses, firms need to beable to identify and set the parametersrelated to credit worthiness of acounterparty. Additionally firms need toensure that risk against credit losses isminimized. OneSumX Credit Risk enablesboth, by identifying credit ratings, probabilityof default and migrations (transition)matrices (MMs), defining descriptivecharacteristics, such as seniorities, regions,etc. It also considers the hierarchy amongcounterparties and models behaviorcharacteristics, such as recovery rates aswell as defining and/or considering themarket driven credit spreads.In increasingly volatile markets, it is also vitalthat firms consider credit and counterpartyrisks as they become highly sensitive tomarket and behavior risks – our solutionconsiders deterministic and/or stochasticscenarios, and applies credit VaR riskmeasurements based on single and multifactor model approaches. It also considerswrong way risk and both specific idiosyncraticand general sensitivities of counterparties tomarket and credit risk factors.Credit exposure static anddynamic evolutionAs credit exposures dynamically changeover time, institutions must be able tomeasure, manage and adjust them byconsidering both current and futureconditions driven by both static anddynamic market, credit and behavior riskfactors. Our solution calculates current andexpected gross and net credit exposures,computes the degree of exposures in bothdefault (EAD) and non-default cases, andestimates potential future and effectivecredit exposures at more than one futuredate. It also identifies and considersvolatilities and adjustments of creditexposures and tracks the evolution ofcredit exposures under static and dynamiccredit and market conditions.Additionally firms need to mitigate credit andcounterparty risks by employing creditenhancements such as collaterals, guaranteesand credit derivatives, and applying hedgingproducts, credit enhancements, limits, nettingpolicies and strategies to minimize the riskagainst credit exposures. Hedging strategiesas well as credit enhancements are appliedwhen needed, not only for absorbing creditrisk losses but more importantly forincreasing the degree of robustness andconfidence during volatile times.Hedging strategies as well as creditenhancements are applied when needed,not only for absorbing credit risk lossesbut more importantly for increasing thedegree of robustness and condenceduring volatile times.
4OneSumX Credit RiskCredit andcounterpartyanalysisOneSumX Credit Riskcalculates credit valuationadjustment (CVA), debtvaluation adjustment (DVA)and funding valuationadjustment (FVA) andenables exploration of thecorrelation between credit,market and behavioral riskin an integrated approach.The solution identifies and estimates thedegree of systemic and concentration basedon counterparty risk and credit exposureanalysis and enables compliance withregulatory requirements such as Basel II/III.The analytical tools within our solutionensure that this credit and counterpartyanalysis and management can be reportedto a firm’s stakeholders.OneSumX Credit Risk is part of our overallOneSumX for Risk Management offering andhandles the many and varied complexcredit and counterparty risk analysiselements that firms must consider. Otherfinancial risks such as market or liquidityrisk are handled within the respectivemodules of the OneSumX suite.All our financial risk management solutionelements are based on a contract-basedapproach, whereby each financial instrumentis linked to a specific counterparty, togetherwith its related market conditions andbehavior characteristics, are employed inthe solution.This contract-centric approach enablesfirms to identify the counterpartycharacteristics and credit worthinesstogether with behavioral characteristics andcredit spreads, driven by the marketconditions, in a consistent manner. Theevolution of the credit exposures can alsobe estimated considering both staticanalysis and dynamic simulation in regardsto the evolution of counterparty ratings,future market conditions and behavioralcharacteristics.In addition, credit risk exposure, liquidity,pricing, valuation adjustments, systemicand concentration risks analysis are keyresults that are available as a result of thecredit and counterparty risk analysiscapabilities of our financial riskmanagement solution.Figure 1 – Credit and counterparty risk analysis elementsAnalysis Elements in Credit & Counterparty RiskCounterpartyCredit exposureRisk managementAnalysis Ratings & Migrations Current & Expected At Default Case Expected & UnexpectedLosses Static/Dynamic Probability & Default Descriptive Characteristics At Non-default Case Stress Testing Valuation & Pricing Hierarchy Future & Effective Behavior Volatilities & Adjustments Market Credit SpreadsCredit WorthinessStatic & Dynamic Evolution Credit VaR Credit Losses & Lines Liquidity CVA / DVA / FVA Wrong Way Risk Integration to Market& Behavior Sensitivities Systematic & Concentration Credit Enhancements Regulatory ComplianceMitigation & HedgingReports
OneSumX Credit RiskCredit and counterparty risks appear in all financial instrumentsthat are placed in both on and off balancing accounts and creditportfolios, which can result in both expected and unexpected losses.OneSumX Credit Risk calculates both expected and unexpected lossesand applies stress testing scenarios in all credit and counterparty riskparameters to measure and mange credit and counterparty risks.5
6OneSumX Credit RiskContract-centric approach anddynamic simulationthe risk management solution to producereliable and consistent MIS/risk reports thatprovide clear insight into the businesses’profitability, performance, and risk analysis.OneSumX Credit Risk can be used tocalculate the expected and unexpectedcredit losses by considering deterministicstress scenarios as well as stochastic process(Credit VaR) approaches. Specific risk casessuch as wrong way risk, sensitivity analysis,migration, and credit risk exposure hedgingare also key elements within the solution.Both standard and customized reports anddashboards, for analytics specifically for theC-level and board of directors levels, areavailable as part of the solution.The data source produced by our OneSumXRegulatory Reporting module can be fed intoFigure 2 – Contract-centric approach and dynamic simulationContract-centric approachDynamic simulationCounterpartiesMarketsntio slu tie rvo ar viot e rp ake te ehar un bM co urew utNe FINPUTELEMENTSFinancialContractsStrategyFinancial NTSValue gies onnew production
OneSumX Credit RiskSpecific risk cases such as wrong way risk, sensitivity analysis,migration, and credit risk exposure hedging are also key elementswithin OneSumX Credit Risk.7
About Wolters KluwerWolters Kluwer (WKL) is a global leader in professional information, software solutions, andservices for the healthcare; tax and accounting; governance, risk and compliance; and legaland regulatory sectors. We help our customers make critical decisions every day by providingexpert solutions that combine deep domain knowledge with specialized technologies andservices. Wolters Kluwer reported 2019 annual revenues of 4.6 billion.The group serves customers in over 180 countries, maintains operations in over 40 countries,and employs approximately 19,000 people worldwide. The company is headquartered in Alphenaan den Rijn, the Netherlands. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL)and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1American Depositary Receipt (ADR) program. The ADRs are traded on the over-the-countermarket in the U.S. (WTKWY). 2020 Wolters Kluwer Financial Services, Inc. All Rights Reserved.For more information visit ance-riskand-regulatory-reporting. Follow us on Twitter, Facebook, LinkedIn and YouTube.Contact information:APACWolters Kluwer5 Shenton Way,#20-01/03 UIC BuildingSingapore 068808EMEAWolters Kluwer25 Canada Square,41st Floor,Canary Wharf,E14 5LQ London,United KingdomAmericasWolters Kluwer130 Turner Street,Building 3, Fourth Floor,Waltham, MA,U.S.When you have to be right
neum Credit Risk 3 Institutions must be able to identify and model underlying parameters of credit and counterparty risk, together with their integration to other financial risks; moreover, they should be able to estimate and report the current and future possible impacts of credit and counterparty risk with regards to value and
