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Accenture helped this Italian bank develop a credit monitoring model that makes its overall risk management much more sophisticated—a key ingredient of high performance for banks in the wake of the recent financial crisis.
The client is the Italian subsidiary of a major European banking group. It provides retail banking services to individuals, and small and medium-size enterprises.
In an effort to improve its market rating, the bank needed to create a credit monitoring model that would let it assess the risk profiles of its clients more accurately, and thus reduce the number of loan defaults. In financial markets—particularly now—the ability to manage risk effectively is a key ingredient of high performance.
The bank turned to Accenture for assistance in developing the necessary methodology and algorithms. Accenture had worked with it previously on IT and systems integration projects and offered mature risk management skills.
A team drawn from Accenture Finance and Performance Management and Risk Management worked closely with the bank for nine months. Accenture managed the project in three phases.
During the initial phase, Accenture and the bank identified guidelines and logic for modeling risk profiles, exploiting existing statistical models, algorithms, data dictionaries and a set of key performance indicators (KPIs).
The resulting risk profile models, key performance indicators and algorithms were then tested with the bank.
In Phase 2, which focused on functional analysis, Accenture implemented a new credit monitoring engine and created the data model that would allow the integration of basic data into the data warehouse.
In the final phase, Accenture assisted the bank in tuning the model by analyzing the results to adjust the thresholds and weights assigned to each KPI. As part of the project, Accenture wrote a complete functional analysis of the model, describing the composition and calculation methodology of each indicator. Accenture also provided a tuning methodology so the bank can continually fine-tune the model.
Accenture was able to leverage a proven methodology, including functional analysis, fine-tuning and data dictionary for reference to reduce costs and maximize efficiency. With a credit monitoring model in place, coupled with the ability to adjust it according to changing risk parameters, the bank now can assess loan performance in real time. Over the long term, this can reduce the proportion of non-performing loans by up to 1 percent after two years, and thus reduce its capital requirements. The new credit monitoring model will also help it meet changing regulatory requirements.
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