畢博上海銀行—SimeBankMarketRiskTreasuryReport

1、SIME BANK BERHADReport onMarket Risk - Treasury10 October 1997Prepared bykpmgAsia Pacific Consulting1 / 61Table of Content1.EXECUTIVE SUMMARY.12.INTRODUCTION .52.1PURPOSE OF PAPER.52.2M ETHODOLOGY .52.3FORMAT OF THIS REPORT .62.4T HE RISK ENVIRONMENT IN WHICH SIME B ANK OPERATES .73.PRINCIPAL MARKET

2、 RISKS AND KPMG RECOMMENDATIONS .93.1I SSUES FROM MAJOR RISKS.93.2RISK: M ARKET RISK STRATEGY & RISK TOLERANCE LEVEL .103.2.1Recommendation: Treasury workshop for senior management .103.2.2Benefits.103.3RISK: ORGANISATION STRUCTURE .113.3.1Recommendation: suggested market risk organisation model .12

3、3.3.2BenefitsR.143.4RISK: HUMAN14ESOURCES3.4.1Recommendation: skill acquisition and knowledge transfer.153.4.2The benefits .153.5M ANAGEMENT INFORMATION SYSTEMS (MIS) .153.5.1Recommendation: improved management information .163.5.2Benefits.163.6RISK: T REASURY PROCESSES AND IT .163.6.1Recommendation

4、: automated processes and systems integration .183.6.2Benefits.193.7RISK: PRICE RISK & RISK MEASUREMENT .193.7.1Recommendation: improved risk measurement methods .203.7.2Benefits.203.8RISK: D OCUMENTED POLICIES AND PROCEDURES .213.8.1Recommendation: develop a comprehensive policy, procedures and lim

5、its manual .213.8.2Benefits.223.9RISK: CREDIT RISKS .223.9.1Recommendation: clarify accountabilities for market related credit risk.223.9.2Benefits.233.10RISK : I NCREASED COMPETITION .233.10.1Recommendation: improved customer service.243.10.2Benefits.244.ACTION PLANS.25APPENDIX 1RISK REGISTER .37AP

6、PENDIX 2 PROCESS DIAGRAM .50APPENDIX 3 - COMPARISON WITH INTERNATIONAL STANDARDS .511 / 611. Executive SummaryINTRODUCTIONWe have produced two reports on market risk, focusing on “ Treasury and” “ AssetandLiability Management” (ALM). Both reports highlight a number of key areas in which actionis req

7、uired to strengthen the Bank s management of market risks.We have produced two separate reports to draw a distinction between the price risk arising from the trading activities of the Bank and the asset and liability management function which is essentially concerned with the strategic balance sheet

8、, income and funding risks. The issues in each of these reports are in many aspects different. However, the action plans designed to address these issues are the same, because both Treasury and ALM ultimately pertain to the management of market risks. Accordingly, we have produced one Executive Summ

9、ary which is common for both reports. For the purpose of this summary, market risk includes all Treasury risks (e.g. foreign exchange and money markets) as well as ALM risks (e.g. liquidity and structural interest rate risks).FINDINGSThe key findings of the assessment of market risk management are:-

10、 liquidity risk is significant,- there is limited understanding of market risk and ALM and risk management techniques,- there is inadequate information for controlling and planning purposes,- there is a lack of articulation of market risk strategy and risk tolerance,- existing practices fall short o

11、f international market and regulatory standards of best practice,- price risk is currently small but there are plans to expand Treasury operations, and- there is difficulty in implementing ALCO decisions.The implications of this assessment in the immediate period:- it is difficult to maintain liquid

12、ity in adverse market conditions,- there is potentially a higher cost of funds (retail and wholesale),- it is difficult to respond to changes in the business environment and economic climate, and- there is a limited range of tools to minimise market risk.1 / 61The implication of this risk assessment

13、 in the long run may be an uncompetitive response to banking sector liberalisation and deregulation. KPMG therefore believes that a significant market risk enhancementprogramme is urgently required. The first priority should be reducing liquidity risk.Liquidity risk is a pressing issue. There is lim

14、ited forward planning for short term funding requirements or long term financing needs. Furthermore, there is difficulty in attracting customer deposits and hence heavy reliance has been placed on interbank activity. Consequently, many interbank lines are fully utilised.RECOMMENDATIONSThis report pr

15、esents recommendations for the enhancement of risk management practices in each key risk area identified. The key risks include: liquidity risk; market risk strategy and risk tolerance; organisational structure; management information; risk measurement; documented policy and limits; processes and IT

16、; and market related credit risk.Our recommendations have been evaluated against regulatory and international standards of market practice which were discussed in the Treasury and ALM workshops. The following bullet points highlight our key recommendations.We recommend a series of market risk manage

17、ment workshops for staff to increase understanding of Treasury products and risk management techniques. These should focus on managing liquidity and interest rate risk, hedging with various Treasury instruments, employing various organisational models, using measurementtechniques and valuation metho

18、dologies.We recommend a series of focused market risk management workshops for senior management with the aim of developing a market risk strategy including articulation of risk tolerance levels.Management Information Systems (MIS) need to be enhanced both in terms of users specifying their requirem

19、ents and systems to deliver the capability in a timely manner. Management and staff need to specify and identify the information they require for decision making. This is most urgent with respect to ALM where information is required on the asset side (e.g. loan repricing profile, cashflow) and the l

20、iability side (e.g. deposit sources, specific hedges) of the balance sheet where data is currently unavailable.We recommend the establishment of an independent, dedicated group responsible for Market Risk Management. We also recommend that the ALM Support unit is absorbed into this function.2 / 61Sk

21、ill upgrade within Treasury by means of skills transfer from external resources can run in parallel with external recruitment to ensure the bank is immediately prepared to implement its market risk strategy and to achieve its business objectives.We have proposed a systems architecture for Sime Bank

22、which provides the necessary business links for automation of manual processesand system integration in Treasury. The objective is to move toward implementation of a centralised database.We recommend the introduction of more sophisticated risk measurement techniques particularly with respect to inte

23、rest rate management. For example, the use of time buckets, sensitivity analysis and Gap analysis.It is important for the Bank to develop a comprehensive, written policy, procedures and limits manual. This should include:- establish clear roles and responsibilities,- set objectives for ALM policy,-

24、establish a clear chain of command for limit monitoring, breaches, stop-losses, profit excess, crisis management,- specify limits and guidelines for measurement and control,- tier limits and include management action triggers and detailed response, and- clarify valuation methodology and procedures.I

25、nternational Banking needs to co-ordinate and work together with the Credit division to establish a mechanism to measure, monitor, aggregate and control market related credit risk.Steps should be taken to reduce settlement risk including completion of reconciliations on an up-to-date basis. Further,

26、 formalisation of confirmation requirements prior to settlement is required particularly with respect to corporate clients.The Bank is keen to expand its International Banking activities and would like to become involved in derivative products. Therefore the process of moving towards meetinginternat

27、ional and Bank Negara Malaysia s (BNM) minimum standards is important. We encourage the Bank to work towards attaining such regulatory approval with the beliefthat it will enable the Bank to compete more effectively, particularly on two fronts:- hedging the balance sheet by using derivative products

28、 to alter the risk profile of the ALM portfolio, and- providing competitive services to satisfy increasingly demanding and mobile customers.3 / 61The corporate desk should conduct more complete analysis of customer activity and co-ordinate its activity in foreign exchange, money markets, trade finan

29、ce, etc. Once BNM approval for derivatives is granted, the corporate desk should expand its product range to include instruments such as swaps and options.We have developed a set of prioritised action plans as the output of our review. Our suggestion in relation to prioritisation and timing is set o

30、ut in the following diagram.Implementation of Change -Prioritisation and TimingImmediate0 - 3 monthsShort Term DevelopmentMedium Term Development3 - 9 months9 months plus? Provide market risk training? Implement market risk? Document policies, proceduresto stafforganisationand limits? Appoint Head o

31、f Market? Conduct senior management? Implement staff appraisal/Riskworkshopsremuneration? Users to specify MIS? Formalise strategy andrecommendationsrequirements re interestarticulate risk tolerance? Enhance systems integrationrate/FX/liquidity risk? Introduce more sophisticated? Establish mechanism

32、 to? Ascertain Infinity capabilitiesinterest rate Risk Measurementaggregate all credit risksand provide training to stafftechniques? Expand corporate desk? Specify ALM MIS? Develop additional MIS to meetservicesrequirementsuser requirements? Develop confirmation? Formalise follow up of ALCO? Extend

33、liquidity gap report andmatching (domestic)decisions/actionsenhance liquidity analysis? Centralisation of database? Set liquidity limits? Develop liquidity contingency? Establish transfer pricing? Nostro reconciliationsplansystem linked to capitalautomated? Develop confirmation matchingallocationsys

34、tem (international counterparties)4 / 612. Introduction2.1Purpose of paperThe purpose of this report is to summarise KPMGs findings from our evaluation of Sime Banks market risk management systems. These findings are based on extensive interview of front office, back office and senior management, re

35、view of relevant documentation (including reports and limits) and discussion of issues identified at the market risk workshop.This report is focused on market risk management. We concentrated on all areas of Treasury (foreign exchange, money markets, foreign exchange-corporate, off-shore banking) wi

36、th the exception of asset-liability management which is the subject of a separate report.In this report we have made recommendations for the enhancement of risk management practices and outlined steps which are fundamental to achieve robust and effective market risk management proficiency. Our recom

37、mendations have been evaluated against regulatory international standards of market practice which were discussed in the Treasury Workshop.The analysis was carried out in August through October 1997. We have discussed the key issues raised in this report with senior officers prior to reaching our fi

38、nal conclusions.2.2MethodologyOur review and assessments focus on the key elements of market risk exposures by:understanding the existing structure and policies of Treasury including how it has evolved and the perceived limitations of current practice;identifying major market risks;assessing current

39、 Treasury processes and practices and evaluating the robustness of controls to contain the risks associated with the planned expansion of Treasury activity;comparing Sime Bank practices with international market and regulatory standards; andproposing action steps and priorities to meet objectives an

40、d to mitigate the market risks.We have conducted the following steps in performing the review and assessmentof the market risk systems in Sime Bank:1. During the initial “ diagnostic phase” we interviewed key personnel involved in the market risk processes with Sime Bank. They included Money Market,

41、 Foreign Exchange(including spot, corporate, off-shore banking), MM settlement, FX settlement, Group Finance, Internal Audit and IT department with respect to the use of Infinity and the interface with the General Ledger.5 / 61This phase provided us with a high level understanding of the Banks marke

42、t risk systems and enabled us to determine the major focus of our review. The results of this diagnostic phase and our preliminary observations were presented to the project steering committee.2. We reviewed existing processes, technology and policy documentation, and samples of management reports u

43、tilised by the Bank in conducting Treasury activities. We re-interviewed staff to gain a more detailed understanding of Treasury activity and processes.Based on such reviews we mapped out a diagram of the Treasury processes(refer to Appendix 2). We generated ideas which enabled us to develop a more robust framework for strengthening the existing market risk processes.3. KPMG benchmarked Sime Bank practices against international standards. In conducting this benchmarking