FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Oman

The supervisory and regulatory framework in Oman consists of three main bodies :

• Central Bank of Oman (CBO)

FRSGlobal in Oman

The economy of Oman has been adversely affected as a result of the global ‘credit crunch’ and the sharp decline in crude oil prices.

Despite the economic slowdown and subdued credit growth, commercial banks have maintained a healthy level of profits in 2009.

The Omani economy has weathered the global economic crisis with limited adverse impact. The overall economic outlook for Oman remains positive for 2010 despite heightened global uncertainties and remains sound due to a modern infrastructure, and a sound, profitable and resilient banking system due to appropriate regulatory and supervisory policy adopted by the Central Bank of Oman (CBO) and peaceful investment climate with strong technological incentives. The CBO have selected FRSGlobal to implement its Banking Oversight and Research Solutions (BORS) project to read more about this project please click here »

The main challenge being faced by Oman now is the increased amount of risk management that is required by the regulator, as well as transparency.

Firms need to implement an integrated approach to risk as apose to the silo‘d approach, incorporating for example liquidity risk, market risk and credit risk. Regulation, risk management and transparency are required from Omani banks – requirements that are not going to go away.

Regulatory Environment — Oman

Statutory

Financial reporting
These are monthly reports based on balance sheets, contra accounts (offsets in the balance sheet related to particular accounts) and detailed statements of assets and liabilities in terms of domestic currency and foreign currency.

Prudential

Capital adequacy reporting
The Central Bank of Oman intends to implement Basel II, a voluntary regulatory framework, based on information on security measures and transparency in loan portfolios to ensure adequacy in capital charges. This type of reporting is mainly concerned with risk incurred by banks and is centred on risk reporting. Capital adequacy reporting collects the information on market risk exposures, operational risk as well as the existing credit risk.

Statistical

Lending and borrowing reporting
These are daily reports required to be submitted by commercial banks concerned with the interest rates on domestic inter-bank lending and borrowing in domestic currency.

Interest rate statistics
These reports cover monthly statement of interest rate on deposits, bills, loans, advances and overdrafts in addition to private sector credits and deposits by interest rate and maturity of instruments, securities and investments.

Banks return deposits
These are quarterly reports and include data on deposits held with commercial banks and credit granted by the governments and quasi government entities.

Transactional

Balance of Payments reporting
These reports are based on requirements that exist on transactional level and provide quarterly statements on remittances, external lending and supplementary return on outward remittances. It also includes the annual statement of earnings and expenses.

Asset & Liability Management (ALM)

ALM is being embraced as more than just a tool to monitor and manage interest rate risk in banking books. It is a process for managing balance sheets against other risks that affect earnings and portfolio valuations of banks, shifts in customer behaviour, future balance sheet growth and impact of business strategies (pricing, hedging, growth and planning).

In light of the recent financial crisis, firms of all shapes and sizes are re-evaluating their ALM model. In order to earn an adequate return, the need to assess and mitigate the adverse value and income impact of changes in the market has become even more vital.

So how do different types of financial institutions manage their ALM requirements today?

Large, tier 1 firms typically develop their ALM systems in-house; a luxury few smaller firms can’t afford. These systems typically include sophisticated and finely tuned functionality for Value exposure, Value at risk, Dynamic simulation, Earnings at risk and Treasury view.

In the past, smaller firms have found solutions for meeting ALM requirements to be over-complicated, difficult to integrate with incumbent systems, resource-dependent and cost-prohibitive. For these reasons they have resorted to using alternative methods such as spreadsheets or independent consultants, neither of which is ideal.

Until now the sheer cost of developing and supporting an in-house ALM system has been prohibitive to smaller firms but the need to have accurate visibility into the future position of the firm is critical.

Our heritage and in-depth knowledge of market have enabled the configuration of our solution to be so flexible that it meets the needs of ALL firms; from those with highly complex derivatives to those with a vanilla approach.

Our ALM solution provides a comprehensive range of capabilities that cover the following areas:

• Value exposure / market risk (static)
  For a consistent and comprehensive assessment of the adverse value impact of changes in market risk factors based on common pricing models using gap analysis and analytical/numerical stress testing analysis
• Value at risk / market risk (static)
  To calculate the loss potential of a specific portfolio or the total balance sheet over a given time horizon and confidence level
• Dynamic simulation (“what if” NII analysis)
  To assess and manage income, using a dynamically modelled balance sheet and market environment
• Earnings at risk (interest rate models)
  To calculate the potential to lose income, and to value it in a dynamically modelled balance sheet and market environment
• Treasury view
  To assess the exposure and risk position of Treasury, using the risk management techniques applied by the firm

And for the smaller firm

Our rich ALM solution offers a functionally that require immediate return on investment by taking a ‘compact’ approach with risk management features that absorb complexity. Along with evaluating a mismatch between assets and liabilities, our ALM solution also manages risks arising due to liquidity and interest rate in banking books.

With our ALM solution firms can:

• Quantify the value impact of interest rate changes over the total balance sheet based on regulatory requirements
• Conduct stress testing / value impact of any risk factor change over the total balance sheet
• Benefit from robust processes with audit ability and traceability, reverse processing from results to initial input using modelling (strategies & scenarios)
• Meet processing times / frequency of analysis and reduce manual work
• View Balance Sheet value impacts from interest rate moves in terms of sensitivity, liquidity and margin
• Utilise a simple financial analysis framework
• Make use of a flexible reporting tool and standard export to standard formats (Excel, PDF, HTML, XML)

FRSGlobal 6-step process for ALM

Liquidity Risk Management

Banks are interested in going beyond simple static financial ratios and gap reports as the measures of their liquidity risk. Since the Basel Committee on Banking Supervision issued its final paper on ‘Principles for Sound Liquidity Risk Management and Supervision’ banks have been adopting liquidity stress testing scenarios to simulate bank-specific and system risks to their balance sheet. By modelling their liquidity contingency plans against such scenarios, a measure of the bank’s cash-flow survival horizon can be derived, giving a statement of the effectiveness of the bank’s plan against such crisis.