FRSGlobal : Risk Analysis and Regulatory Reporting

Regulators in Thailand

• Bank of Thailand

FRSGlobal in Thailand

With a well-developed infrastructure, a free-enterprise economy, generally pro-investment policies, and strong export industries, Thailand enjoyed solid growth from 2000 to 2008 - averaging more than 4% per year - as it recovered from the Asian financial crisis of 1997-98. Thai exports - mostly machinery and electronic components, agricultural commodities, and jewellery - continue to drive the economy, accounting for more than half of GDP.

The global financial crisis of 2008-09 severely cut Thailand's exports, with most sectors experiencing double-digit drops. In 2009, the economy contracted 2.8%. The Thai government is focusing on financing domestic infrastructure projects and stimulus programs to revive the economy, as external trade is still recovering and persistent internal political tension and investment disputes threaten to damage the investment climate.

Regulatory Environment — Thailand

Statutory

Balance sheet reporting
Balance sheet reporting provides information on financial statements position and is required by Bank of Thailand (BOT) on a semi annually and annually basis. Under this type of reporting all the banks in Thailand are required to submit the reports on position of assets and liabilities, shareholders equity and contingencies.

Income Statement
Banks are required to submit a report to Bank of Thailand (BOT) on a annual and semi annual basis stating the different sources through which the income is earned by the bank.

Statement of Changes in Equity
The different transaction performed in the equity market by the bank and the profits gained or losses barred needs to be reported to Bank of Thailand (BOT) on annual basis.

Cash Flow Statement
The operating activities, increase/decrease in operating assets and liabilities, cash flow from investing activities and financing activities needs to be reported by the banks on a semi annual and annual basis to Bank of Thailand (BOT).

Prudential

Capital adequacy reporting
This type of reporting is mainly concerned with risk incurred by banks and is centred on risk reporting. Bank of Thailand (BOT) uses the Basel II framework to calculate the capital adequacy requirements. Capital adequacy reporting collects the information on market risk exposures as well as the existing credit risk and the operating risk.

Liquidity reporting
The liquidity position of the bank, maturity profile and selected data for stress testing is needed to be reported to Bank of Thailand (BOT) on a monthly basis in order to analyse the positions of the banks in the country.

Transactional (Operational)

Daily Transactions Reporting
The banks needs to submit a report to Bank of Thailand (BOT) on a daily basis specifying daily FX position and transaction, lending and borrowings and foreign currency position of all the branches including the daily operations in Thailand and foreign branches.

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

Basel II

Embracing advanced Basel II approaches and capital management practices

While some countries in Asia-Pacific and Japan were initially content with implementing basic and standardised approaches to Basel II, the trend towards more complex approaches to credit risk and market risk management have evolved as the Basel Committee on Banking Supervision has continued to enhance its guidance for more sophisticated approaches to managing market, credit, and operational risk.

The FRSGlobal solution provides a sophisticated Basel II module with the ability to calculate the capital charge for market and credit risk as required under Pillar 1. For Pillar 2, interest rate risk in the banking book, liquidity risk and concentration risk are covered. DataFoundation enables the reporting requirements set out in Pillar 3. The Basel II compliance can be used as an independent stand alone solution or in combination with all the other FRSGlobal RiskPro and RegPro modules.

Capital Adequacy Reporting Videos

A series of videos explaining various aspects of Capital Adequacy Reporting.

• What is Capital Adequacy Reporting?



• What is the purpose of Basel?



• RiskPro or RegPro?



• What does the FRSGlobal solution cover?



• What are the analysis methods?

Adoption of the IFRS7 and IAS 32, 39

Employ dynamic ALM for better balance sheet management

Several Asian Countries: Malaysia, Indonesia, Thailand and South Korea have introduced adoption plans for member banks to comply with international accounting treatments (or slight variations of them). The standards include information on how to value, categorise and account for financial instruments. In addition, the standard gives details of the accounting treatment for positions that qualify for hedge accounting. As these standards continue to evolve, it is incumbent that banks have a process in place to keep up with the latest developments.

The FRSGlobal IFRS solution is made up of both RiskPro and RegPro elements. FRSGlobal RiskPro enables the classification of financial instruments and the calculation of the valuation using either fair value or amortised cost as appropriate. RiskPro also supports several methods for testing and estimating impairment as required by IAS 39.

FRSGlobal RegPro uses ReportGenerator to produce standard IFRS report definitions with country adaptations as well as ReportBuilder to build additional standardised reports.

Read more about the FRSGlobal IFRS solution here.

Liquidity Risk Management

With lessons learnt from the recent liquidity crunch, banks are going beyond simple static financial ratios and gap reports as measures of liquidity risk management.

Recent efforts by the European Banking Authority – EBA (formerly Committee of European Banking Supervisors- CEBS), the Basel Committee on Banking Supervision (BCBS) and the UK FSA, in terms of principles and recommendations have set greater emphasis on liquidity risk management.

Since the BCBS issued its final paper, ‘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 sheets.

By modelling their liquidity contingency plans against such scenarios, the measure of a bank’s cash-flow survival horizon can be derived, giving a statement of the effectiveness of its plan against such crisis.

The banks in Thailand need to report the following liquid assets in CL reports:

1. Deposits
2. Loans from abroad
3. Total short – term loans for import
4. Items deposited during the month
5. Description of the assessment of liquidity condition
6. Debt securities or instruments.

The report needs to be submitted to Bank of Thailand (BOT) on daily basis.

With our solution and experts keeping eye on global regulatory change, banks need not worry about the changes in reporting requirements.