IIB installs Basel II risk management system

18 Aug 2003

IIB Bank has chosen SAS software to supply a key credit risk component of its ‘Basel II’ requirements. SAS Risk Management for Banking will be used in IIB’s Homeloans Division to generate homogeneous pools of mortgage details so that consistent risk measures can be generated, analysed and reported.

The software will ensure that IIB Bank is fully compliant with forthcoming Basel II legislation. The value of the deal was not disclosed.

Basel II, otherwise known as the new Basel Capital Accord, put forward by the Basel Committee on Banking Supervision, is aimed at improving the safety and soundness of the financial system in the post-Enron world by aligning capital adequacy assessment more closely with the underlying risks in the banking industry. It also seeks to maintain the current overall level of capital in the system and enhance competitive equality.

Compliance with Basel II will be enforced by national authorities (normally the Central Banks) and must be achieved by the end of 2006.

Over the next three years, banks worldwide are expected to spend billions of dollars implementing the Basel II provisions. Some have likened the scale of effort required of the banking sector to that undertaken by the wider business community faced with Y2k compliance. According to research firm Tower group, global IT spending on risk management technology will be around US$18.8bn this year and will reach US$21bn in 2006. A number of big names in the software business including IBM and Peoplesoft have unveiled products to specifically target this opportunity.

SAS, better known as SAS Institute, is one of the world’s largest privately held software companies and is best known for its data mining and warehousing technology.

“The risk management process is a requirement but it also makes good business sense,” according to a SAS spokesperson. “A better risk calculation can translate into lower reserve requirements, and thus more capital is available.”

By Brian Skelly