Basile ilea III e M Modelli lli di i Busin iness: : C cos C - - PowerPoint PPT Presentation

SLIDE 1

Prof

• f. Gianl

nluc uca Oricchi hio,

• , PhD

hD, CPA CB CBM Un University, Ro Rome Convegno ABI

Basile ilea III e M Modelli lli di i Busin iness: :

C C cos

• sa abbi

bbiamo a

• appr

ppreso

• da

dalla c crisi?

Roma Giugno 2011

SLIDE 2

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Banking Business Models
• CRO, CFO, CBU: Pricing discipline at origination
• Business Case: Internal Capital Generation

Annexes: I. Business Case II. Credit Pricing & IT Logical Architecture

Age genda nda

SLIDE 3

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

2

BUSIN SINESS ESS MOD ODEL ELS S AND C CRED EDIT IT POR PORTFOL OLIO IO MGM GMT

Cap apital al Tur urnov nover Credit Risk

• +
• 1. O
• 1. Originat

ate e & Hold

• 2. O
• 2. Originat

ate e & Hed edge

• +
• 3. O
• 3. Originat

ate e & Distribut bute

Driver ers to b be e cons

• nside

dered: d:

• Basel 3 Impact
• IAS Impact
• Risk & Capital

Management Instruments

• Risk, Return and

Growth by Segment

SLIDE 4

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

3

• A Histor
• ry Of Credi

dit Cycle Tur urni ning ng Poi

• int

nts -

BUSIN SINESS ESS MOD ODEL ELS S AND C CRED EDIT IT POR PORTFOL OLIO IO MGM GMT

SLIDE 5

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Originate And Hold Originate To Distribute

Basel I III Cos

• st of
• f Risk on
• n Balanc

nce Basel I II Cos

• st of
• f Risk on
• n Balanc

nce

BUSIN SINESS ESS MOD ODEL ELS S AND C CRED EDIT IT POR PORTFOL OLIO IO MGM GMT

SLIDE 6

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• 1. La volatilità dei Tier Ratio

è aumentata: x5

x5

• 2. I “

“ tem empi di r reazi eazione” e” si sono

• no ridot

dotti ( (Le Lezi zione

• ne #1)
• 3. Riorganizzare le relazioni

fra CRO CRO, CF CFO e CB CBU Procic iclic licit ità dei i requis isit iti i e vola latilit ilità F Fair ir Va Value IAS S

tempo Total Tier Basilea I Costo storico Basilea II Fair Value

SLIDE 7

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Banking Business Models
• CRO, CFO, CBU: Pricing discipline at origination
• Business Case: generazione interna di capitale

Annexes: I. Business Case II. Credit Pricing & IT Logical Architecture

Age genda nda

SLIDE 8

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Il CRO stima e valuta il rischio (Markowitz X-axis) Il CFO stima e valuta l’EVA (Markowitz Y-axis) CRO CRO, CF CFO, CB CBU: U: Pric icin ing dis iscip iplin line a at or

• rigi

gina nation

• n

Lezi ezione #2: e #2: CRO-CFO cons

• nsistenc

ncy (pr pricing di ng discipl pline ne!) (i) (i)Spread ead r risk ad adjusted ed (ii) (ii)EVA b break eak ev even en spread ead

SLIDE 9

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Transfer Spread can be used as a benchmark of Credit Risk and Cost of Funding
• RM is responsible for the definition of the final price

Illustrative

Risk Free Commercial Price Operating Cost Forward Looking Credit Spread*

Expected loss facing Unexpected loss facing

Commercial Mark-up Cost of funding

(non-binding opinion applied to Client)

Transfer Spread

• Transfer Price components -

Various components contribute to define commercial price

(*) Credit risk spread defined by internal and external ratings models (Risk Calc Italy di Moody’s Kmw )

CRO CRO, CF CFO, CB CBU: U: Pric icin ing dis iscip iplin line a at or

• rigi

gina nation

• n

SLIDE 10

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Lezi ezione e # # 3: 3: l la g a gen ener erazi azione e inter erna d a di cap apital ale i e in Bas asilea ea III è p è più importan ante e che i e in Bas asilea I ea II (La a prima a lev eva è “ a è “ commer ercial ale” e” !) Il CRO deve saper “comunicare” con il CBU Il CBU deve poter disporre di una “to do list” chiara CRO CRO, CF CFO, CB CBU: U: Pric icin ing dis iscip iplin line a at or

• rigi

gina nation

• n

SLIDE 11

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

10

• Exampl

ples of

• f P

Pricing ng repor ports -

(**) Risk Adjusted Spread is equivalent to Market spread Point in Time + Cost of Funding (March 2008) (***) Risk Adjusted Spread Mid Term Average as best proxy to calculate “through the cycle” spreads, Cost of Funding included

 “Risk Adjusted Spread” is is non non bi bindi ding for final price but it is binding for Relationship Managers performance

Loa Loans ns are or

• rigi

gina nated w d with h a cons

• nsistent

nt r risk/retur urn n pr prof

• file

ILLUSTRATIVE

AW AWAREN ENESS ESS OF OF MISPR ISPRIC ICIN ING G MANAGEM GEMEN ENT

SLIDE 12

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

11  ~ 20% del totale sono rischi di tasso/funding  ~ 70% del totale sono rischi di credito

..the he m missi ssing ng ring… ng…

Rischi hio di

• di Tasso/
• /fundi

unding ng Ris ischio io d di i Credito ito

ALM

CREDIT TREASURY

CRO CRO, CF CFO, CB CBU: U: Pric icin ing dis iscip iplin line a at or

• rigi

gina nation

• n

SLIDE 13

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Banking Business Models
• CRO, CFO, CBU: Pricing discipline at origination
• Business Case: generazione interna di capitale

Annexes: I. Business Case II. Credit Pricing & IT Logical Architecture

Age genda nda

SLIDE 14

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Busines ess Cas ase: e: Inter ernal al C Cap apital al Gen ener erat ation

• Impacts on Credit Process -
• As Is
• Pricing discipline

(*) Risk Adjusted Spread = insurance spread + cost of funding = Transfer spread

Credit Policies

 Open Credit Request  Documents Acceptance  Load Credit Request

Origination Non Performing Credit Request Credit Mgmt

 Opening Client/ Group dossier  Opening Facility/ Collateral dossier (focus on “fidi promiscui”)  Rating calculation  Risk Adjusted spread(*) settlement  Synthesis judgment  Loan proposal (amount, risk adjusted spread, commercial spread)  Loan dossier sent to entitled credit structure  Loan Decision (amount, risk adjusted spread, commercial spread)  Loan activation  Collateral perfection  Contract Underwriting

Evaluation Proposal and Decision Underwriting/ Loan Activation

Activities

Risk adjusted spread settlement will impact on Origination phase of the Credit Process; real time calculation makes RMs aware of the credit risk impact

Impact on Relationship Manager MBO

SLIDE 15

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Why hy is r relevant nt pr pricing ng di discipl pline ne at or

• rigi

gina nation?

• n?
• Commercial spreads on non-liquid portfolios are more volatile than market spreads
• High commercial spreads are lower than market spreads for high-risky counterparties
• Fixed Income Market (bps) -

External Ratings

100 200 300 400 500 600 700 800 AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B

CDS median + 2 σ CDS median - 2 σ CDS median

Internal Ratings

• Domestic Lending Market view (bps) -

0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0%

0,5% 1,0% 1,5% 2,0% 2,5% 3,0% 3,5% 4,0%

1 2 3 4 5 6 7 8 9 10

0,0%

0,0% 1 2 3 4 5 6 7 8 9 10

CDS median + 2 σ CDS median - 2 σ Insurance Price + Cost of Funding Commercial spread

SLIDE 16

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Inter ernal al Cap apital al G Gen ener erat ation: > 300 300 bps…

Short term loans (Capitalia Banking Group) M/L term loans (Capitalia Banking Group)

• Spreads are applied basically irrespective
• f counterparty risk for new mid to long-

term issues

• The commercial spread/ insurance

spread differential is negative above risk class 14

• Positive correlation between risk

(rating classes) and return (interest margin on average volume) for clients with new short term loan until class 19

• Positive margins between commercial

spread and risk adjusted spread, on exception of high risk classes

EVA: +80 bps RWA: - 35 %

SLIDE 17

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

The he appl pplication

• n of
• f 1year EVA framewor
• rk in

n Pricing ng mode

• dels show

hows pot potent ntial mispr pricing ng actions

• ns dur

during ng credi dit c cycle dow downt ntur urn Short T Term F Facilit ilitie ies Long T Long Term facilities

3m 3m 6m 6m 12m 12m 24m 24m 60m 60m 12m 12m E EVA b break eak ev even en EVA Break eak Even en

expected maturity

~300% 300% unde underpr pricing f ng for

• r

Long T Long Term Facilit ilitie ies

 Cre redit it Treasury pric ricin ing methodol hodology

• gy is

is market orien ented (Nelson Siegel)  Credit dit pr pric icing mode dels ls are mor

• re accu

curate te than 1 yea ear EVA VA frame mework: the figure shows that short term facilities are overpriced using 1yr EVA (when compared to market prices), while long term Facilities are underpriced

~40% ov

• verpr

pricing ng for r Short rt Term rm Facilit ilitie ies

ILLUSTRATIVE

SLIDE 18

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Def efau ault Rat ates es an and B Bas asel el C Cap apital al Req equirem emen ents: 1970 1970 - 2007 2007

0,00% 0,50% 1,00% 1,50% 2,00% 2,50% 3,00% 3,50% 4,00% 4,50% mar-70 apr-71 mag-72 giu-73 lug-74 ago-75 set-76

• tt-77

nov-78 dic-79 gen-81 feb-82 mar-83 apr-84 mag-85 giu-86 lug-87 ago-88 set-89

• tt-90

nov-91 dic-92 gen-94 feb-95 mar-96 apr-97 mag-98 giu-99 lug-00 ago-01 set-02

• tt-03

nov-04 dic-05 gen-07 0% 2% 4% 6% 8% 10% 12% All corp - Default Rate Capital Requ. ~1,5 yrs delay ~2 yrs delay

RWA are backward looking

SLIDE 19

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

“ Le Lessons

• ns Le

Learnt nt” f from

• m pr

previous

• us credi

dit c crisis: “ “ Mind nd the he ga gap” p” (~ 1. 1.5/ 5/2. 2.5 y 5 yrs time e lag ag ef effec ect)

Market prices are “forward looking” IRB RWA are “backward looking” “Mind the gap”

SLIDE 20

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

19  ~ 20% del totale sono rischi di tasso/funding  ~ 70% del totale sono rischi di credito

..fillin filling th the g gap…! …!

Rischi hio di

• di Tasso/
• /fundi

unding ng Ris ischio io d di i Credito ito

ALM

CREDIT TREASURY

…M …Mindi ding ng th the g gap…

SLIDE 21

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Lezione # 1: i tempi di reazione si sono ridotti (volatilità Tier Ratio)
• Lezione # 2: CRO-CFO consistency (pricing discipline!)
• Lezione # 3: CRO-CBU cooperation model (leva commerciale)
• Lezione # 4: ridisegnare i processi organizzativi CRO-CFO-CBU

(e costituzione di Credit Treasury) Basile ilea I III e Modelli lli di B i Busin iness MIN MINIMIZ IMIZZARE L L’ENTROP OPIA IA OR ORGA GANIZ IZZATIV IVA

SLIDE 22

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Banking Business Models
• Pricing discipline at origination
• ACPM vs Credit Treasury business model

Annexes: I. Business Case II. Credit Pricing & IT Logical Architecture

Age genda nda

SLIDE 23

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Capi pitalia t tur urna naround on

• und on Pricing

ng Discipl pline ne

Pricing discipline can improve the Loan Banking Book risk - return profile because:

• it is strongly effective downside (risk);
• it is relatively effective upside (growth)
• P/

P/BV 0. 0.4x 4x

• ROE

0. 0.5% 5%

• LP

LP 210 210 bps

• Ti

Tier 1 5. 5.2% 2%

• CDS

DS 120 120 bps

• Rating

ng BB BBB+ St Start-up up da data

• P/

P/BV 1. 1.7x 7x

• ROE

12. 12.7% 7%

• LP

LP 70 70 bps

• Ti

Tier 1 6. 6.8% 8%

• CDS

DS 15 15 bps

• Rating

ng A+ A+ 2007 2007

SLIDE 24

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Mar arket et p per ercep eption i in 2002 2002

In 2002, the market’s opinion of Capitalia was not positive

Merril Lynch

“…We estimate that Capitalia will not be able to reach European standards on asset quality …”

2002 O 2002 OPINION

UBS

“…weak profitability and low credit quality…”

Deutsche Bank

“…Capitalia has some problems in relation to asset quality, lack

• f

capital and

• perating inefficiencies …”

Moody’s

“…the profitability

• f

the group remains modest, with pre-provision profitability declining …”

Fitch Ratings

“…the ratings reflect the continuing risk in the credit portfolio, weak income generation and a low capital base….”

• Weak profitability
• Lack of credit quality
• Improving credit risk

management techniques

Key Points

SLIDE 25

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Cap apital alia a Ben enef efits es estimat ation o

• n N

New ew Customer ers

On short term loans the introduction of insurance price allowed the price mismatch balancing

Illustrative

On mid-term loan the introduction of insurance price has allowed the credit rationing on riskier classes

• Spreads are applied basically irrespective of counterparty

risk for new mid to long-term issues

• The commercial spread/ insurance spread differential

is negative above risk class 14

• The dynamics of applied spreads only partly follows the

rationale of LGD effect for acquiring collaterals (22% of products at maturity is covered by collaterals, even if focused on higher risk counterparties)

• Positive correlation between risk (rating classes)

and return (interest margin on average volume) for clients with new short term loan until class 19

• Positive margins between commercial spread and

risk adjusted spread, on exception of high risk classes

• Spread applied to new clients is influenced by

market pressure (competitors) especially for low and mid-low risk profile

SLIDE 26

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Acti tion Plan fo for re r restru tructu turi ring

0,0 20,0 40,0 60,0 80,0 100,0 120,0 140,0

• t

t

• 2

d i c

• 2

f e b

• 3

a p r

• 3

g i u

• 3

a g

• 3
• t

t

• 3

d i c

• 3

f e b

• 4

a p r

• 4

g i u

• 4

a g

• 4
• t

t

• 4

d i c

• 4

f e b

• 5

a p r

• 5

g i u

• 5

a g

• 5
• t

t

• 5

d i c

• 5

f e b

• 6

a p r

• 6

g i u

• 6

a g

• 6
• t

t

• 6

d i c

• 6

f e b

• 7

Equity €

0,00 1,00 2,00 3,00 4,00 5,00 6,00 7,00 8,00

Capitalia Equity from 1€ to 7€ + 600%

Capitalia 5yrs CDS from 120 to 10 bps

CDS - bps

• Stock price up from 1 € to 7 €
• Credit Default Swap on senior debt down

from 120 bps to 11 bps

• Loan provisions down from over 210 bps to

54 bps

• Asset quality control generates higher

profitability: ROE up from 0.5% to 15.5%

From 2002 to beginning 2007

lead ead by CFO CREDIT RISK MANAGEMENT Pricing Discipline

SLIDE 27

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Mark rket p t perc rcepti tion i in 2006: : Capita talia’s re results ts of re f restru tructu turi ring

The market’s perception of Capitalia changed:

Credit Suisse FB

2006 O 2006 OPINIONS

UBS Deutsche Bank Fitch Ratings

“…we recognize that the bank is clearly in a better position as a credible restructuring story… ” “…we believe Capitalia remains the most attractive restructuring story among Italian banks…” “Capitalia is the Italian restructuring story, in our opinion” “Capitalia’s asset quality trend is better than the average for the Italian banks and it will continue to improve faster than the other Italian banks, mainly due to new risk management procedures” “… Risk management across the group has been strengthened since 2002. Better credit risk management has led to better quality of performing loans …”

Goldman Sachs

SLIDE 28

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

• Banking Business Models
• Pricing discipline at origination
• ACPM vs Credit Treasury business model

Annexes: I. Business Case II. Credit Pricing & IT Logical Architecture

Age genda nda

SLIDE 29

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Pricing ng of

• f l

liqui quid d and non l nd non liqui quid d por portfol

• lios
• s

Key features Insurance Model (liquid clients)

 Liquid counterparties with quoted CDS (ex.: Large Corporate)  The spread curve can be interpolated from available market data Client

Is there a liquid CDS quote?

Yes No

Is rated by Official Rating Agencies?

Yes

CDS average (eg. Nelson Siegel) Is rated by IRB internal model

No Yes No

• PRICING ENGINE -
• MARKET PRICE -

Rating System TTC Rating System PIT Forward looking adjustement Forward looking adjustement

• HYBRID PRODUCTS ENGINE -

Internal Pricing Unit

SLIDE 30

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

Spread ead C Curves es – Proce cess ss

Spr pread d Cur urves A Adjus ustm tments nts:

• floor to 1-yr spreads so that

spread1yr ≥ EL + + kUL UL*

• non-decreasing curve with

respect rating scale and term structure

• floor to overnight spread

equal to 50% of 1-yr spread

• spread for maturities below 1

year computed by linearly interpolating overnight and 1- yr spread. Defi fini niti tion

• n of
• f the

the fi fina nal spr pread c d cur urves is pe perfor formed d thr through

• ugh the

the fol follow

• wing a

ng adj djus ustm tments nts:

AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- 0 bps 10 bps 20 bps 30 bps 40 bps 50 bps 60 bps 70 bps 80 bps 90 bps

• /

n 6 m 1 y r 2 y r 3 y r 4 y r 5 y r 6 y r 7 y r 8 y r 9 y r 1 y r

In Inves estmen ent-Grad ade Cu e Curves es

BB+ BB BB- B+ B B- 0 bps 100 bps 200 bps 300 bps 400 bps 500 bps 600 bps 700 bps 800 bps 900 bps

• /

n 6 m 1 y r 2 y r 3 y r 4 y r 5 y r 6 y r 7 y r 8 y r 9 y r 1 y r

Sub In Inves estmen ent-Grad ade Cu e Curves es

SLIDE 31

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

CDS cur urve de decom

• mpos

position i

• n in B

n Basel pa parameters

• Liquid portfolio are priced in the market by mean of CDS curves
• Internal perception of risk is summarized by PD and LGD
• These points of view can be rec

econciled ed using a for

• rward

d look

• oking

ng appr pproa

• ach (anchor

point and migration matrices).

Market (CDS 5yrs) Internal parameters (PD, LGD) CDS 5yrs EL k * UL = PD * LGD * EaD

Forward looking Anchor point and Forward looking Migration Matrices implicit in CDS market curves

SLIDE 32

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

The he Risk Adj djus usted S d Spr pread d calcul ulation:

• n: impa

pact on R

• n RM ope
• perating

ng proce cesse sses

 Following a loan request by a client (1), the RM

• pens the related request in the legacies front end

(2)  The data retrieved from the legacies (3) are needed by the RM in order to start the loan evaluation phase and to operate the pricing tool (4-5)  The tool interrogates the dedicated CFO pricing engine (6) (with relevant financial and market data) and returns the Risk Adjusted Spread to the RM (7)  Functional support on the pricing methodology will be provided by GCT (8); technical support on the Pricing Tool will be provided by CA (9)  Based on the Risk Adjusted Spread (non-binding), the RM determines the proposed spread to the client (10) and finalizes insertion of the proposal in the legacy procedures  Pricing Tool archive spread and input data only if data will be saved by RMs  Feedbacks about IT and process structure are received in GCT by RMs  Each interaction within RM and GCT/ CA are memorizing in a log called “Light Monitoring”

• IT Logical Architecture - Phase I(*) -

CFO Data Base

RM

Pricing Tool Market Data Pratica Elettronica Pricing Engine Legacies

Financing Credit cards Pool Basel II Facilities

• Comm. Ptf

Check.Acc.

• Cons. credit

Anagrafe … Direct RM action Automatic system action Client 1 7 2 4 3 5 6

10

• Ex-ante process -

(*) The target architecture has been defined and will be implemented in Phase II 6 6

Holding

GCT CA 8 9

SLIDE 33

Conv

• nvegno

gno ABI I – 20 20 Giugno ugno 201 2011 Bas asilea 3 ea 3 e B e Ban anking Busin siness M ss Models ls

The he Risk Adj djus usted S d Spr pread d calcul ulation:

• n: impa

pact on R

• n RM
• pe
• perating pr

ng proc

• cesses
• IT Logical Architecture - Phase I(*) -

CFO Data Base

RM

Market Data Pratica Elettronica Pricing Engine Legacies

Financing Credit cards Pool Basel II Facilities

• Comm. Ptf

Check.Acc.

• Cons. credit

Anagrafe … Direct RM action Automatic system action Client 2 3

Holding

GCT CA 5 6 1 4

 Once the request is inserted, the legacies procedures send all loan data to the CFO Database (1), which integrates them with the relevant consolidated market data (2)  The CFO Database using the pricing engine, compute ex-post the Risk Adjusted Spread (3) and compares it to the Transfer Spread manually inserted by the RM  In case of a mismatch, a notification e- mail is sent to the UBI (4): support is provided by GCT and CA (5-6)  In case of a mismatch, after verification with GCT and CA, RM (7) receive a feedback by UBI (7)  Each interaction within RM vs GCT and UBI are memorizing in a log called “Light Monitoring”  Risk adjusted spread is valid 30 days (between the proposal data and decision

• ne)
• Ex-post process -

(*) The target architecture has been defined and will be implemented in Phase II

Pricing Tool UBI

7