credit base line profile march 09

www.CreditBaseLine.com March 2009

1

Company Profile Credit BASELine

‘A commercial credit portfolio management system for the Basel II empowered financial institution, in a post sub-prime credit world’

CreditBaseLine March 2009 2

Agenda

Overview of the Company Offerings Key Members The Company view on Credit Portfolio Management Demonstration of the System Module pricing Forward Approach


What is Credit BASELine

Commercial Loan Portfolio Origination Process / Workflow Review existing client relationship Load client financials and serviceability details Benchmark external credit rating (Moody’s) Modify Internal credit grading (CRGS per APS220) Review industry and credit portfolio risk Enter and rationally price the prospective deal Deliver populated loan application for loan manager completion

Credit Portfolio Risk Analytics Calculate Expected Loss (EL) by client and portfolio across all lending

portfolios Map risk profile (Exposure/EL) by industry/geography /portfolio/time series

etc Stress test portfolio risk Review credit migration patterns

Open Coded IT Technology Industrial strength Oracle 11g database, web based (Oracle APEX) front end.

‘Slice and Dice’ reporting capability Organised in a fully scalable data warehouse with business intelligence (BI)

tools.


Who is Credit BASELine

Offices in Hong Kong, Brisbane, Sydney and Adelaide

Began in 2003 to assist corporations with the impending introduction of Basel II.

Consultancy and training services provided with potential to leave behind Credit BASELine system to assist in ongoing credit risk management.

Ongoing banking and technology support provided.

Contact details: WWW.CreditBaseLine.com


The Key Members of the Team

Stephen Parton – Principal/ Founder Steve has over 25 years experience in banking and corporate financial management. In

1995, Steve moved to Brisbane and established his corporate financial management consultancy, focussed largely on credit portfolio management and infrastructure evaluations.

Michael Oswald – Principal/ Founder Michael has over 30 years experience in executive financial management, specialising in

designing and delivering commercial financial management solutions. Michael’s experience is focussed on the delivery of effective workflow and compliant based technology processes.

Andrew Dodd – Asia Pacific Director Andrew’s original background in banking and credit was with Fuji Bank in a special

lending unit, followed by the role of Regional Asia Pacific Director of UK-based consulting firms DC Gardner and BPP. He was then VP of Asia Pacific for Moody’s KMV for over eight years, before taking on roles with equity IT base firms Paritech and Corporate Scorecard in Australia.


Why CreditBaseLine

Web Based to Reduce Your Cost of Credit Portfolio Management

Flexible - Open Coded System -Reduces Costs

Responsive Compliance Reporting

Workflow and Process Flow Aligned

Rational Commercial Credit Portfolio Pricing Focus

Credit BASELine Services Credit Baseline personnel work with client staff to implement solutions. Solutions focus on credit risk and capital management under the Basel II

regime, including: Commercial loan origination processes, supported by the Credit BASELine solution. Loss Given Default, Expected Loss and Unexpected Loss analyses, using stress

testing techniques. Risk adjusted Pricing Compliance - Credit exception and Credit approval hindsight reviews and related

analysis ICAAP analyses as per Pillar 2. Change management - streamline processes using Credit BASELine and other

workflow tools. Training is provided on credit BASELine, the credit process and credit

and financial markets theory. Initial services and consultancy can result in leave behind tools for use by

client staff.


Data Warehouse

The core of the Credit Baseline system is a data warehouse. Mapping and Navigation components, access and add

to this warehouse Key elements of the data warehouse are: Existing exposure information - downloaded periodically from

existing banking platform for lending portfolios – Commercial, Home and Personal

Potential new exposures - captured as part of new lending approval process.

Customer financials and credit benchmark information - captured as part of credit review and new

loan approval process While analytical focus is on commercial lending, Baseline also

enables portfolio analysis on home and personal lending portfolios (eg enables stress testing of home lending portfolio ‘Panama’ analysis).


Round the Clock Credit Portfolio Management

Credit BASELine – Functionality


Credit Portfolio Management

– Round The Clock


Step 1. Credit Navigation Customer Data Mining

Purpose of the Component Tracking and storing of client financials (annual and interim Balance Sheet,

Profit and Loss). Evaluation of client serviceability based on current and prospective client

borrowings Financial ratio analysis.Component Operations Customer financials are entered for existing and potential customers. Preferably for at least 2 years for proper credit benchmarking. Input of client serviceability, based on financials but including other income

and expense and calculating overall debt service coverage. Financials can be input centrally or by loan managers in the field.Key User Credit AdministrationLinkages within System Used for credit benchmarking by Moody’s and internal credit grading Stored by customer for trend analysis. Able to download to Excel for further analysis


Step 2 . Credit Navigation Customer Financial Analysis

Purpose of Component Tracking and storing of client financials (annual and interim Balance

Sheet, Profit and Loss). Evaluation of client serviceability based on current and prospective

client borrowings Financial ratio analysis.Component Operations Customer financials are entered for existing and potential

customers. Preferably for at least 2 years for proper credit benchmarking. Input of client serviceability, based on financials but including other

income and expense and calculating overall debt service coverage. Financials can be input centrally or by loan managers in the field.Key User Credit AdministrationLinkages within System Used for credit benchmarking by Moody’s and internal credit grading Stored by customer for trend analysis. Able to download to Excel for further analysis


Step 3. Credit Navigation External Credit Benchmarking

Purpose of Benchmarking Component Provision of objective measure of credit quality by individual credit

and by portfolio. Used as input to internal credit risk grading system (see following

slide) Standardisation of ‘language of risk’ within organisation.Component Operations Moody’s maintains commercial credit benchmarking databases Database benchmarks the probability of default based on industry,

size and customer financials. Once financials are input into Credit Baseline, a credit benchmark

can be requested by user via instantaneous web service – presented as 1Yr and 5Yr Expected Default Frequency (ie probability of default).

Key User Credit Administration

Linkages within CreditBaseLine System Key component to internal CRGS - Credit Risk Grading System


Step 4. Credit Navigation Internal Credit Risk Grading Portfolio System

Purpose of Component Grades credit portfolio clients according to pre-set criteria Used for risk adjusted pricing, provisioning adequacy and portfolio quality

review Standardisation of ‘language of risk’ within organisation.

Component Operations Establish grading methodology with Board/ALCO approval Establish criteria and grading parameters in system – eg probability of

default, serviceability, credit history etc. Grade customers periodically All history maintained in systemKey User Credit AdministrationLinkages within System Key component to calculation of Expected Loss, used for

risk adjusted pricing. Review of loan loss provisioning adequacy


Step 5. Credit Navigation Deal Entry and Risk Adjusted Pricing

Purpose of Component Capture and price potential deal using either product or credit pricing Credit pricing:

Price discrimination of good credit v bad credit adjusted for security coverage Ability to ‘Price away’ bad credits Counter ‘cherry-picking’ tactics by competitors (and enable cherry picking

yourself)Component Operations Lending margin broken into components :

= transfer rate + cost of delivery + cost of capital + LVR/credit margin +/- discounts/other,

LVR/Credit Margin is based on calculated Expected Loss (in turn based on Exposure, LVR and PD)

Calculated price is not mandatory in new lending, but is stored for exception reporting

Key Users CFOLinkages within System Input to loan application process. Can be used for existing portfolio pricing review


Step 6. Credit Navigation Commercial Loan Application Form

Purpose of Component Standardisation of loan approval process

Tracking of lending performance

Word doc loan application populated using : Customer details Existing exposures and securities Comparative name/address/industry customer Financials and serviceability

(to 3 years) Ratio analysis Credit Benchmarking information CRGS

Loan application is then completed by loan managers external to system.Key User Loan Managers/Credit administrationLinkages within System appropriate Initially, loan application will be stand-alone, ie maintained as a Word

document not within BASELine (apart from system-populated fields). This will allow flexibility to adjust to business processes.

Loan application form can be more closely integrated with BASELine if and when deemed.


Step 7. Credit Navigation Deal Pipeline Tracker

Purpose of Component Track lending performance by lending officer branch etc:

Hit rates and conversion factors Win and loss margin levels

Component Operations Deal status is tracked over time as part of loan application form,

together with calculated and actual margins All changes or even accessing /printing of loan applications is

tracked This information is then included in BI reporting

Key Users Senior management for lending performance tracking

Linkages within System Limited to reporting


Step 8. Credit Navigation Annual Review Prioritisation

Purpose of Component Use credit risk as a basis for prioritising annual reviews, ie more important

where LVR is high Credit Quality is low Combination of the above

Component Operations A credit migration report (tracking change in credit rating year on year

exists) A report enabling filtering by LVR and rating is in development (this is a

simple report)

Key Users Credit Administration

Linkages within the System Input to loan application process. Can be used for existing portfolio pricing review


Step 9. Credit Mapping Credit Risk QuantificationPurpose of Component Calculate credit risk by customer and portfolio Mapping current credit quality of portfolio:

Absolute level Trends Diversification

Assist in provisioningComponent Operations Calculate Loss Given Default (LGD) and Expected Loss (EL) based on LVR,

security type, EAD, Recovery Rate and EAD assumptions by client and connection.

Transparent calculation in Expected Loss screen with ability to ‘slice and dice’, for example by portfolio, industry, geography.

Credit migration reporting functionalityKey Users Credit Admin and Senior Credit ManagementLinkages within System Key outcome of system Portfolio and stress testing analyses


Step 10. Credit Mapping Portfolio Scenario and Stress Testing

Purpose of Component Test impact on LGD and EL and other key risk measures at portfolio level etc Test adequacy of provisioning and reserve requirements (ie expected and

unexpected loss)Component Operations Main functionality is via the Expected Loss Report, which can be manipulated on-

screen to enable above analyses. Expected Loss Report can also be referenced by other queries and reports to

facilitate slice and dice analysis of credit riskKey Users Senior Credit ManagementLinkages within System Key outcome of system


Step 11. Credit Mapping Portfolio Scenario and Stress Testing

Purpose of Component Test impact on LGD and EL and other key risk measures at portfolio

level etc Test adequacy of provisioning and reserve requirements (ie expected

and unexpected loss)Component Operations Main functionality is via the Expected Loss Report, which can be

manipulated on-screen to enable above analyses. Expected Loss Report can also be referenced by other queries and

reports to facilitate slice and dice analysis of credit riskKey Users Senior Credit ManagementLinkages within System Key outcome of system


Step 12. Credit Mapping Portfolio Reporting Tools

Purpose of Component Production of on-line and hard copy reporting:

Standard management reports. Ad hoc reporting by analysts Slice and Dice capabilities.

Component Operations Reporting components built into Credit Baseline system but also feed to

data warehouse Business Intelligence – based on Discoverer (potentially moving to

Siebel) but compatible with all main BI products Additional reporting tools (Oracle reports, Crystal reports etc). Key Users All authorised usersLinkages within System Key outcome of system


Step13. Credit Mapping Dashboard Controls

Purpose of Component Customer and Portfolio built-in dashboards for immediate one-stop

reviewComponent Operations APEX based dashboards specific to role to show KPIs and can also

include non BASELine functionality Portfolio dashboards to assist relationship managers and management

to track portfolio and branch performance. Key Users Relationship managersLinkages within System Front end screen with linkages to related activities


Credit Baseline Technical Architecture

Oracle Database

Access Tools:

• Web Pages

• DashBoards

• BI tools

Data Warehouse

Web front end (Oracle Application

Express)Auto Data Feeds

- Current Lending Portfolio (all portfolios)

- Risk Models

- Customer financials (optional)

The Bank UserHistory Stored

•Lending Portfolio•Financials•CRGS •Won/Lost Deals

User Applications

- Loan Origination- Portfolio Analytics

Credit Risk Management) Performance Management


The BI Environment

Data Warehouse

(Oracle Discoverer or

other)

Ad Hoc Reporting

Developed by staff as required in user-friendly environment as required for specific one off analyses

Users

Requirements

“Imagine seeing a coral reef from a new glass bottomed boat, and you get an understanding of the richness of the vision, now available

within your credit database”Quoted by Credit BASELine Director

Michael Oswald

‘Pack Canned’ Board / Mgmt ReportingEg:• Credit Risk Pack• Performance

Extensive ‘Slice and Dice’ capabilities accessible from function specific Dashboards for:


Credit BASELine – Credit Portfolio Risk

Management with a Basel II Focus

CreditBASELine

User Inputs

• CRGS adjustments

• Recovery Rates and other Expected Loss stress parameters Web

Application

Application Outputs

• LGD/EL/UL

• Concentration indices by industry, geography etc

• Credit Migration

• Exposure Concentration

• Expected Loss

• Stress testing

• Arrears Analysis


Credit BASELineCommercial Loan Origination

Credit BASELine

User Inputs

• Financial statements

• Borrower details

• Facility details

• Borrower history

• CRGS

• Pricing

Web

Application

Application Outputs

• Populated Loan Application word document

• Pricing (potentially risk adjusted)

• Credit Admin monitoring workflow

• Risk Profile

• Flow into the B.I Model

• Flow in Expected Loss models

• Pipeline Tracking


CreditBaseLine Software Demo

Demo


Future Development of a New Main Menu

To better access additional modules currently under development:• Credit Exceptions• Credit Hindsight Reviews• Sales• etc


Future Workplace

Workflow management

User Workplace

Baseline ServerManage loans

Credit BASELine

Portfolio AnalysisRisk Migration

BI Server

BI Dashboard


Credit Portfolio Management - Modules Small business

Customer Dashboard ‘Fast Track’ CRGS and loan process Short form Loan Application Form (populated into MS Word) Portfolio Analytics

Commercial, as above plus Financial Statement entry and storage External credit benchmarking Internal CRGS Full Loan Application Form (populated into MS Word) Expected Loss Calculation Stress Testing and other portfolio analytics

Business Intelligence Data Warehouse BI tools - Oracle Discoverer, Seibel etc Functional Dashboards – credit admin, operations etc


Pricing Dependent on Customer requirements , modules etc

Pricing Structure Credit BASELine License Fee per annum Support Fee per annum

Technical Business

Training as required Implementation Consultancy as required Change management consultancy as required

Other Costs Risk Model Fee (eg RiskCalc) if required Oracle 11g Database Cost Business Intelligence Software Hardware as required


The Way Forward

One Week Evaluation Period One Months pilot period with the bank data Focus Workshop Training of Users plus Train the Trainer Implementation of the system Training of first level of support

credit base line profile march 09

Documents

interim balance sheet

debt service coverage

loan approval process

loan application form

proper credit benchmarking

prospective client borrowings

loan application process

senior credit management