Liquidity Risk Management powered by SAP HANA

© 2012 SAP AG. All rights reserved. 2

Legal disclaimer

This presentation is not subject to your license agreement or any other agreement with SAP. SAP has no obligation to pursue any course of business outlined in this presentation or to develop or release any functionality mentioned in this presentation. This presentation and SAP's strategy and possible future developments are subject to change and may be changed by SAP at any time for any reason without notice. This document is provided without a warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. SAP assumes no responsibility for errors or omissions in this document, except if such damages were caused by SAP intentionally or grossly negligent.

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Agenda

What is HANA?

Challenges in Liquidity Risk Management

LRM@HANA Overview

What is HANA?

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Banks face an information availability problem

???Data volumeis exploding

Calculation speedis stagnating

Requirements on information availability are increasing

Traditional approach of OLTP and OLAP fails

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Boundary conditions for high performance computing

CPUs do not get faster

Memory and storage prices (1955-2010)

Number of cores on the rise

CPU clock speed – memory bandwidth –memory latency

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64bit address space max at 2TB in current servers100GB/s data throughputDramatic decline in price/performance

Multi-Core Architecture (8 x 8 core CPU in one server)Massive parallel scaling with many bladesOne blade ~$50.000 = 1 Enterprise Class Server

Row and Column Store

Compression

Partitioning

No Aggregate Tables

The elements of In-Memory computing are not new. However, dramatically improved hardware economics and technology innovations in software has now made it possible for SAP to deliver on its vision of the Real-Time Enterprise with In-Memory business applications.

In-memory computing – the time is NOW

HW Technology Innovations SAP SW Technology Innovations

+

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SAP HANA appliance software

SAP HANA™In-Memory software + hardware(HP, IBM, Fujitsu, Cisco, Dell)Data Modeling and Data ManagementReal-time Data ReplicationSAP BO Data Services for ETL capabilities from SAP Business Suite, SAP Business Warehouse (SAP NetWeaver BW), and 3rd Party SystemsSAP NetWeaver as In-Memory app. server

Capabilities EnabledAnalyze information in real-time at unprecedented speeds on large volumes of non-aggregated dataCreate flexible analytic models based on real-time and historic business dataBuild new category of applications (e.g., planning, simulation) to significantly outperform current applications in categoryMinimize data duplication

SAP HANA

SQL MDXBICSSQL

SAP BusinessObjects

toolsOther query tools

SAP BusinessSuite

Other data sources

SAP NetWeaver Business

Warehouse

SAP HANA Studio and Modeler

SAP In-Memory Database

Calculation and Planning Engine

Row & Column Storage

Real-Time Data Replication

SAP Business Objects Data

Services

SAP NetWeaver

© 2012 SAP AG. All rights reserved. 9

Memory in TB area is becoming available on commodity hardware

32 bit Systems 2^32 = 4.294.967.2964GB limit per CPU

64 bit Systems 2^64 = 18.446.744.073.709.551.616Only constraint by physics (64/128 modules)

Capacity per module growswith new production processes

(8GB – 16GB – 32GB)

Price per module shrinkswith new production processes

(-30% with 32nm)

1 blade with 64 modules can hold up to 1TB (16GB)

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Thinking in-memory

Delegation of data intense operations to the in-memory computing

Application Layer

Data LayerToday‘s applicationsexecute many data intense operations in the application layer

High performance appsdelegate data intenseoperations to the in-memory computing

In-Memory Computing ImperativeAvoid movement of detailed data –calculate first, then move results

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Standard System

In-Memory System

SAP HANA in action – tier 1 bank(see below for SAP LRM-specific performance results)

73GB

5,2 GB

10 seconds60 minutes

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How HANA helps banksOpportunities for your business

Human Resources

Strategic Workforce Planning and Reporting

Corporate Services

Advanced and optimized Purchasing

Invoicing analysis and acceleration

Finance & Risk

Fast and accurate Finance ReportingLiquidity Risk ManagementAccelerated AccountingIntegrated Profitability Management

Transactional Banking

Transaction history and advanced analysis capabilitiesReal time fraud detection & action

Loan portfolio analysis

Monitor mission critical processes

Sales, Service, Marketing

Sales Analysis across all channels Customer segmentation and exploration for cross-selling and marketing campaigns

Know your customer by a consistent, up-to-date 360° view

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SAP HANA

Categories of usage scenarios of SAP HANA

Analytics on any data source

Transaction HistoryFinancial Reporting

AFI RDL ExtensionCO-PA Accelerator

EDW for SAP and Non-SAP data

Liquidity Risk ManagementFraud Management

Business Suiteon HANA

Accelerators

ReportingBW on HANA

Database

High Performance Applications

Technology

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LiquidityRisk

Management

Available usage scenarios of SAP HANA for banks

Technology

Accelerated Financial Reporting

AFI RDL Extension

BW on HANA

Fraud Management

CO-PA Accelerator

FI/CO Accelerator

Transaction History

Planned

Q3/2012Q1/2013

Q4/2011Q4/2011

Q2/2011

Q3/2011Q4/2011

Q4/2012…/…

Q1/2012

Potential Future

Functions

Not exhaustive

© 2012 SAP AG. All rights reserved. 15

SAP HANA™ provides the solution to the informationavailability problem

Next Gen Platform for SAP Apps integrating OLAP+OLTP

Manage high data volume

Increasecalculation speed

???

Reduce information latency

Challenges in Liquidity Risk Management

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Funding Liquidity RiskInternal Risk Management

Risk that the firm will not be able to meet efficiently both expected and unexpected current and future cash flow and collateral needs*A first step of a funding liquidity risk calculation consists in calculating the Forward Liquidity Exposure in terms of the Legal Cash Flow Gap.

In a second step hypothetical cash flows should be taken into account as well. These simulations should be driven by market development, customer behavior and bank strategy to generate a more realistic Economic Cash Flow Gap.

If liquidity gaps are detected when analyzing the economic cash flow gap, a third step consists in calculating the Counterbalancing Capacity. All assets like bonds or committed lines are used to resolve potential liquidity bottlenecks.

* Basel Committee on Banking Supervision – BCBS 144 Principles for Sound Liquidity Risk Management and Supervision

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Market Liquidity RiskInternal Risk Management

Risk that a firm cannot easily offset or eliminate a position at the market pricebecause of inadequate market depth or market disruption*.This risk could come up in conjunction with OTC trades or when solving liquidity gaps with the release of huge positions exceeding usual trading volumes.Market Liquidity Risk is currently not in focus.

* Basel Committee on Banking Supervision – BCBS 144 Principles for Sound Liquidity Risk Management and Supervision

© 2012 SAP AG. All rights reserved. 19

Funding Liquidity Risk to be based on cash flows being the least common denominator

Funding Liquidity Risk Management needs to be done comprehensively, all on- and off-balance sheet positions have to be taken into account.Cash flow view supports New Product Procedure in terms of flexibility.Relevant reporting and steering could be done on Cash Flows.Cash Flow roll out for complex instruments to be done by dedicated systems.– Consistency with other risk categories crucial (e.g. different risk types based on the same

curves).– Actual market data needed, due to illiquidity traders’ expertise sometimes required– Complex pricing algorithms needed, difficult to replicate– Banks often do not want to disclose pricing algorithms

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Liquidity Risk ManagementRegulatory requirements

Issue date/issuer 2008 2009 2010BCBS(Basel Committee on Banking Supervision)

BCBS 136 Liquidity Risk: Management and Supervisory ChallengesBCBS 144 Principles for Sound Liquidity Risk Management and Supervision

BCBS 155 Principles for sound stress testing practices and supervision BCBS 157 Enhancements to the Basel II frameworkBCBS 158 Revisions to the Basel II market risk frameworkBCBS 159 Guidelines for computing capital for incremental risk in the trading book

BCBS 188 Basel III: International framework for liquidity risk measurement, standards and monitoring

EBA (European Banking Authority)

CEBS (CP 28) Guidelines on Liquidity BuffersCEBS (CP 31) Guidelines on aspects of the management of concentration riskCEBS (CP 32) Guidelines on Stress Testing

CEBS (CP36) Guidelines on Liquidity Cost Benefit Allocation

UK FSA(Financial Services Authority)

CP 08/22 Strengthening liquidity StandardsCP 08/24 Stress and scenario testing

CP 09/13 Strengthening liquidity standards 2: Liquidity reportingCP 09/14 Strengthening liquidity standards 3: Liquidity transitional measures

BIPRU Chapter 12: Liquidity standards

US Dodd-Frank Wall Street Reform and Consumer Protection Act

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LCRRatio:

Level 1: Cash, Sovereign and Central Bank Debt (usually 0 % Risk Weight*), …

Level 2: Sovereign and Central Bank Debt (usually 20 % Risk Weight*), AA- or higher rated bonds, …

Cash Outfllows: Retail deposits, Unsecured Wholesale Funding, Repos, CCLs, Derivative Outflow

Cash Inflows: Reverse Repos, Obtained Credit Lines, Other Inflows

Regulatory Capital

(Less) Stable Deposits, Wholesale Funding

All other Liabilities

Cash, Securities, Debt, Off-balance Sheet Exposures

Bonds, Equities, Gold, Specific Loans

All other Assets

High Quality Liquid Assets

Net Cash Outflow

(30 D Horizon)

Available Stable

Funding (Sources)

Required Stable

Funding (Uses)

BCBS 188: Basel IIIIntern. framework for liquidity risk measurement, standards and monitoring

> = 100 %Liquidity Risk

NSFRRatio:

* Risk Weights could be retrieved from SAP Basel II Credit Risk Solution

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Challenges in Liquidity Risk along different dimensions

BASEL III requirementsNew Liquidity Rules under Basel III Moving Target as full Basel III Implementation runs to 2018

Market situationMortgage crisis, European debt crisis, what´s next?Increasing costs for refinancing and liquidity procurement

Organization & processesStrong collaboration between different LoBs requiredChange in liquidity management processes possible

High data volumesCash flow orientation causes huge data volumesHow to handle these volumes for ad hoc steering purposes?

AnalyticsSimulations, predictive analytics, scenario analysis requiredA solution needs to cover compliance, analytics and steering

LRM

Environment

Multidimensionality impacts the entire banking and liquidity arena

Reduzierung des Zeithorizontes

Ut enim adminim veniam, quis nostrud exercitation

Aktualität der Planungsgrundlage mit entsprechend konkreten Zielvorgaben

LIQUIDITY RISK

MANAGEMENT

BASEL III Market

Datavolumes

Analytics

Organi-zation &

processes

LRM@HANA overview

© 2012 SAP AG. All rights reserved. 24

SAP LRM@HANA meets the challenges

Reduzierung des Zeithorizontes

Ut enim adminim veniam, quis nostrud exercitation

Aktualität der Planungsgrundlage mit entsprechend konkreten Zielvorgaben

LIQUIDITY RISK

MANAGEMENT

BASEL III Market

Datavolumes

Analytics

Organi-zation &

processes

Predict liquidity needs on basis of scenarios, simulations and stress testing in real-time

SAP LRM@HANA content supportsBasel III compliance

Intuitive User InterfacesCollaborativeprocesses support holistic handling of liquidity risk

HANA technology allows for intraday processing of large data volumes... in atomic granularity

Stress testing, scenario analysis and simulationsSeamless drill-down from group-level results to individual cash-flows

© 2012 SAP AG. All rights reserved. 25

LRM@HANA –enabling real time Liquidity Risk Management

aggregation of 200+ Mio. cash flows in 1 secondreal time load and analysis

Extreme performance

Open platform for specific models

Ad-hoc simulation and drill down

extensible architecture for modeling of customer specific logicextensive configuration capabilities for complex filtering, aggregation and calculation rules

what-if analysis on behavioral and market parameterssingle contract level including full drill down

© 2012 SAP AG. All rights reserved. 26

SAP Liquidity Risk Management Test Results

290M Cash Flows

<1 seconds

>60 minutes

Standard System In-Memory System

Aggregated & Selected

4000x faster

© 2012 SAP AG. All rights reserved. 27

Product Scope LRM 1.0

SAP LRM@HANA, enables banks to perform real time, high-speed liquidity reporting and risk management on large volumes of individual cash flowsThe application allows for pooling all types of cash flows, including operative, simulated, and stressed data from various SAP and non-SAP source systemsFramework to calculate risk key figures including regulatory requirements like Basel III ratiosUsers can apply basic stress factors to the data, for example to gauge the effect of varying haircut and run-off rates, or the re-classification of certain assetsIntuitive UIs enable business users to analyze and compare scenarios

© 2012 SAP AG. All rights reserved. 28

SAP Liquidity Risk Management 1.0 Architecture

Operational Systems (SAP and non-SAP)

Cash Flow Pool (non-SAP)

Cash Flow Engine

Loans Deposits Securities Derivatives

BI

ETL

SAP Bank Analyzer

SAP Cash Flow Engine/Strategy Analyzer

Netweaver

SAP HANA

SAP Liquidity Risk App

Upload of Stressed / Unstressed Cash Flows for Current and Simulated Business

Comprehensive Liquidity Risk Reporting

High Performance Cash Flow Aggregation and Key Figure Calculations

© 2012 SAP AG. All rights reserved. 29

© 2012 SAP AG. All rights reserved.

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