1. Treasury and Risk Management
Market Risk Analyzer / Asset Liability Management

2. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
Agenda
Introduction
Net Present Value
Value-at-Risk
Gap Analysis
Asset Liability Management

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Overview of Banking Risks
Banking RisksBanking Risks
Credit RisksCredit Risks Operational RisksOperational RisksMarket RisksMarket Risks
Interest Rates
Interest Rates
Risks to Changes in
Market Rates
Risks to Changes in
Market Rates
Exchange Rates
Exchange Rates
Security Prices
Security Prices
Implied Volatilities
Implied Volatilities
Risks to LiquidityRisks to Liquidity
Refinancing/Maturity
Refinancing/Maturity
Default Risk
Default Risk
Risks to Up-/Down-
grades (Rating)
Risks to Up-/Down-
grades (Rating)
Personnel
Personnel
Technology
Technology
Organisation
Organisation
External
External

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05.05.14
-300.000
-200.000
-100.000
0
100.000
200.000
300.000
1 2 3 4 5 6 7 8 9 10
cash-flow
NPV
What is the value
of future
cashflows?
-200
-150
-100
-50
0
50
100
150
1 2 3 4 5 6 7 8 9 10
PVBP
upper limit
lower limit
How reacts the
NPV on changes in
market rates?
Value-at-Risk
-800
-600
-400
-200
0
200
400
600
800
1.000
1.200
1 2 3 4 5 6 7 8 9 10
What is the highest expected
loss within a certain period and
a given confidence level?
99% confidence level
1 day holding period
Gap Analysis
0
100.000
200.000
300.000
400.000
500.000
1 2 3 4 5 6 7 8 9 10
asset volume
liability volume
Do the maturities match?
Is there a surplus for
certain time buckets which
implies an interest rate
risk?
Liquidity Analysis
-300.000
-200.000
-100.000
0
100.000
200.000
300.000
1 2 3 4 5 6 7 8 9 10
incoming
outgoing
surplus
Is the bank‘s ability
to fulfil its liabilities
ensured?
Market Risk
Market risk involves the uncertainty of earnings resulting from
changes in market conditions such as the asset prices,
interest rates, volatility and market liquidity.
SAP offers you the toolkit to measure these risks!

5. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
SAP Data Pool
SEM Banking Structure Overview
Market Risk
Net Present Value
Value-at-Risk
Asset-Liability-
Management
Gap Analysis
Simulation of new
Transactions
Default Risk
Limitation
Settlement Risk
Replacement Risk
Credit Risk
Profitability
Net Interest Margin
Funds Transfer Pricing
SAP Financials
Financial & Management
Accounting
Core Banking
Bank Transactions
3rd Party Providers
Market Data

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05.05.14
Agenda
Introduction
Net Present Value
Value-at-Risk
Gap Analysis
Asset Liability Management

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05.05.14
Fixed cash flows Variable cash flows Uncertain cash flows
Valuation
Deterministic instruments Optional instruments
Discounting with zero
bond discounting
factors for the relevant
yield curves
1. Determination of
forward rates using the
relevant yield curve
2. Calculation of future
cash flows
3. Discounting
Option price formulas
- Black & Scholes
- Binomial
- Garman/Kolhagen
Standard bonds
Fixed-rate loans
Money market
Floating rate notes
Variable loans
Caps/Floors
FX options
Swaptions
Swap/FRA
Net Present Value – Calculation

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05.05.14
Net Present Value

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05.05.14
Scenario Analysis / What-if Analysis

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05.05.14
Sensitivity Analysis

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05.05.14
Agenda
Introduction
Net Present Value
Value-at-Risk
Gap Analysis
Asset Liability Management

12. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
Value-at-Risk Approaches
Value-at-RiskValue-at-Risk
Variance/CovarianceVariance/Covariance Historical SimulationHistorical Simulation Monte-Carlo SimulationMonte-Carlo Simulation
Delta
Delta
Delta / Gamma
Delta / Gamma
Full Valuation
Full Valuation
Delta
Delta
Delta / Gamma
Delta / Gamma
Full Valuation
Full Valuation
Delta
Delta
Delta / Gamma
Delta / Gamma
Combination
Combination

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05.05.14
Full Valuation and Delta Approach
NPV-function
Approximation
rise in
market prices
decrease of
market prices
market price
NPV-
risk
NPV-
chance
Error
Error
NPV-
risk
∆-appr.
NPV-
chance
∆-appr.
NPV
current
market price

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05.05.14
VaR methods for product type related calculation
full valuationfull valuation
delta/gamma
approach
delta/gamma
approach
delta
approach
delta
approach
Calculation of Profit and Losses (NPV related)Calculation of Profit and Losses (NPV related)
Historical
Simulation
based on
Profit and
Losses
Historical
Simulation
based on
Profit and
Losses
Profit and Losses
PortfolioPortfolio
bonds
floater
simple options
exotic
options

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05.05.14
Value-at-Risk

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05.05.14
Historical Simulation – P&L Distribution
Graphical and numerical view of Profit & Loss
Graphical view of Profit & Loss Distribution

17. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
Backtesting
t1 t2
P1 P2
Market data
Difference
Portfolio in t1
Value-at-Risk
Comparison
unchanged
Portfolio of t1
original NPV
related to market
data in t1
NPV related to
changed
market data in t2

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05.05.14
Agenda
Introduction
Net Present Value
Value-at-Risk
Gap Analysis
Asset Liability Management

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05.05.14
Gap Analysis
Position Outflow Cash flow Liquidity Interest Result
Evaluation
key date position
average position
cash flows in
the sense of
NPV risk
positions
liquidity in the
sense of
expected cash
flows
interest results
based on the
average position
capital commitment
distinction of
interest
contribution and
structure
contribution
interest commitment
capital commitment
product interest rate
FTP rate / opportunity interest rate
Gap Analysis Reports

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05.05.14
Gap Analysis: Position
Floater with term 4 years and interest condition 6-months-Euribor:Floater with term 4 years and interest condition 6-months-Euribor:
0.50.5 1.01.0 1.51.5 2.02.0 2.52.5 3.03.0 3.53.5 4.04.0
position (interest related)position (interest related)
0.50.5 1.01.0 1.51.5 2.02.0 2.52.5 3.03.0 3.53.5 4.04.0
position (capital related)position (capital related)
100 Mill. Euro
100 Mill. Euro

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105 Mill. Euro105 Mill. Euro
100 Mill. Euro100 Mill. Euro
0.50.5 1.01.0 1.51.5 2.02.0 2.52.5 3.03.0 3.53.5 4.04.0
interest paymentinterest payment
repaymentrepayment
5 Mill. Euro5 Mill. Euro
0.50.5 1.01.0 1.51.5 2.02.0 2.52.5 3.03.0 3.53.5 4.04.0
fixed
interest rate
fixed
interest rate
repaymentrepayment
calculated by forward ratescalculated by forward rates
Under the assumption of a flat yield curve of 10 %, in addition to the fixed interest
rate the Euribor-payments would also be taken into account with 5 Mill. per midyear:
Under the assumption of a flat yield curve of 10 %, in addition to the fixed interest
rate the Euribor-payments would also be taken into account with 5 Mill. per midyear:
Gap Analysis: Cash-Flow and Liquidity

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05.05.14
Position Evaluation

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05.05.14
Liquidity Evaluation

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Net Interest Income Simulation

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05.05.14
Agenda
Introduction
Net Present Value
Value-at-Risk
Gap Analysis
Asset Liability Management

26. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
Process of Creating Simulated Transactions
Execute
Gap Analysis
The results of the
Gap Analysis are
the basis for the
simulation process
Individual
Simulation
Growth planning on
any desired
hierarchy level
Fictitious
Transactions
Simulation of single
fictitious
transactions like
• FX forward
• Money Market
• Swap
• Swaption
• Cap
• Floor
Standard
Simulation
Closing the gaps of
• Position
• Outflow
• Cash flow or
• Liquidity
with forward
respectively spot
transactions
Evaluate
Simulated
Transactions in
NPV-/VaR-
Reports
The simulated
transactions can be
saved in the data
pool and included
in the NPV- and
VaR-reports
Optional Alternatives / Combinations

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05.05.14
Simulation Log

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05.05.14
Growth Planning
t1
S I M U L A T E D
T R A N S A C T I O N S
t2 t3 t4
e.g. Mortgage Loanse.g. Mortgage Loans
A C T U A L P O R T F O L I O
100 Mill. EUR100 Mill. EUR

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05.05.14
Net Interest Income after Simulation of New Transactions
LiabilitiesAssets
Balance Sheet 2005
LiabilitiesAssets
Balance Sheet 2006
LiabilitiesAssets
Balance Sheet 2007
Interest
Revenue
Interest
Expense
Net Interest Income 2007
Interest
Revenue
Interest
Expense
Net Interest Income 2006
Interest
Revenue
Interest
Expense
Net Interest Income 2005
New Transactions ‘05
New Transactions ‘05
New Transactions ‘06
New Transactions ‘06
New Transactions ‘07
New Transactions ‘05

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05.05.14
Maturity
Bands
The Simulation Process
Gap Analysis
•Position
•Liquidity
•Net Interest Income
Real
Transactions
Store
Calculation
Standard Simulation,
Fictitious Hedging
NII
Time
Market Data
Scenarios
Planning
Variants
Due Date
Scenarios

31. TRM / Risk Analyzer / Asset Liability Management
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05.05.14
SAP Functions for Market Risk Management
SAP Market Risk ManagementSAP Market Risk Management
Stress Testing
• Worst / Best Case Scenario
• Shock Scenarios
Stress Testing
• Worst / Best Case Scenario
• Shock Scenarios
User-defined scenarios
User-defined scenarios
Value-at-Risk
• Variance/Covariance
• Historical Simulation
• Monte Carlo Simulation
• Backtesting
Value-at-Risk
• Variance/Covariance
• Historical Simulation
• Monte Carlo Simulation
• Backtesting
Sensitivity Analysis
• Basis Point Value
• Duration
• Convexity
Sensitivity Analysis
• Basis Point Value
• Duration
• Convexity
NPV related Reports
• Mark-to-Market
• Market Prices
NPV related Reports
• Mark-to-Market
• Market Prices
Reports related to
Nominal Values
Reports related to
Nominal Values
Liquidity Analysis
Liquidity Analysis
Interest Result
Simulation
(based on actual and
simulated transactions)
Interest Result
Simulation
(based on actual and
simulated transactions)
Position Analysis
Position Analysis New Business
Simulation
New Business
Simulation
Interest Result
Evaluation
Interest Result
Evaluation
Full integration of
simulated transactions
in NPV based reports
and Gap reports
Full integration of
simulated transactions
in NPV based reports
and Gap reports
Historical Time Series
Historical Time Series
Gap Analysis
Gap Analysis Asset Liability
Management
Asset Liability
Management

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05.05.14
Thurgauerstrasse 54 · CH-8050 Zurich
Tel +41 44 318 70 00 · Fax +41 44 31870 10
info@ifb-group.com · www.ifb-group.com
Oliver Greiner · Oliver.Greiner@ifb-group.com