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Consulting Services

Building societies—Manage finance, risk and compliance

Building societies recognize that they have to measure and control risks differently

Low interest rates and changes in customer behavior have left deep marks on the balance sheets of building societies, so that serious changes will be needed in upcoming years. The industry, but also every single building society, must rethink its business models in order to utilize new earnings potentials and reduce costs long term. For this building societies need an individual and tailor-made, modern risk management in their finance departments.

Challenges

The current low-interest environment is forcing building societies to rethink their business models. Institutions can only survive in the long term if they offer traditional banking products in addition to their typical home savings business and learn to deal with traditional capital market products. As home savings will remain a difficult business in upcoming years, institutions need to initiate strategic changes now. This also includes modern interest rate risk management and ensuring the team is well-trained and prepared to use new instruments.

Insights

Building societies need to keep their costs under control in the long term by reducing their process, administration and commission expenses. In addition, earnings need to be boosted by increased lending business—for example by means of falling deposit interest rates—and new business areas outside of traditional markets. All of this will lead to major changes in risk management. An example of this is that building societies will also raise the modeling of interest rate risks to the overall bank level and develop a new target picture for bank management. Building societies will have to prepare themselves for the use of traditional capital market products, including the issuance of Pfandbriefe. For this reason, they need modern and intelligent financial and reporting systems that enable, for example, the valuation and accounting of banking products and hedge accounting.

Solutions

Bank management

In response to the current requirements of the interest market, zeb is working with its customers to develop a new target image for bank management. zeb helps to define the requirements and align them to sector benchmarks and regulatory requirements in order to preciselydefine the starting point for change. The result is a reliable roadmap for implementing state-of-the-art bank management, flanked by professional and technical recommendations for action.

Introducing new capital products

Due to the drastic market changes in their traditional business, building societies are increasingly having to deal with the use of capital market products, such as the issuance of Pfandbriefe or the investment in capital market products as a substitute for home savings loans. zeb supports its customers in coping with the diverse regulatory requirements relating to capital market products and in designing and implementing highly efficient and compliant IT solutions.

Portfolio hedge accounting

As a reaction to the ongoing low-interest phase, the use of derivatives for interest rate risk management is another viable option. To avoid unwanted volatility in their profit and loss accounts, it is also necessary to introduce new management tools. zeb already offers its clients a comprehensive approach: the zeb.control hedge engine for mapping portfolios according to fair value hedge accounting and a coordinated management scenario for the accounting and treasury departments.