Setup of controlling and risk management in a newly formed bank
Setup of controlling and risk management
Europe is steadily gaining importance as a market for the Korean automobile manufacturers Hyundai and Kia: since 2010, the two manufacturers in Europe have increased their sales to approximately 850,000 units. Until now, they did not have a harmonized range of financial services available on the European market. Financial services were offered in the various countries through cooperations with local banks—sometimes even different banks for Hyundai and Kia. To better meet customer needs, in the future, financial services are to be offered through the manufacturer’s subsidiary Hyundai Capital, which already exists outside of Europe and has a volume of EUR 13.6 bn of automobile financing. The starting point for entering the European market is Germany, where Hyundai Capital obtained a banking license for Hyundai Capital Bank Europe (HCBE) in 2016.
Founding a bank is a challenge at many levels. In order to ensure day one readiness, the following prerequisites must be met:
- Bank license
- Compliance with regulatory requirements
- Passing various checks
- Compliance with group-specific requirements
- Suitable organization of operational processes
- Definition of the business model for market entry
- Smooth cooperation between many IT and service providers, especially while the source system is still in development
To create a completely new bank with sustainable growth plans, besides the core banking system, a powerful management logic is required that also has to be scalable. The technical implementation of integrated performance and risk management will be ensured with zeb.control.
Successful realization of day one readiness required ad-hering to a tightly scheduled project plan.
In a first step, the requirements of the business model and the scope of services were specified in short, intensive workshops. At the same time, the central target data model for integrated performance and risk management required for HCBE was already designed and constantly updated to include any additional requirements.
Propositions were used to counter the uncertainties resulting from founding a new bank: as yet unspecified details for product features were already implemented under plausible assumptions and the economic importance of individual product characteristics were analyzed with the responsible product managers. Using specific use cases, the project team coordinated the implementation plan with all stakeholders involved in the project and integrated it into the master plan. A comprehensively optimized solution for HCBE was realized in this way.
A clearly defined functional target image for bank man-agement was the basis for the successful implementa-tion. zeb had the necessary experience for developing the target image due to numerous projects with banks and captives. After coordinating the general manage-ment requirements, zeb developed the target image which was then discussed with HCBE in workshops and finally adopted early in the project. Alignment with the feeder systems proved to be a central success factor during the further stages of the project.
The integrated management system is based on a unified target data model. A one-off data provision in zeb.control is the basis for the central calculation algorithms (see figure).
With this as the foundation, the following core result components could be provided for the management solution:
- Contribution margin / profit center calculation incl. deviation of actual values from planned figures
- Present value interest rate risk management
- Periodic splitting of net interest income
- Liquidity risk management
- P&L planning and simulation, incl. capital planning
- Full fair value measurement of customer contracts and derivatives
- Risk-bearing capacity (ICAAP) for fulfilling Pillar II requirements
- Stress testing for all relevant risk types
In web-based reporting, for one thing, defined standard reports are used, and for another, comprehensive adhoc analyses based on single transactions (Reporting Cube) are envisaged as a standard process.
Outlook and conclusion
With zeb.control, HCBE has implemented a state-of-the-art management model which both facilitates the planned growth course by means of the scalability of zeb.control and is also a forward-looking system both economically and in terms of regulatory law.