IBM Cognos helps banks mitigate credit risk

Armonk, New York-based IBM Corp. released on Tuesday an analytical application to provide banks and financial institutions better visibility and management of credit risk across loan portfolios.

IBM Cognos 8 Banking Risk Performance—Credit Risk, which forms part of the Cognos 8 platform and is part of IBM’s Financial Integrated Risk Management Portfolio, is designed to help customers mitigate different types of risk across the organization, be it products, geographies and business units.

“I think the key thing is that the current market conditions are driving their need to enhance visibility around credit risk… and help them more proactively manage risk across multiple dimensions,” said Frank McKeon, banking industry director with Cognos.

Real-time access to credit risk information is a prerequisite to operational efficiency, said McKeon, because “it’s not just looking in the rear view mirror, it’s having that real-time information whether it’s a customer interaction through a call centre or if you walk into a branch.”

Specifically, from a risk perspective, the application incorporates Basel II standards so organizations can ensure compliancy; as well as financial oversight profitability, front-end and back-end performance, and originations.

The application comes with pre-built credit risk reports and analytics so users don’t have to create their own, an approach that McKeon describes as “an accelerator for implementation.”

Users can therefore view, for instance, delinquencies by business unit, geography and even a map view. “Each of these views you can drill into… it’s just a click and a drill to answer more of your questions when you start looking at this information at this level,” said McKeon.

Built on an open, services-oriented architecture platform, McKeon said the new release integrates with customers’ existing IT infrastructure so they can access credit risk data housed in financial and core lending systems.

The application comes with pre-built credit risk reports and analytics so users don’t have to create their own, an approach that McKeon describes as “an accelerator for implementation. Actually, this self-service capability is typical of the Cognos 8 platform, he added, so it’s “not like they have to go and ask IT to change or modify a report.”

IBM envisions the application will be used by senior managers or a credit risk officer who need to evaluate credit risk from a high-level perspective in order to proactively determine where to grow the business and what the risk exposure might be. Banks and financial institutions are catching on to the need for analytics like dashboards and scorecards, whereas before, they had multiple lines of business that each entertained its own reporting mechanisms, said McKeon, “and so they’ve used excel and a lot of other different tools but haven’t had that consistent view across the organization.”

According to George Goodall, senior research analyst with London, Ont.-based Info-Tech Research Group Ltd., risk management is not only “a pretty crucial issue right now” given it’s been done so poorly in the past several years, but it will continue to be a significant topic moving forward.

Goodall thinks Cognos in general has been a big player in risk management applications for the banking industry, bringing to the table templates and blueprints based on best practices. “Pretty much any financial institution will have their own reporting tools and risk models built in,” he said, “but the question becomes ‘are we using best practice and doing something that is compatible with our peers.’”

Specifically, incorporating Basel II standards into the release is important, acknowledged Goodall, because banks and financial institutions often have trouble keeping pace with legislative changes and “are operating in the dark perhaps out of compliance.”

That said, some enterprises who are ahead of the game in terms of regulatory compliance may benefit less from the release, said Goodall, “but certainly for those that are laggards and facing anew financial and auditory constraints, those models are quite valuable.”