Solution Overview Presentation - Sap Treasury And Risk Management 304b6t
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SAP Treasury and Risk Management Solution Overview
Department, Board Area or Team Date
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 4
The Evolving Role of Corporate Treasury
Today
Future
Management / Guidance
Management / Guidance
Value increasing activities
Value increasing activities
Transaction based activities
Transaction based activities
Strategic partner of the CFO
Decisions regarding strategy of financing and asset allocation Governance Risk and Compliance activities
„Business Impact“ Liquidity Management Management of Financial risks Bank Relationship Management Asset und Pension Management
ing transactional activities Payment transactions Money market, FX and Derivative deals
Source: „ Der Finanzbereich im Umbruch“ (Dr. Michael Kieninger, Horváth AG, SAP Infotage 2007) © SAP AG 2009. All rights reserved. / Page 5
Does this Scenario Look Familiar? CFO “Is our current approach process and risk effective and how do we benchmark ourselves against best in class treasuries?”
Treasury Risk Controller
SALARIES
Group Treasurer
“How much of our fx portfolio is hedged and are these hedges effective according to our hedge ing policy”
“I‟m not sure if our forecast allows us to fund the acquisitions without external loans from our banks?”
Trader
Cash Manager
“I cannot simulate risk scenarios and I am not able to generate ad-hoc overviews on key risk indicators. Furthermore I have to capture our deals manually three times in different systems”
Is this organization prepared to: Increase process efficiency? Reduce finance operating costs? Optimize the global banking structure?
“It takes weeks to reconcile data across multiple banks to determine our company cash position”
Inhouse Bank Mgr
AP/AR Manager
“My intercompany reconciliation and netting process is not integrated, not transparent and contains often errors. We never can build a payment factory on this fundament”
“I don‟t have an integrated bank connectivity and this turns out to be a compliance issue. We need a higher degree of automation to be scalable”
Banks © SAP AG 2009. All rights reserved. / Page 6
Subsidiaries
Challenges: Typical Barriers to Effective and Compliant Treasury Management
Lack of coordination across entities and departments
Multiple payment locations and disbursement s
Multiple charts of s in various locations
High Cost of Finance Operations
Fragmented and inefficient payment and cash management
Paper-based and laborintensive
Lack of standardization
Fragmented, stand-alone systems
Risk Awareness
Poor insight into overall company risk picture
Poor insight into sources and uses of cash and their timing
Limited bank communications integration
Incomplete insight into global cash positions
Weak integration with GL and AR systems
© SAP AG 2009. All rights reserved. / Page 7
Non-transparent Processes
What Our Customers Expect Financial Excellence in Treasury Operations! Treasury Requirements Transparency
Transparency Compliance
Segregation of duties
ing standards
Compliant reporting
© SAP AG 2009. All rights reserved. / Page 8
Accurate, auditable ing
Reliable, credible treasury reports
Global cash visibility
Efficiency
Compliance
Efficiency
Streamline processes
Automate systems
Integrated communications
Overcome Your Treasury Barriers with SAP
Insight & Control
Efficiency
Compliance
Pinpoint risks and mitigate them Gain better insight into liquidity requirements Manage cash and improve returns
Establish greater control over outgoing payments Manage FX, interest rate and commodity risk and comply to regulatory standards Automation of internal controls (SOX)
IT Systems
© SAP AG 2009. All rights reserved. / Page 9
Create central „payment factories‟ Real straight-through processing for financial transactions Capture financial risk exposures from operational systems
End-to-end ERP-based treasury integration into purchase, sales, production and finance Reduce number of bank integrations and costs through open standards
SAP Streamlines Finance Processes and Treasury Operations CFO “I believe my treasury department is doing a great job!”
Treasury Risk Manager
Group Treasurer “Our liquidity is excellent - we can fund our next merger without external borrowings”
“All lights are green. Our FX exposure is hedged and our sales revenue safe” SALARIES
Trader
“Great reports and one single deal entry screen are ing my day-to-day work efficiently”
Inhouse Bank Manager “Our central payment factory is up and running and all processes are highly automated !”
Banks
© SAP AG 2009. All rights reserved. / Page 10
Timely cash and liquidity Forecasts Greater control over payments Reliable global cash management data Electronic bank integration Standardization and automation Integrated systems and processes
Cash Manager “We reconcile our data across multiple banks to determine our company cash position in minutes”
AP/AR Manager “Our payment process is transparent due to seamless integration from our ERP system into our banking software”
Subsidiaries
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 11
Treasury Applications from SAP Where we Came from …
Liquidity Planner
Market Risk Management
Money Market, Forex, Derivatives
SAP Business Suite
In-House Cash
Portfolio Analyzer
Credit Risk Analyzer
IS-IS/DARWIN Project Market release for Loans, Securities, Real Estate Audit R/3 Launch 1996 1994 1993 1992
R/2 Treasury Cash Management Money Market, Forex, Loans
© SAP AG 2009. All rights reserved. / Page 12
SAP ERP
R/3 Enterprise
2001 2000 Today
Financial Excellence with Treasury Applications from SAP Treasury applications from SAP SAP Treasury and Risk Management Risk Analyzers
Manage Global Financial Risks
Credit Risk Analyzer
Market Risk Analyzer
Exposure Management
Optimize Debt and Investment Strategies
Manage Cash and Liquidity
Portfolio Analyzer
Hedge Management
Transaction Manager Money Market
Foreign Exchange
Derivatives
Debt Mgmt
Securities
Commodities
SAP Cash and Liquidity Management Cash Management
Liquidity Planning
SAP In-House Cash Optimize Payments and Bank Communication © SAP AG 2009. All rights reserved. / Page 13
SAP Bank Communication Management
SAP Treasury and Risk Management Risk Analyzers
Reporting
Credit Risk Analyzer
Market Risk Analyzer
Portfolio Analyzer
Utilization: Formulas, Credit risk, Settlement risk
Price calculator: NPV, Prices, Sensitivities
Limit management: Limits freely definable, Multidimensional limits
Value at risk: Variance/covariance, Historic, Monte Carlo Simulation
Yield calculations: Money weighted, Time weighted, Modified Dietz method Benchmarking: Performance Indicators xxxxxxxxxxxxxxxxxxxxxxxx
Simulate rates: What-if scenario, Relative, Absolute
Exposure Management
Hedge Management
Centralized Database to gather group and version data and transfer to Hedge Management
istration of hedge plans, exposures, hedge items and hedging relationships
Transaction Manager Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools, Online limit check
Back office: Standing instructions, Correspondence Monitor, Netting, Settlement, Rate fixing
Ad-hoc reporting: Point & click, Unified databases, Position, P&L, Period, Cash Flow
Reporting tools: SAP Query, ABAP List, Other 3rd-party providers, BI, Business Object Xcelsius and Dashboards Results database: Portfolio Hierarchy, Drill-down, Historic results
Management reports: Positions, Performance, Ratios, Compliance
(interest, FX), References, Corporate actions, Process monitors
ing: Flexible ing determination, ing according to many international ing standards Money Market
Fixed –term deposits Commercial Paper Repo
Foreign Exchange
Spot Forward Swaps Options Futures
© SAP AG 2009. All rights reserved. / Page 14
Derivatives
Cap Floor FRA Swaps Options Futures
Debt Mgmt
Bonds Bank loans Commercial Paper Facilities
Securities
Bonds Warrants Stocks Certificates Repo Sec. lending
Commodities
Futures Forwards Traded Options
Middle office: Risk exposure, Controlling, Compliance
Data export: Excel, Flat files, BI
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 15
Instrument
Fixed-term deposits (e.g., overnight deposits at notice) Commercial paper Repo Floating rate Any cash flows
Interest & Equity Derivatives
Debt Management
Foreign Exchange
Money Market
Spot Forward Swap Vanilla options Barrier options (single and double) Compound options Delayed Delivery options Average rate options Basked options Exchange-traded options
Issued bonds Fixed/ floating/ zero interest, Bullet repayment/ with repayment/ ABS structures Fixed rate loans Floating rate loans Annuity loans Commercial Paper Facilities (bilateral or syndicated)
Cap Floor FRA Swaps Payer/Receiver, Fixed/Basis, Exotics (e.g. roller coaster) OTC options Security, Swaption, IRG Futures Exchange traded options
Securities (Investments)
Bonds ABS /MBS /CMO Index-linked bonds Dual currency bonds Drawable bonds Warrant Bonds Stocks Shareholdings Subscription rights Investment certificates Repo/ Reverse Repo Security lending
Transaction Manager Market Risk Analyzer Credit Risk Analyzer Portfolio Analyzer Reporting © SAP AG 2009. All rights reserved. / Page 16
Commodities
Futures Forwards Traded Options
Process Overview
Front Office
Exposure analysis Decision
Mid Office
Comfortable deal entry Standing instructions On-line limit check Position reporting
© SAP AG 2009. All rights reserved. / Page 17
Instrument pricing Risk analysis Sensitivity analysis
Back Office
Flexible process definition Settlement Correspondence Interest rate adjustments Payments Alert monitor
ing
Valuation according to several GAAP‟s in parallel areas for IAS 39 / US-GAAP and Hedge ing
Reporting
Standard reporting Ad-hock reporting Controlling Limit reporting Management reporting
Transaction Manager – Fully Integrated
Automatic posting
Valuation (parallel)
Automatic creation of correspondence
Automatic accrual/ deferral
© SAP AG 2009. All rights reserved. / Page 18
ing Straight-Through Processing
Straight-through processing of financial deals is achieved in combination with a highly flexible ing engine. Real-Time update of your ing position Automatic
posting incl. flexible determination
Hedge ing (e.g. FAS133/138, IAS39)
of several ing standards in parallel
Simple Example Purchase of 100 shares at USD 90 per share = USD 9,000
write-up
9000 Stock price on valuation key date: USD 98 (market value) © SAP AG 2009. All rights reserved. / Page 19
9800
IAS / US GAAP
no write-up
9000
9000
German GAAP (HGB)
Gain Efficiency with Correspondence Monitor Real Straight-Through Processing from deal capturing via new integrated Correspondence Monitor to parallel ing with a highly sophisticated authorization concept behind. Deal capturing
Create / send correspondence
Release process
use customer defined channels, mediums and formats
© SAP AG 2009. All rights reserved. / Page 20
Fax, email, print and swift file transfers are preconfigured Predefined format (incoming and outgoing) for MT300, MT320 and free text MT399
Receive incoming correspondence
Tracking of incoming correspondence use customer defined channels, mediums and formats
Fax, email, print and swift file transfers are preconfigured
Predefined format (incoming and outgoing) for MT300, MT320 free text MT399
Error handling / manual matching
Automatic matching
Customizable matching proposal Automatic matching when message is coming in or going out possible
Correspondence monitor e.g.
Navigate in all directions
Improved status tracking for the messages
Show all correspondence objects assigned to one deal
Show matches
Manual assignment of correspondence to deals
Receive ACK and NACK messages
Process of Incoming and Outgoing Messages Using SWIFT Integration Package from SAP SWIFT Integration Package put data on file adapter
Data from file adapter ed to TRM
Automatic matching process is triggered automatically whenever a file appears
Creation of MT message automatically or manually in the correspondence monitor Save message on file server
PI saves file on file adapter
SWIFT Integration Package picks up data
Create message and send
PI picks up the data from the file server in predefined time intervals
Get file from SWIFT alliance gateway
Open SWIFT file envelope Integration package for SWIFT
Create SWIFT file envelope
Integration package for SWIFT
Integration package for SWIFT
Send file to SWIFT alliance gateway
Integration package for SWIFT
SWIFT Integration Package is a PI box and the SWIFT gateway is another separate box. © SAP AG 2009. All rights reserved. / Page 21
Straight-Through Processing for External Deals Alternative deal capturing by connection to Market Places Automation
of of FX transactions made on market places such as 360T, FXall or Currenex Available for FX spot, FX forward and FX options Possible to enter all data for the FX transaction with one interface
Bank A
SAP Treasury and Risk Management
Market Place
Bank B
Bank C
© SAP AG 2009. All rights reserved. / Page 22
Managing Commodities and Financial Instruments Risk All kinds of commodity types and hedging instruments can be managed in SAP Commodities (examples)
Crude Oil, gas, coal
Metals including noble metals
Corn, maize, soybean
Coffee, cacao, cotton, sugar
Orange juice, lemon juice
Cattle (cows, pigs)
Certificates on emission
Hedging Instruments
© SAP AG 2009. All rights reserved. / Page 23
Futures and Traded Options
Forwards
Swaps (planning status)
OTC Options (planning status)
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 24
Exposure Management – Example for Commodities Commodity front office system - if needed Treasury and Risk Management SAP ERP Operations SD, MM or GTM
Exposure Management
Hedge Management
Market Risk Analyzer
Transaction Manager
Excel Spreadsheets
Other sources of Exposures
SAP ERP Financials © SAP AG 2009. All rights reserved. / Page 25
Financial Risk Management Process Using Exposure Management
Risk identification
Gathering Data from from various source systems
Build exposure positions
Classify Exposure as forecasted transaction firm commitment and link to different risk factors like commodity price or foreign exchange risk (EUR-USD)
© SAP AG 2009. All rights reserved. / Page 26
Lifecycle of Exposure Position
Storage and update of the lifecycle of the Exposure positions
Deal request
Possibility to generate deal requests out of the Exposure position and send it to marketplace or front office system
Hedge Management
Calculated exposures are available as hedged item in hedge management
NPV /VaR calculation
Possibility to calculate various risk key figures like Net Present Value and Value at Risk on Exposure positions as well as financial transaction
Risk Dashboard
Risk dashboard combining operational and financial Exposures
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 27
Hedge Management Hedging Item (Exposure)
Hedging Instrument (Derivative)
Hedging Relationship
Effectiveness test /valuation
Hedge ing © SAP AG 2009. All rights reserved. / Page 28
Scope of SAP‘s Hedge Management Fair Value Hedge Hedging Instruments
FX swap, FX forward
FRA
Interest rate swap
Cross currency interest rate swap
Commodity Futures and Forwards (EhP4)
Other Product Types (e.g. Commodity Swaps) are in planning status
Effectiveness Calculation Methods
Net Present Value Method / Dollar offset Method¹
Hypothetical Derivative Method
Benchmark Method
Regression Analysis (EhP 4)
© SAP AG 2009. All rights reserved. / Page 29
Scope of SAP‘s Hedge Management Cash Flow Hedge Hedging Instruments
FX swap, FX forward, FX options (plain vanilla and average rate), Collar
FRA, CAP, FLOOR
Interest rate swap
Cross currency interest rate swap
Commodity Futures and Forwards (EhP4)
Other Product Types (e.g. Commodity Swaps) are in planning status
Effectiveness Calculation Methods
Net Present Value Method / Dollar offset Method ¹
Cash Flow Method
Hypothetical Derivative Method
Regression Analysis (EhP 4)
© SAP AG 2009. All rights reserved. / Page 30
Scope of SAP‘s Hedge Management Hedge of a Net Investment Hedging Instruments
Money Market Instruments
Forward Exchange Transactions
FX and Cross Currency Swaps (note 967104 for ERP2004/ERP2005)
FX Options (note 967104 for ERP2004/ERP2005)
Effectiveness Calculation Methods
Net Present Value Method
Cash Flow Method
Spot Method
Forward Method / All critical match (note 967104 for ERP2004/ERP2005)
© SAP AG 2009. All rights reserved. / Page 31
Hedged Items
Hedged Items are Exposures
From a manual entry
from Money Market Instruments
from Risk Objects
from FX-Exposure Management
from Exposure Management 2.0
Generation from FX Forwards (or from a rollover or premature settlement of an FX-Forward)
© SAP AG 2009. All rights reserved. / Page 32
Effectiveness Testing - Process
Start date of the Hedging Relationship
Balance sheet date time
Is the Hedging Relationship expected to be highly effective in the future? 1 1.
Run the prospective effective assessment to prove if the hedging relationship is expected to be highly effective.
© SAP AG 2009. All rights reserved. / Page 33
Was the Hedging Relationship highly effective in the past?
2 2.
Run the retrospective effective assessment to prove the past effectiveness of the hedging relationship.
3 3.
If the assessment has shown an effective hedging relationship, run the Effective Measurement to determine the exact amount to be posted to OCI/Equity or P/L.
Is the Hedging Relationship expected to be highly effective in the future? 4 4.
Run the prospective effective assessment to prove if the hedging relationship is expected to continue to be highly effective.
Effectiveness Test - Regression Analysis Report
Regression report contains – Data used for analysis, Regression basic statistics, ANOVA and Confidence interval and range © SAP AG 2009. All rights reserved. / Page 34
Integration into ing
Classification of the valuation results
Effective portion
Ineffective portion
Free standing portion
Time value
Reclassification when exposure hits earning
Manual reclassification
Automatic distribution over a defined time interval
Partial reclassification (if exposure changes or is overhedged)
© SAP AG 2009. All rights reserved. / Page 35
Valuation Posting Logic with FAS133/IAS39 1
Determine derivative´s fair value
2
Determine value of any free-standing portion of the derivative
3
Determine OCI/Equity target balance and amount to be posted to OCI/Equity
4
Post remainder of clearing OCI/Equity distribution to P/L (ineffective portion of the hedge)
FX - Balance Sheet 1 Delta NPV
OCI/Equity - Distribution 2
Free-standing portion
3
Effective portion
4
Ineffective portion
5
[ Delta time value ]
1 Delta NPV
0,00
0,00
P/L
© SAP AG 2009. All rights reserved. / Page 36
Distribution
OCI/Equity 2
Free-standing portion
4
Ineffective portion
5
[ Delta time value ]
3 Effective portion
Expiration and Reclassification
When?
Hedge ing ceases prospectively when any of the following occurs: hedge fails an effectiveness test the hedged item is sold or settled the hedging instrument is sold, terminated or exercised management decides to revoke the designation for a hedge of a forecasted transaction, the forecasted transaction is no longer highly probable. In customizing you can define, what should happen with the hedge relationship in the case of infectivity – to dissolve or to dedesignate
How?
Manually – by reclassifying all or parts of the equity capital balances at once or one-off the part of it or Automatically – by reclassifying over multiple periods on a linear basis
What happens with the hedging instrument?
As in IAS 39: All future fair value changes in a derivative hedging instrument are recognized in the income statement. Future changes in the fair value of any non-derivative hedging instrument are ed for as they would be without hedge ing.
What happens with the hedged item?
Future changes in the fair value of the hedged item are ed for as they would be without hedge ing
© SAP AG 2009. All rights reserved. / Page 37
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 38
Risk Analyzers – Risk Analytics
“
Risk analytics is clever maths, but the hard slog is the integration. Risk Magazine
Value-at-risk Net present value Exposures Multidimensional limit management Portfolio Returns
© SAP AG 2009. All rights reserved. / Page 39
What-if analysis Back-Testing Sensitivity analysis Market data shifts and scenarios Portfolio Benchmarking
SAP Modules in Treasury Analyzers
Market Risk Analyzer
Portfolio Analyzer
Credit Risk Analyzer Analyzers
Market Data FX Rates Yield Curves Indices Volatilities
Transaction Manager Money Market Securities Derivatives Forex Commodities
Businesspartner
Cash Managem. Integration © SAP AG 2009. All rights reserved. / Page 40
General Ledger
REPORTING: Externally maintained transactions
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 41
Process in Credit Risk Management
T r a n s a c t i o n M a n a g e
m e n
t © SAP AG 2009. All rights reserved. / Page 42
Request
Limit check
End-of-Day Processing
Attributable amount
O.K.
Deal
Limit
Reporting Exposure Limit Partner 8.5 10.5 Euro Bank 632.3 700.7 United Bank 688.1 716.7 Carlton 12.3 4.8 Brightline
Free Limit 2.0 68.4 28.6 -7.5
Util. in % 80.9% 90.3% 96.0% 256.3%
Start of workflow, when limit is ‘Breached’
Relative Limits
Choose Utilization Portfolio
Choose Reference Portfolio
Utilization Key Figure
Can choose the „Utilization Portfolio‟ and the „Reference Portfolio‟. They can be same or different.
Reference Key Figure
Can compare same key figures from different portfolios or Different key figures from the same portfolio
© SAP AG 2009. All rights reserved. / Page 43
Define Limits Percentage
Define Limits Absolute
Limits can be defined as „Percentage‟, „Absolute‟ Or „Both Percentage and Absolute‟
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 44
Market Risk Analyzer – Risk Controlling SAP
EDT CM
CML
TM
Datapool NON SAP External
Market data
Results NPV, VaR, Exposures …
Analysis/Reporting/Planning
Online data feed Simulated Shifts Scenarios
© SAP AG 2009. All rights reserved. / Page 45
Pricing Engine NPV, VaR ...
Risk Hierarchy Defining the risk hierarchy and evaluation structure Consolidation LEVEL Risk factors
3-month
FIBOR
EUR
6-month
FIBOR
EUR
12-month FIBOR
EUR
1-year
FIBOR
EUR
3-year
FIBOR
EUR
SAP
Stock
USD
Spot
GBP
Spot
Consolidation LEVEL 2
...
Money market EUR Interest EUR
Capital market EUR Stocks
Currencies
3-month LIBOR
GBP
6-month LIBOR
GBP
1-year
Swap
USD
1-year
Swap
USD
© SAP AG 2009. All rights reserved. / Page 46
Consolidation LEVEL 1
Currency
Interest GBP Interest Swap USD
Net Present Value Concept
Transaction data
Calculation
Evaluations
Linear Debts Assets ....
Non-linear Options Caps ....
Mark-to-market Sensitivities Duration Convexity Exposure Crash/stress tests
Market data
Yield curve 5 (+)
Current. yield curve
Yield curve 6 (long-term)
Company Portfolio Profit center Product
9.0 8.0 7.0 6.0 5.0
NPV
3.0 2.0
Saved market prices Real-time market prices Flexible scenarios Rule shifts
1M
2Y
4Y
6Y
10 Y
Risk
Price calculator ( exit)
© SAP AG 2009. All rights reserved. / Page 47
8Y
LEVEL 1 Trading: Bonds
Base portfolio Bonds/Frankfurt
LEVEL 1 Trading: Swaps
Base portfolio Bonds/New York
Risk management
10.0
4.0
LEVEL 2 Trading: Interest products
Value at Risk
Transaction data
Calculation
© SAP AG 2009. All rights reserved. / Page 48
Variance/covariance Backtesting No.
Date
NPV
Risk
1 2 3 4 5 6 7 8 9 10 11 12 13
Feb 81 May 81 Mar 80 Feb 90 Feb 80 Feb 74 Jun 82 May 83 Oct 72 Feb 94 May 79 Oct 79 Feb 85
483.9 524.8 530.6 538.9 543.8 546.8 557.5 559.8 560.5 562.6 564.2 565.5 569.1
LEVEL 1 Trading: Bonds
LEVEL 1 Trading: Swaps
Base portfolio Bonds/Frankfurt
Base portfolio Bonds/New York
99.0%
97,5%
50 45 40 35
95.0%
30 25 20
15 10 5
Price calculator ( exit)
< 85
< 500
< 75
< 65
< 55
< 45
< 35
< 25
<5
< 15
<-5
<-15
0 <-25
-134.3 -93.3 -87.5 -79.2 -74.3 -71.3 -60.6 -58.3 -57.7 -55.5 -53.9 -52.6 -49.0
LEVEL 2 Trading: Interest products
Risk management
Confidence Interval
<-35
<-45
Market interest rates Exchange rates Stock prices Volatilities Correlations
< -55
Full valuation Delta method Delta/gamma method
<-75
Historical market parameters
Company Portfolio Profit center Product
< -65
Non-linear Options Caps ....
< -95
Bal. sheet Debts Assets ....
Historical simulation Monte Carlo
< -85
Evaluations
Market Risk Analytics – Net Present Value (NPV) Calculation Net Present Value Calculation
Linear Instruments
Fixed cash flows Discounting with zero bond discounting factors of the relevant yield curves
Floating rate bond, Variable loans © SAP AG 2009. All rights reserved. / Page 49
Non-Linear Instruments
Variable cash flows 1.Calculation of forward rates using the assigned yield curve 2.Calculation of future cash flows 3.Discounting Swaps, FRAs
Straight bonds, Fixed-rate loans, Money market
Uncertain cash flows Option price formulas, for example: Black & Scholes Binomial (C-R-R) Garman/Kolhagen Hull-White Caps/Floors Options Swaptions
Market Risk Analytics – Value at Risk Calculation Alternatives Value at Risk Methods and Algorithms
Historical Simulation
Monte Carlo Simulation
VarianceCovariance (aka „Analytical Method“)
Full Valuation Delta Approach Delta-Gamma Approach
X
X
X
X
X
X
X
X
Reporting & Backtesting Analysis of risk factor contributions
© SAP AG 2009. All rights reserved. / Page 50
VaR Simulation Approaches Simulated changes to risk factors
Changes to present values of positions
Distribution of position changes
USD interest rate
Frequency Present value
EUR/USD
Confidence interval
Risk
Delta/Gamma DowJones
VaR 1 2 3 4 © SAP AG 2009. All rights reserved. / Page 51
Position
Opportunity
Market Risk Analytics – Reporting Results Database (RDB)
Analyzer Information System (AIS)
Results Database (RDB)
RDB is used to store calculated key figures for later evaluation Key figures are calculated in an endof-day batch run Stored results remain available and can be archived Key figures are stored for individual transactions as well as aggregated according to desired portfolio hierarchies RDB reports are based on the AIS
02-28-05 Portfolio Hierarchy B
12-19-05 12-18-05 Key Figure Set 2 Key Figure12-17-05 Set 2
Portfolio Hierarchy B Portfolio Hierarchy B Portfolio Hierarchy A Key Figure Set 1
© SAP AG 2009. All rights reserved. / Page 52
Portfolio Hierarchy B Portfolio Hierarchy B
Key Figure Set 2
01-31-05 Key Figure12-31-05 Set 2 Key Figure Set 2
Results Database – Risk Cockpit
© SAP AG 2009. All rights reserved. / Page 53
Compliance Reporting – IFRS 7 Reporting Categories – Market Risks Standard reports for compliance to IFRS 7 –Market risk section. Reports related to exposures for:
Currency risks
Interest rate risks
Fair Value Changes reports for risks:
© SAP AG 2009. All rights reserved. / Page 54
Currency risks
Interest rate risks
Commodity price risks
Security price risks
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 55
Portfolio Analyzer
Investment strategy
Determination of benchmark
Improvement and alignment
SAP Treasury and Risk Management
Reporting and revision
Risk adjustment
Performance measurement
Benchmarking
Portfolio Analyzer © SAP AG 2009. All rights reserved. / Page 56
Building organizational structures
Asset allocation
Business transactions
Performance Analytics – Benchmarking Reporting
© SAP AG 2009. All rights reserved. / Page 57
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 58
Quick Facts – SAP Treasury and Risk Management
The SAP Treasury and Risk Management application is part of Treasury applications from SAP
The application helps you make more effective decisions utilizing timely information on current market conditions
It lets you optimize your hedging and risk management processes through exposure management for operational FX and commodity exposures
SAP Treasury and Risk Management increases transparency by having operational and treasury exposures evaluated for market risk
It s standard financial instruments and offers integrated and automated straight-through processing, as well as state of the art risk management capabilities
Furthermore, the application helps to comply with legal regulations and compliance requirements
Further Information
SAP Public Web
http://www.sap.com/treasury
SAP Service Marketplace
(log-on required)
https://service.sap.com/erp-treasury
Documentation on SAP Help Portal
http://help.sap.com (SAP ERP >> SAP ERP Central Component >> SAP ERP Enhancement Packages)
Training / SAP Education
http://www.sap.com/education
Groups
http://www.asug.com
http://www.dsag.de
http://www.sap.com/communities/groups.epx for more
Your SAP and Consulting Engagement Manager
© SAP AG 2009. All rights reserved. / Page 60
Thank you!
© SAP AG 2009. All rights reserved. / Page 61
Department, Board Area or Team Date
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 4
The Evolving Role of Corporate Treasury
Today
Future
Management / Guidance
Management / Guidance
Value increasing activities
Value increasing activities
Transaction based activities
Transaction based activities
Strategic partner of the CFO
Decisions regarding strategy of financing and asset allocation Governance Risk and Compliance activities
„Business Impact“ Liquidity Management Management of Financial risks Bank Relationship Management Asset und Pension Management
ing transactional activities Payment transactions Money market, FX and Derivative deals
Source: „ Der Finanzbereich im Umbruch“ (Dr. Michael Kieninger, Horváth AG, SAP Infotage 2007) © SAP AG 2009. All rights reserved. / Page 5
Does this Scenario Look Familiar? CFO “Is our current approach process and risk effective and how do we benchmark ourselves against best in class treasuries?”
Treasury Risk Controller
SALARIES
Group Treasurer
“How much of our fx portfolio is hedged and are these hedges effective according to our hedge ing policy”
“I‟m not sure if our forecast allows us to fund the acquisitions without external loans from our banks?”
Trader
Cash Manager
“I cannot simulate risk scenarios and I am not able to generate ad-hoc overviews on key risk indicators. Furthermore I have to capture our deals manually three times in different systems”
Is this organization prepared to: Increase process efficiency? Reduce finance operating costs? Optimize the global banking structure?
“It takes weeks to reconcile data across multiple banks to determine our company cash position”
Inhouse Bank Mgr
AP/AR Manager
“My intercompany reconciliation and netting process is not integrated, not transparent and contains often errors. We never can build a payment factory on this fundament”
“I don‟t have an integrated bank connectivity and this turns out to be a compliance issue. We need a higher degree of automation to be scalable”
Banks © SAP AG 2009. All rights reserved. / Page 6
Subsidiaries
Challenges: Typical Barriers to Effective and Compliant Treasury Management
Lack of coordination across entities and departments
Multiple payment locations and disbursement s
Multiple charts of s in various locations
High Cost of Finance Operations
Fragmented and inefficient payment and cash management
Paper-based and laborintensive
Lack of standardization
Fragmented, stand-alone systems
Risk Awareness
Poor insight into overall company risk picture
Poor insight into sources and uses of cash and their timing
Limited bank communications integration
Incomplete insight into global cash positions
Weak integration with GL and AR systems
© SAP AG 2009. All rights reserved. / Page 7
Non-transparent Processes
What Our Customers Expect Financial Excellence in Treasury Operations! Treasury Requirements Transparency
Transparency Compliance
Segregation of duties
ing standards
Compliant reporting
© SAP AG 2009. All rights reserved. / Page 8
Accurate, auditable ing
Reliable, credible treasury reports
Global cash visibility
Efficiency
Compliance
Efficiency
Streamline processes
Automate systems
Integrated communications
Overcome Your Treasury Barriers with SAP
Insight & Control
Efficiency
Compliance
Pinpoint risks and mitigate them Gain better insight into liquidity requirements Manage cash and improve returns
Establish greater control over outgoing payments Manage FX, interest rate and commodity risk and comply to regulatory standards Automation of internal controls (SOX)
IT Systems
© SAP AG 2009. All rights reserved. / Page 9
Create central „payment factories‟ Real straight-through processing for financial transactions Capture financial risk exposures from operational systems
End-to-end ERP-based treasury integration into purchase, sales, production and finance Reduce number of bank integrations and costs through open standards
SAP Streamlines Finance Processes and Treasury Operations CFO “I believe my treasury department is doing a great job!”
Treasury Risk Manager
Group Treasurer “Our liquidity is excellent - we can fund our next merger without external borrowings”
“All lights are green. Our FX exposure is hedged and our sales revenue safe” SALARIES
Trader
“Great reports and one single deal entry screen are ing my day-to-day work efficiently”
Inhouse Bank Manager “Our central payment factory is up and running and all processes are highly automated !”
Banks
© SAP AG 2009. All rights reserved. / Page 10
Timely cash and liquidity Forecasts Greater control over payments Reliable global cash management data Electronic bank integration Standardization and automation Integrated systems and processes
Cash Manager “We reconcile our data across multiple banks to determine our company cash position in minutes”
AP/AR Manager “Our payment process is transparent due to seamless integration from our ERP system into our banking software”
Subsidiaries
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 11
Treasury Applications from SAP Where we Came from …
Liquidity Planner
Market Risk Management
Money Market, Forex, Derivatives
SAP Business Suite
In-House Cash
Portfolio Analyzer
Credit Risk Analyzer
IS-IS/DARWIN Project Market release for Loans, Securities, Real Estate Audit R/3 Launch 1996 1994 1993 1992
R/2 Treasury Cash Management Money Market, Forex, Loans
© SAP AG 2009. All rights reserved. / Page 12
SAP ERP
R/3 Enterprise
2001 2000 Today
Financial Excellence with Treasury Applications from SAP Treasury applications from SAP SAP Treasury and Risk Management Risk Analyzers
Manage Global Financial Risks
Credit Risk Analyzer
Market Risk Analyzer
Exposure Management
Optimize Debt and Investment Strategies
Manage Cash and Liquidity
Portfolio Analyzer
Hedge Management
Transaction Manager Money Market
Foreign Exchange
Derivatives
Debt Mgmt
Securities
Commodities
SAP Cash and Liquidity Management Cash Management
Liquidity Planning
SAP In-House Cash Optimize Payments and Bank Communication © SAP AG 2009. All rights reserved. / Page 13
SAP Bank Communication Management
SAP Treasury and Risk Management Risk Analyzers
Reporting
Credit Risk Analyzer
Market Risk Analyzer
Portfolio Analyzer
Utilization: Formulas, Credit risk, Settlement risk
Price calculator: NPV, Prices, Sensitivities
Limit management: Limits freely definable, Multidimensional limits
Value at risk: Variance/covariance, Historic, Monte Carlo Simulation
Yield calculations: Money weighted, Time weighted, Modified Dietz method Benchmarking: Performance Indicators xxxxxxxxxxxxxxxxxxxxxxxx
Simulate rates: What-if scenario, Relative, Absolute
Exposure Management
Hedge Management
Centralized Database to gather group and version data and transfer to Hedge Management
istration of hedge plans, exposures, hedge items and hedging relationships
Transaction Manager Front office: Position and deal reporting, Deal capture, Exercise, Dealer slip, Valuation tools, Online limit check
Back office: Standing instructions, Correspondence Monitor, Netting, Settlement, Rate fixing
Ad-hoc reporting: Point & click, Unified databases, Position, P&L, Period, Cash Flow
Reporting tools: SAP Query, ABAP List, Other 3rd-party providers, BI, Business Object Xcelsius and Dashboards Results database: Portfolio Hierarchy, Drill-down, Historic results
Management reports: Positions, Performance, Ratios, Compliance
(interest, FX), References, Corporate actions, Process monitors
ing: Flexible ing determination, ing according to many international ing standards Money Market
Fixed –term deposits Commercial Paper Repo
Foreign Exchange
Spot Forward Swaps Options Futures
© SAP AG 2009. All rights reserved. / Page 14
Derivatives
Cap Floor FRA Swaps Options Futures
Debt Mgmt
Bonds Bank loans Commercial Paper Facilities
Securities
Bonds Warrants Stocks Certificates Repo Sec. lending
Commodities
Futures Forwards Traded Options
Middle office: Risk exposure, Controlling, Compliance
Data export: Excel, Flat files, BI
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 15
Instrument
Fixed-term deposits (e.g., overnight deposits at notice) Commercial paper Repo Floating rate Any cash flows
Interest & Equity Derivatives
Debt Management
Foreign Exchange
Money Market
Spot Forward Swap Vanilla options Barrier options (single and double) Compound options Delayed Delivery options Average rate options Basked options Exchange-traded options
Issued bonds Fixed/ floating/ zero interest, Bullet repayment/ with repayment/ ABS structures Fixed rate loans Floating rate loans Annuity loans Commercial Paper Facilities (bilateral or syndicated)
Cap Floor FRA Swaps Payer/Receiver, Fixed/Basis, Exotics (e.g. roller coaster) OTC options Security, Swaption, IRG Futures Exchange traded options
Securities (Investments)
Bonds ABS /MBS /CMO Index-linked bonds Dual currency bonds Drawable bonds Warrant Bonds Stocks Shareholdings Subscription rights Investment certificates Repo/ Reverse Repo Security lending
Transaction Manager Market Risk Analyzer Credit Risk Analyzer Portfolio Analyzer Reporting © SAP AG 2009. All rights reserved. / Page 16
Commodities
Futures Forwards Traded Options
Process Overview
Front Office
Exposure analysis Decision
Mid Office
Comfortable deal entry Standing instructions On-line limit check Position reporting
© SAP AG 2009. All rights reserved. / Page 17
Instrument pricing Risk analysis Sensitivity analysis
Back Office
Flexible process definition Settlement Correspondence Interest rate adjustments Payments Alert monitor
ing
Valuation according to several GAAP‟s in parallel areas for IAS 39 / US-GAAP and Hedge ing
Reporting
Standard reporting Ad-hock reporting Controlling Limit reporting Management reporting
Transaction Manager – Fully Integrated
Automatic posting
Valuation (parallel)
Automatic creation of correspondence
Automatic accrual/ deferral
© SAP AG 2009. All rights reserved. / Page 18
ing Straight-Through Processing
Straight-through processing of financial deals is achieved in combination with a highly flexible ing engine. Real-Time update of your ing position Automatic
posting incl. flexible determination
Hedge ing (e.g. FAS133/138, IAS39)
of several ing standards in parallel
Simple Example Purchase of 100 shares at USD 90 per share = USD 9,000
write-up
9000 Stock price on valuation key date: USD 98 (market value) © SAP AG 2009. All rights reserved. / Page 19
9800
IAS / US GAAP
no write-up
9000
9000
German GAAP (HGB)
Gain Efficiency with Correspondence Monitor Real Straight-Through Processing from deal capturing via new integrated Correspondence Monitor to parallel ing with a highly sophisticated authorization concept behind. Deal capturing
Create / send correspondence
Release process
use customer defined channels, mediums and formats
© SAP AG 2009. All rights reserved. / Page 20
Fax, email, print and swift file transfers are preconfigured Predefined format (incoming and outgoing) for MT300, MT320 and free text MT399
Receive incoming correspondence
Tracking of incoming correspondence use customer defined channels, mediums and formats
Fax, email, print and swift file transfers are preconfigured
Predefined format (incoming and outgoing) for MT300, MT320 free text MT399
Error handling / manual matching
Automatic matching
Customizable matching proposal Automatic matching when message is coming in or going out possible
Correspondence monitor e.g.
Navigate in all directions
Improved status tracking for the messages
Show all correspondence objects assigned to one deal
Show matches
Manual assignment of correspondence to deals
Receive ACK and NACK messages
Process of Incoming and Outgoing Messages Using SWIFT Integration Package from SAP SWIFT Integration Package put data on file adapter
Data from file adapter ed to TRM
Automatic matching process is triggered automatically whenever a file appears
Creation of MT message automatically or manually in the correspondence monitor Save message on file server
PI saves file on file adapter
SWIFT Integration Package picks up data
Create message and send
PI picks up the data from the file server in predefined time intervals
Get file from SWIFT alliance gateway
Open SWIFT file envelope Integration package for SWIFT
Create SWIFT file envelope
Integration package for SWIFT
Integration package for SWIFT
Send file to SWIFT alliance gateway
Integration package for SWIFT
SWIFT Integration Package is a PI box and the SWIFT gateway is another separate box. © SAP AG 2009. All rights reserved. / Page 21
Straight-Through Processing for External Deals Alternative deal capturing by connection to Market Places Automation
of of FX transactions made on market places such as 360T, FXall or Currenex Available for FX spot, FX forward and FX options Possible to enter all data for the FX transaction with one interface
Bank A
SAP Treasury and Risk Management
Market Place
Bank B
Bank C
© SAP AG 2009. All rights reserved. / Page 22
Managing Commodities and Financial Instruments Risk All kinds of commodity types and hedging instruments can be managed in SAP Commodities (examples)
Crude Oil, gas, coal
Metals including noble metals
Corn, maize, soybean
Coffee, cacao, cotton, sugar
Orange juice, lemon juice
Cattle (cows, pigs)
Certificates on emission
Hedging Instruments
© SAP AG 2009. All rights reserved. / Page 23
Futures and Traded Options
Forwards
Swaps (planning status)
OTC Options (planning status)
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 24
Exposure Management – Example for Commodities Commodity front office system - if needed Treasury and Risk Management SAP ERP Operations SD, MM or GTM
Exposure Management
Hedge Management
Market Risk Analyzer
Transaction Manager
Excel Spreadsheets
Other sources of Exposures
SAP ERP Financials © SAP AG 2009. All rights reserved. / Page 25
Financial Risk Management Process Using Exposure Management
Risk identification
Gathering Data from from various source systems
Build exposure positions
Classify Exposure as forecasted transaction firm commitment and link to different risk factors like commodity price or foreign exchange risk (EUR-USD)
© SAP AG 2009. All rights reserved. / Page 26
Lifecycle of Exposure Position
Storage and update of the lifecycle of the Exposure positions
Deal request
Possibility to generate deal requests out of the Exposure position and send it to marketplace or front office system
Hedge Management
Calculated exposures are available as hedged item in hedge management
NPV /VaR calculation
Possibility to calculate various risk key figures like Net Present Value and Value at Risk on Exposure positions as well as financial transaction
Risk Dashboard
Risk dashboard combining operational and financial Exposures
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 27
Hedge Management Hedging Item (Exposure)
Hedging Instrument (Derivative)
Hedging Relationship
Effectiveness test /valuation
Hedge ing © SAP AG 2009. All rights reserved. / Page 28
Scope of SAP‘s Hedge Management Fair Value Hedge Hedging Instruments
FX swap, FX forward
FRA
Interest rate swap
Cross currency interest rate swap
Commodity Futures and Forwards (EhP4)
Other Product Types (e.g. Commodity Swaps) are in planning status
Effectiveness Calculation Methods
Net Present Value Method / Dollar offset Method¹
Hypothetical Derivative Method
Benchmark Method
Regression Analysis (EhP 4)
© SAP AG 2009. All rights reserved. / Page 29
Scope of SAP‘s Hedge Management Cash Flow Hedge Hedging Instruments
FX swap, FX forward, FX options (plain vanilla and average rate), Collar
FRA, CAP, FLOOR
Interest rate swap
Cross currency interest rate swap
Commodity Futures and Forwards (EhP4)
Other Product Types (e.g. Commodity Swaps) are in planning status
Effectiveness Calculation Methods
Net Present Value Method / Dollar offset Method ¹
Cash Flow Method
Hypothetical Derivative Method
Regression Analysis (EhP 4)
© SAP AG 2009. All rights reserved. / Page 30
Scope of SAP‘s Hedge Management Hedge of a Net Investment Hedging Instruments
Money Market Instruments
Forward Exchange Transactions
FX and Cross Currency Swaps (note 967104 for ERP2004/ERP2005)
FX Options (note 967104 for ERP2004/ERP2005)
Effectiveness Calculation Methods
Net Present Value Method
Cash Flow Method
Spot Method
Forward Method / All critical match (note 967104 for ERP2004/ERP2005)
© SAP AG 2009. All rights reserved. / Page 31
Hedged Items
Hedged Items are Exposures
From a manual entry
from Money Market Instruments
from Risk Objects
from FX-Exposure Management
from Exposure Management 2.0
Generation from FX Forwards (or from a rollover or premature settlement of an FX-Forward)
© SAP AG 2009. All rights reserved. / Page 32
Effectiveness Testing - Process
Start date of the Hedging Relationship
Balance sheet date time
Is the Hedging Relationship expected to be highly effective in the future? 1 1.
Run the prospective effective assessment to prove if the hedging relationship is expected to be highly effective.
© SAP AG 2009. All rights reserved. / Page 33
Was the Hedging Relationship highly effective in the past?
2 2.
Run the retrospective effective assessment to prove the past effectiveness of the hedging relationship.
3 3.
If the assessment has shown an effective hedging relationship, run the Effective Measurement to determine the exact amount to be posted to OCI/Equity or P/L.
Is the Hedging Relationship expected to be highly effective in the future? 4 4.
Run the prospective effective assessment to prove if the hedging relationship is expected to continue to be highly effective.
Effectiveness Test - Regression Analysis Report
Regression report contains – Data used for analysis, Regression basic statistics, ANOVA and Confidence interval and range © SAP AG 2009. All rights reserved. / Page 34
Integration into ing
Classification of the valuation results
Effective portion
Ineffective portion
Free standing portion
Time value
Reclassification when exposure hits earning
Manual reclassification
Automatic distribution over a defined time interval
Partial reclassification (if exposure changes or is overhedged)
© SAP AG 2009. All rights reserved. / Page 35
Valuation Posting Logic with FAS133/IAS39 1
Determine derivative´s fair value
2
Determine value of any free-standing portion of the derivative
3
Determine OCI/Equity target balance and amount to be posted to OCI/Equity
4
Post remainder of clearing OCI/Equity distribution to P/L (ineffective portion of the hedge)
FX - Balance Sheet 1 Delta NPV
OCI/Equity - Distribution 2
Free-standing portion
3
Effective portion
4
Ineffective portion
5
[ Delta time value ]
1 Delta NPV
0,00
0,00
P/L
© SAP AG 2009. All rights reserved. / Page 36
Distribution
OCI/Equity 2
Free-standing portion
4
Ineffective portion
5
[ Delta time value ]
3 Effective portion
Expiration and Reclassification
When?
Hedge ing ceases prospectively when any of the following occurs: hedge fails an effectiveness test the hedged item is sold or settled the hedging instrument is sold, terminated or exercised management decides to revoke the designation for a hedge of a forecasted transaction, the forecasted transaction is no longer highly probable. In customizing you can define, what should happen with the hedge relationship in the case of infectivity – to dissolve or to dedesignate
How?
Manually – by reclassifying all or parts of the equity capital balances at once or one-off the part of it or Automatically – by reclassifying over multiple periods on a linear basis
What happens with the hedging instrument?
As in IAS 39: All future fair value changes in a derivative hedging instrument are recognized in the income statement. Future changes in the fair value of any non-derivative hedging instrument are ed for as they would be without hedge ing.
What happens with the hedged item?
Future changes in the fair value of the hedged item are ed for as they would be without hedge ing
© SAP AG 2009. All rights reserved. / Page 37
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 38
Risk Analyzers – Risk Analytics
“
Risk analytics is clever maths, but the hard slog is the integration. Risk Magazine
Value-at-risk Net present value Exposures Multidimensional limit management Portfolio Returns
© SAP AG 2009. All rights reserved. / Page 39
What-if analysis Back-Testing Sensitivity analysis Market data shifts and scenarios Portfolio Benchmarking
SAP Modules in Treasury Analyzers
Market Risk Analyzer
Portfolio Analyzer
Credit Risk Analyzer Analyzers
Market Data FX Rates Yield Curves Indices Volatilities
Transaction Manager Money Market Securities Derivatives Forex Commodities
Businesspartner
Cash Managem. Integration © SAP AG 2009. All rights reserved. / Page 40
General Ledger
REPORTING: Externally maintained transactions
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 41
Process in Credit Risk Management
T r a n s a c t i o n M a n a g e
m e n
t © SAP AG 2009. All rights reserved. / Page 42
Request
Limit check
End-of-Day Processing
Attributable amount
O.K.
Deal
Limit
Reporting Exposure Limit Partner 8.5 10.5 Euro Bank 632.3 700.7 United Bank 688.1 716.7 Carlton 12.3 4.8 Brightline
Free Limit 2.0 68.4 28.6 -7.5
Util. in % 80.9% 90.3% 96.0% 256.3%
Start of workflow, when limit is ‘Breached’
Relative Limits
Choose Utilization Portfolio
Choose Reference Portfolio
Utilization Key Figure
Can choose the „Utilization Portfolio‟ and the „Reference Portfolio‟. They can be same or different.
Reference Key Figure
Can compare same key figures from different portfolios or Different key figures from the same portfolio
© SAP AG 2009. All rights reserved. / Page 43
Define Limits Percentage
Define Limits Absolute
Limits can be defined as „Percentage‟, „Absolute‟ Or „Both Percentage and Absolute‟
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 44
Market Risk Analyzer – Risk Controlling SAP
EDT CM
CML
TM
Datapool NON SAP External
Market data
Results NPV, VaR, Exposures …
Analysis/Reporting/Planning
Online data feed Simulated Shifts Scenarios
© SAP AG 2009. All rights reserved. / Page 45
Pricing Engine NPV, VaR ...
Risk Hierarchy Defining the risk hierarchy and evaluation structure Consolidation LEVEL Risk factors
3-month
FIBOR
EUR
6-month
FIBOR
EUR
12-month FIBOR
EUR
1-year
FIBOR
EUR
3-year
FIBOR
EUR
SAP
Stock
USD
Spot
GBP
Spot
Consolidation LEVEL 2
...
Money market EUR Interest EUR
Capital market EUR Stocks
Currencies
3-month LIBOR
GBP
6-month LIBOR
GBP
1-year
Swap
USD
1-year
Swap
USD
© SAP AG 2009. All rights reserved. / Page 46
Consolidation LEVEL 1
Currency
Interest GBP Interest Swap USD
Net Present Value Concept
Transaction data
Calculation
Evaluations
Linear Debts Assets ....
Non-linear Options Caps ....
Mark-to-market Sensitivities Duration Convexity Exposure Crash/stress tests
Market data
Yield curve 5 (+)
Current. yield curve
Yield curve 6 (long-term)
Company Portfolio Profit center Product
9.0 8.0 7.0 6.0 5.0
NPV
3.0 2.0
Saved market prices Real-time market prices Flexible scenarios Rule shifts
1M
2Y
4Y
6Y
10 Y
Risk
Price calculator ( exit)
© SAP AG 2009. All rights reserved. / Page 47
8Y
LEVEL 1 Trading: Bonds
Base portfolio Bonds/Frankfurt
LEVEL 1 Trading: Swaps
Base portfolio Bonds/New York
Risk management
10.0
4.0
LEVEL 2 Trading: Interest products
Value at Risk
Transaction data
Calculation
© SAP AG 2009. All rights reserved. / Page 48
Variance/covariance Backtesting No.
Date
NPV
Risk
1 2 3 4 5 6 7 8 9 10 11 12 13
Feb 81 May 81 Mar 80 Feb 90 Feb 80 Feb 74 Jun 82 May 83 Oct 72 Feb 94 May 79 Oct 79 Feb 85
483.9 524.8 530.6 538.9 543.8 546.8 557.5 559.8 560.5 562.6 564.2 565.5 569.1
LEVEL 1 Trading: Bonds
LEVEL 1 Trading: Swaps
Base portfolio Bonds/Frankfurt
Base portfolio Bonds/New York
99.0%
97,5%
50 45 40 35
95.0%
30 25 20
15 10 5
Price calculator ( exit)
< 85
< 500
< 75
< 65
< 55
< 45
< 35
< 25
<5
< 15
<-5
<-15
0 <-25
-134.3 -93.3 -87.5 -79.2 -74.3 -71.3 -60.6 -58.3 -57.7 -55.5 -53.9 -52.6 -49.0
LEVEL 2 Trading: Interest products
Risk management
Confidence Interval
<-35
<-45
Market interest rates Exchange rates Stock prices Volatilities Correlations
< -55
Full valuation Delta method Delta/gamma method
<-75
Historical market parameters
Company Portfolio Profit center Product
< -65
Non-linear Options Caps ....
< -95
Bal. sheet Debts Assets ....
Historical simulation Monte Carlo
< -85
Evaluations
Market Risk Analytics – Net Present Value (NPV) Calculation Net Present Value Calculation
Linear Instruments
Fixed cash flows Discounting with zero bond discounting factors of the relevant yield curves
Floating rate bond, Variable loans © SAP AG 2009. All rights reserved. / Page 49
Non-Linear Instruments
Variable cash flows 1.Calculation of forward rates using the assigned yield curve 2.Calculation of future cash flows 3.Discounting Swaps, FRAs
Straight bonds, Fixed-rate loans, Money market
Uncertain cash flows Option price formulas, for example: Black & Scholes Binomial (C-R-R) Garman/Kolhagen Hull-White Caps/Floors Options Swaptions
Market Risk Analytics – Value at Risk Calculation Alternatives Value at Risk Methods and Algorithms
Historical Simulation
Monte Carlo Simulation
VarianceCovariance (aka „Analytical Method“)
Full Valuation Delta Approach Delta-Gamma Approach
X
X
X
X
X
X
X
X
Reporting & Backtesting Analysis of risk factor contributions
© SAP AG 2009. All rights reserved. / Page 50
VaR Simulation Approaches Simulated changes to risk factors
Changes to present values of positions
Distribution of position changes
USD interest rate
Frequency Present value
EUR/USD
Confidence interval
Risk
Delta/Gamma DowJones
VaR 1 2 3 4 © SAP AG 2009. All rights reserved. / Page 51
Position
Opportunity
Market Risk Analytics – Reporting Results Database (RDB)
Analyzer Information System (AIS)
Results Database (RDB)
RDB is used to store calculated key figures for later evaluation Key figures are calculated in an endof-day batch run Stored results remain available and can be archived Key figures are stored for individual transactions as well as aggregated according to desired portfolio hierarchies RDB reports are based on the AIS
02-28-05 Portfolio Hierarchy B
12-19-05 12-18-05 Key Figure Set 2 Key Figure12-17-05 Set 2
Portfolio Hierarchy B Portfolio Hierarchy B Portfolio Hierarchy A Key Figure Set 1
© SAP AG 2009. All rights reserved. / Page 52
Portfolio Hierarchy B Portfolio Hierarchy B
Key Figure Set 2
01-31-05 Key Figure12-31-05 Set 2 Key Figure Set 2
Results Database – Risk Cockpit
© SAP AG 2009. All rights reserved. / Page 53
Compliance Reporting – IFRS 7 Reporting Categories – Market Risks Standard reports for compliance to IFRS 7 –Market risk section. Reports related to exposures for:
Currency risks
Interest rate risks
Fair Value Changes reports for risks:
© SAP AG 2009. All rights reserved. / Page 54
Currency risks
Interest rate risks
Commodity price risks
Security price risks
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers 2.5.1. Introduction 2.5.2. Credit Risk Analyzer 2.5.3. Market Risk Analyzer 2.5.4. Portfolio Analyzer
3. Summary
© SAP AG 2009. All rights reserved. / Page 55
Portfolio Analyzer
Investment strategy
Determination of benchmark
Improvement and alignment
SAP Treasury and Risk Management
Reporting and revision
Risk adjustment
Performance measurement
Benchmarking
Portfolio Analyzer © SAP AG 2009. All rights reserved. / Page 56
Building organizational structures
Asset allocation
Business transactions
Performance Analytics – Benchmarking Reporting
© SAP AG 2009. All rights reserved. / Page 57
Agenda
1. Market Trends and Value Proposition 2. Solution Offering 2.1. Overview 2.2. Transaction Management 2.3. Exposure Management 2.4. Hedge Management 2.5. Risk Analyzers
3. Summary
© SAP AG 2009. All rights reserved. / Page 58
Quick Facts – SAP Treasury and Risk Management
The SAP Treasury and Risk Management application is part of Treasury applications from SAP
The application helps you make more effective decisions utilizing timely information on current market conditions
It lets you optimize your hedging and risk management processes through exposure management for operational FX and commodity exposures
SAP Treasury and Risk Management increases transparency by having operational and treasury exposures evaluated for market risk
It s standard financial instruments and offers integrated and automated straight-through processing, as well as state of the art risk management capabilities
Furthermore, the application helps to comply with legal regulations and compliance requirements
Further Information
SAP Public Web
http://www.sap.com/treasury
SAP Service Marketplace
(log-on required)
https://service.sap.com/erp-treasury
Documentation on SAP Help Portal
http://help.sap.com (SAP ERP >> SAP ERP Central Component >> SAP ERP Enhancement Packages)
Training / SAP Education
http://www.sap.com/education
Groups
http://www.asug.com
http://www.dsag.de
http://www.sap.com/communities/groups.epx for more
Your SAP and Consulting Engagement Manager
© SAP AG 2009. All rights reserved. / Page 60
Thank you!
© SAP AG 2009. All rights reserved. / Page 61
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