Integrated risk management platform
Deutsche Leasing AG (DL), with total assets of approx. EUR 15.5 bn, is the largest manufacturer-independent leasing company in Germany with a growing volume of new business both in Germany and internationally in 22 other countries.
Initial situation and project assignment
In order to continue to meet the challenges of national and international customer business as well as to support the group’s growth, DL tendered a project for the implementation of a state-of-the-art risk management system to display market and liquidity risks as well as counterparty and residual value risks. In addition to fulfilling the regulatory requirements for leasing companies, DL also placed the RfP’s focus on adequate consideration of their group structure.
The implementation is carried out with zeb.control. The focus for 2013 was on the introduction of a more precise, more flexible and portfolio-based management of interest rate, liquidity and currency risks compared to the pool and single transaction-based funding system hitherto in use.
Project content and approach
Within the framework of a series of workshops, we developed and approved the expansion of the management approach from a purely present value planning of KPIs to the implementation of a present value and periodically integrated measurement and management of income sources . In this context, we focused on the analysis of profits from interest and liquidity maturity transformation as well as the determination of investment and funding opportunities from non-interest-bearing items (especially from equity) on the basis of a transformation result balance sheet.
We chose a two-stage procedure for the parallel implementation of the business concept in zeb.control: In the first development stage, the management system was implemented for a subsidiary based on a history of more than two years. This enabled DL to gain practical experience with the management system as well as to visualize the new management approach with real figures. In addition to the concretization of details in additional business workshops, the second development stage focused on the technical integration of the company’s leasing business and funding transactions from the various feeder systems and subsidiaries to ensure consistent management of both the group and the individual group companies. In order to achieve the necessary transparency of the risk exposure within the individual companies, it was also necessary to map funding relationships within the group, whereas at group level external transactions were only considered with their relevance to management.
The successful completion of the first two development stages has provided DL with an important building block, particularly for treasury management, but also for the further development of its risk management systems by means of an integrated data warehouse based on individual accounts. Measurement and management of the profit contributions is performed separately, both in terms of present value and on a periodic basis according to the following sources of income:
- Interest maturity transformation result
- Liquidity maturity transformation result
- Profit contribution from reinvesting equity and other non-interest bearing items
By means of different portfolio sections, we achieved a targeted management of the investment of equity on the one hand and clearly fulfilled the regulatory requirements for the representation of the interest rate portfolio on the other. In addition to the classic measurement of risk and return, DL now also has an option to simulate and plan the profit contributions from treasury and sales in the planning process. The completion of the combined measurement of counterparty and residual value risks in the financing and leasing portfolio based on a concept developed internally by DL is planned for the next stage. For this purpose, zeb has implemented a corresponding calculation engine in zeb.control in 2014.