Agile Financial Times - April 2009 Edition

Agile

FINANCIAL TIMES

Managing Liquidity in Tough Times

CUSTOMER INSIGHT

Nyasha Makuvise CEO, CBZ Holdings SOLUTION SPOTLIGHT

Cash is King! iDeal Liquidity CUSTOMER SPOTLIGHT

Leading Asset Management Company Selects Agile FT

April 2009

April 2009

Editor’s Note And here it is! Both Spring and our inaugural issue that you behold at this moment!

CONTENTS

We live in interesting times. A period in history that will be studied for ages to come. There are lessons to be learnt and for those who can understand the opportunity within all the adversity, it’s time to plan for a rewarding future

CUSTOMER INSIGHT

Optimal Insurance Selects AGILIS 4

ahead. COVER STORY

We invite you to be inspired by the "lift of your driving dreams". This is the time when we should take a relook at our systems and processes,

Managing Liquidity in Tough Times

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and prepare for the inevitable upswing ahead. NEWS

While an enormous spate of activity takes place round the clock at Agile FT offices across the world in terms of research, product development and innovation, we wanted to share some of it with you. We share the joy that we feel in this initiative as it brings us closer to

Global Update

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INTERVIEW

Kalpesh Desai

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you and allows us to chat with you - up close and personal. We invite you to use this platform to share your own perspective, to reach out and

SOLUTION SPOTLIGHT

build partnerships within our community of clients, partners and

Cash is King!

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principals. PARTNER SPOTLIGHT

So go ahead and read a little, think a lot, get charged even more and soar beyond glass ceilings and as you do, remember to drop us a

Making Strides in West Africa 16

postcard (or an email will do) to let us know how we fared. CUSTOMER SPOTLIGHT

Be Agile! Shefali Khera Chief Marketing Officer Write to us at [email protected]

Leading Asset Management Company Selects Agile FT 18

CUSTOMER INSIGHT

Nyasha Makuvise, CEO, CBZ Holdings, signs the agreement with Kalpesh Desai, CEO, Agile Financial Technologies. Also see standing (from left to right) are Rumbidzayi Jakanani, Legal Advisor, CBZ; Munya Mateko, Regional Head - Africa, Agile FT; and Tatyana Chernyshova, Business Development Manager, Agile FT.

Optimal Insurance Company (Pvt) Ltd, a subsidiary of one of Zimbabwe’s largest and diversified financial services institution - CBZ Holdings Limited - has shown its commitment to improving service delivery to its clients by recently acquiring the rights to implement AGILIS Core Insurance Software from Agile Financial Technologies. The new system will allow Optimal Insurance to automate all its existing operations and enable them to quickly create new insurance products thereby reducing time-to-market. AGILIS covers the entire spectrum of operations and finance management for an insurer including product management and distribution (policies), underwriting, reinsurance, claims and accounting. Available with multi-language and multi-currency support and consolidated financial information on multicurrency transactions, its well-defined workflow covers all the steps of the insurance business from a single view of the customer profile to effective management with pre-configured reports, including MIS. On this occasion, Nyasha Makuvise, Group CEO, CBZ Holding Company, shared his insights on the company and industry, in an exclusive interview to Agile Financial Times.

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Optimal Insurance Selects AGILIS What prompted the recent reorganisation and diversification of the CBZ Holding Company based on client segments and how has it impacted growth? The primary motivation for the reorganisation and diversification of CBZ Holdings Limited was the need to provide clients with a ‘one-stop shopping experience’. This meant providing a variety of services and products to clients within a group. The generic financial services model in Zimbabwe was that of a single service provider and we endeavour to be unique in this area. The intent of the innovation initiative was to provide clients with many products and services within one group, but through various subsidiaries. This is why we have a 360 degree icon as part of our corporate identity which is aptly combined with the phrase “all round financial facilitator”. The other objectives of our reorganisation were the diversification of income streams, capital and shareholder value preservation. Diversification of income streams helped us reduce the shocks of major drops of income in one line of business. On the other hand due to the hyper inflationary conditions in the country, it was important to preserve capital through acquisitions of value holding assets, for e.g., real estate. We transformed the Zimbabwe dollar ‘trillions’ into land & buildings which held better value. This helped us to preserve shareholder value and provide us with steady income. In what areas has the economic slowdown impacted CBZ Holding Company, and how has the company maintained a healthy position despite the economic slowdown? The CBZ Group is largely a financial services company. Lending is a major business, with interest income being the main source of income.

CUSTOMER INSIGHT

The general economic slowdown and the hyper inflationary conditions in Zimbabwe seriously and adversely affected the core business of lending. As a result, financial profitability was reduced significantly. The other area that was affected was the stock market. Within the group we have a stockbroker and an asset management company. Their operations almost came to a halt and reduced income flows for the group. What is your outlook on the banking and financial services industry in Zimbabwe? Globally the banking and financial services is in bad shape. Zimbabwe is, of course, no exception. However, I see a bright future for our industry as we are poised for a turnaround. This is mainly because we have been under sanctions and were somehow insulated from the major shocks that affected other markets.

Competition in the industry is based on service delivery and Optimal Insurance hopes to capitalise on this transition period by being agile and innovative on new products and services. As we come out of the isolation with the removal of sanctions, business should start to improve. Lines of credit availability should improve and trade will be facilitated. This will benefit the industry; hence my optimism. On the other hand, I do believe that some consolidation in the industry will take place. This will be based on the need to improve the capital strength of financial institutions. Outside consolidation, I also believe that acquisitions, particularly by larger foreign stronger financial institutions, will take place. This will allow for financial strength and stability. Is the insurance business in Zimbabwe growing and what are the opportunities for Optimal Insurance moving forward? Being a service industry the insurance sector has been negatively affected by recession, mainly due to the political

climate in the country in the past couple of years. However, we expect business to pick up after the recently pronounced government of national unity. The insurance market is a perception-driven market and hence the recent political settlement creates an opportunity for us to introduce new and improved products ahead of competitors during the transition period. Competition in the industry is based on service delivery and Optimal Insurance hopes to capitalise on this transition period by being agile and innovative on new products and services. The prerequisites for this are a robust and scalable technology platform to complement the launch of new products, as well as superior service delivery by improving document turnaround. Group synergies make Optimal Insurance strategically positioned to significantly grow the bancassurance business. The company is also looking forward to capturing agricultural sector business through bancassurance. A strong shareholder base increases stakeholder confidence in the company, creating an opportunity for it to increase its market share. Do you believe that the current economic scenario will throw up any significant challenges for CBZ Holding, and if so, how do you plan to overcome them? Indeed at no time in recent times has the term ‘global village’ relating to the world been so real. The general world economic meltdown has affected Zimbabwe and indeed the CBZ Group. This has mainly been through less borrowings, hence diminishing opportunities to raise capital. Our main focus is on lending, so if we cannot get lines of credit it automatically translates to less business. Developing economies are also largely commodity-driven. The slowdown in the world economy reduces trade and prices of commodities and this adversely affects financial services. I believe that this is the time to prepare for a better future, so that when the good times come we are ready. This is one of the reasons for focusing on putting the right technology in place. Why did you select Agile FT as your technology partner? In our quest to provide superior service and delivery to our clients, we needed a technology partner who understands our business as well as we do. Agile FT met that need perfectly. In addition, the quality and experience of the Agile FT team gives us a significantly high comfort level that the implementation will go as planned, and that we will be able to achieve our goals.

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This article explores the nature of the banking business, the different types of risks involved in the banking business, identification, measurement and impact of liquidity risk, and risk management systems that can be set up to prevent a liquidity crisis.

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Managing Liquidity in Tough Times Several banks globally have closed down over the past few months, the primary reason for the failure of these banks being that their lending activity was much higher than their deposits permitted. This mismatch between their assets and deposits led to a shortage of funds for their operating activities. Another significant reason for the downfall of these banks was the US sub-prime crisis, which led to a dry up in the securities buyback markets resulting in a severe cash crunch. Banks form the backbone of an economy and when they are affected, the entire economic activity of a country comes to a standstill. Worse, the domino effect spills over the borders giving rise to the risk of contagion at a global level. Obviously this is not a desirable situation and banks need to examine the reasons for this and take concrete steps to ensure that a similar crisis does not recur. Banking Risks

The traditional activity of a bank involves the business of borrowing (deposits) and lending (loans). Profits are generated by the cost income arbitrage that a bank incurs through deposits and loans respectively. Therefore, the primary risks that a bank faces include credit risk and liquidity risk. The quantum of credit risk primarily depends on the type of industry and the risks associated with the industry, which would prevent the borrower from repaying the loans. Liquidity risk arises out of the inability of the banks to honour their obligations due to non-availability of liquid funds. This risk is inherent to the general banking business, and arises out of due course of the banking business. The reason for

COVER STORY

this is the manner in which banks conduct business. Typically banks lend to customers on a long-term basis and borrow on a short-term basis, such as from the financial markets. Thus, they keep assets on their books for a longer time and provide liquidity in the short term in case of contingencies as well as to cater to the daily cash requirements, with the assumption that the business will continue to refinance itself. Risk Management

There are a number of risk management systems that can be used to identify, monitor and control risk: Firstly, the bank needs to identify liquidity risk by classifying its balance sheet into two classes:



Sticky Assets Core Assets

Sticky assets refer to those assets that cannot be returned on demand, For example, fixed assets like building and computers. Core assets refer to those that can be liquidated in case of an emergency. For instance, cash with the central bank, and cash and deposits with peer banks. Clearly, a bank cannot depend on sticky assets for a bailout in case of a liquidity crisis. However, a bank can depend on the core assets for generating cash in case of an emergency. These core assets should be further classified into CASA (Current account saving account), collateralized borrowings, longterm loans and so on.

At this point of time, the bank should be able to identify its possible liquidity issues and therefore establish preventive measures to steer clear of the same. These simulated scenarios help a bank prepare for contingencies. Similarly, situations or scenarios for the other levels can be simulated and tweaked in accordance with the changing environment.

Most banks and financial institutions fail due to the under-pricing of liquidity risks, rather than a credit risk due to aggressive selling. Once the scenarios are identified, banks should put them through a stress test. Here banks would normally follow two testing techniques:





After classifying the assets, banks need to place risk weights for each of these assets from highly liquid to less liquid and illiquid. Thereafter, banks should set up a maturity matrix for both assets and liabilities, which helps ascertain the maximum negative outflow within a period of three to six months. This maturity matrix should be defined in terms of a cluster of deterministic items and non-deterministic items. Deterministic items are liabilities or assets with a fixed maturity period, interest rate and amount (for example, a bond with a fixed maturity period, coupon rate and amount). Non-deterministic are assets or liabilities with unfixed amounts, interest rates and maturity period (for example, LIBOR-linked securities, callable bonds and put options). Once the maturity matrix is set up, the banks should identify and assess the liquidity attached to various assets and liabilities on their balance sheets. Banks need to establish scenarios at various levels (such as at the organizational level, local bank system level and international level) and test how these items are affected in a given situation. For example, at an organizational level when a bank’s current accounts are being called, deposits are being withdrawn; peer banks or others hold and cannot offer liquidity, the question to be asked is how will the bank generate cash for its operations?

Historical Value at Risk: Historical Value at Risk can be arrived at using normal distribution and events method where-in the worst possible scenarios and events are assumed to have taken place and then its effect on the liquidity is calculated. Example of such events includes failure of banks to borrow, dipping share prices etc. Balance Sheet Liquidity: Balance Sheet Liquidity puts to test the bank’s ability to raise finance in a short period of time. This assumes the shortest period within which liquid assets can be sold in the market and funds can be raised from market makers and brokers. In order to make this possible, banks align the assets in accordance with the level of their liquidity. Banks refer to the balance sheet items in terms of the degree of their liquidity. For example, a committed line from other banks is considered as a percentage of short term unsecured obligations. The higher the percentage, the higher the liquidity.

Based on scenarios and testing techniques, banks can evolve strategies to ensure that liquidity is available for daily operations (the amount of negative outflow limits) and on a long-term basis (align the deposit and asset side with the long term goals). Once the strategy is defined, the bank should set up a Liquidity Continuity Plan (LCP) that can identify points of cash limit breaches and measure how a bank can resolve the situation. Banks should establish clearly documented processes that explain the steps to be followed in case of a liquidity contingency event. The LCP should be made known to the large customers,

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COVER STORY

LIQUIDITY RISKS The recent fallout of major banks re-iterated the fact that liquidity risk has a strong bearing on the world economy. Structured Liquidity Risk (SLR) is defined as a risk undertaken in a conscious manner to generate cash and maintain assets on a long-term basis. It is termed ‘structured’ because it is well-known and it is undertaken in a planned manner. For example, banks need to pay taxes on a specific date, and earmark a certain portion of their funds for this. Contingent Liquidity Risk (CLR) is concerned with assets and liabilities of a bank that typically have a long-term maturity, some examples of which include term deposits, offshore products and guarantees. Although this is part of the daily banking business, the possibility of these getting liquidated prior to their maturity poses significant liquidity risk. For example, a term deposit with a maturity of five years may be liquidated by the depositor at the end of the third year. Similarly for offshore products like guarantees, if called upon at any point in time, the bank has to honour the financial obligations. When banks fail to honour their financial obligations, it can result in consequences like bad publicity, run on banks, breach of depositors trust, and degradation of the bank’s credit rating. Numerous situations of the same type can give rise to shortage of funds. Such cases occur when there is a high amount of market volatility, which gives rise to market liquidity risk. Market Liquidity Risk (MLR) is the third type of risk and works on the assumption that markets operate in a normal condition and have sufficient liquidity levels. In case money is insufficient in the market, it results in shortage of funds and eventually leads to a collapse of the financial system. For example, most banks undertake inter-bank lending and borrowing activities, which allows them to avail money to fulfil their financial needs. However, in case of the current financial crisis the inter-bank lending markets had dried up and a shortage resulted in the markets getting tightened. The market volatility was so high that the indigenous and endogenous risks led to a severe cash crunch in the market. For example, the mortgage-backed securities markets dried up completely and banks were unable to liquidate their securities through re-pledging, which led to panic. Similarly, when banks could not raise finance to meet their contingent and structured liquidity requirements, rating institutions started downgrading their ratings. In addition, borrowers started demanding their loans. All these events had a cumulative effect on banks getting hit with substantial pressure from all stakeholders. Banks were unable to approach the market to raise finance through certificate of deposits, commercial paper or assets of similar classes, with Lehman Brothers being a classic example that suffered the consequences of being unable to create liquidity when required.

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creditors and stakeholders. In case a bank does not do so, lack of information at the critical time can lead to a crisis. Banking is a business of confidence and it is critical that the same 'language' is spoken across various levels. Lack of synchronisation between various levels of management and stakeholders can further fuel the crisis. Hence, it is critical to keep all stakeholders wellinformed.

Liquidity risks have very long-standing effects, not only for the company, but on the country and economy as a whole. Taken together, these steps should hold banks in good stead while managing their liquidity risks proactively. Conclusion

Liquidity risks have very long-standing effects, not only for the bank, but for the country and economy as a whole. Hence central governments of many countries step in to bail out ailing banks in a liquidity crisis scenario. However, banks should not use this as a safety net and fall prey to the moral hazard it poses. Liquidity risk negatively impacts both sides of a bank's balance sheet, the assets and the liabilities. Assets are affected, as bank's borrowers default in repayment of loans resulting in a funds shortage. Similarly, liabilities are impacted because depositors do not invest in a bank that is facing a liquidity crisis. Most banks and financial institutions fail due to the under-pricing of liquidity risks, rather than a credit risk due to aggressive selling. Regulators and the government need to ensure that financial institutions maintain a sufficient level of liquidity to meet sectoral needs and sustain the level of liquidity in the market.

NEWS

Global Update A quick review of industry news from around the world. Leading UAE Banks to Convert State Deposits to Capital: Leading UAE Banks such as Mashreq, RAK Bank, NBAD, Emirates NBD have recently announced their intention to convert federal government deposits into regulatory capital. This is to improve asset quality and offset the impact of global credit crisis on the domestic banking industry. Most of these deposits will be converted to Tier 2 capital for effective risk mitigation. Brazil Plans to Reduce Spending Due to Financial Crisis: As a result of the financial crisis, revenues from tax collections in Brazil recorded a significant fall. The government is now taking measures to curb the impact of lower inflow of funds. Guido Mantega, Finance Minister of Brazil, announced a reduction in current expenditure and tighter fiscal policies to reduce the mismatch between lower tax collections and high fiscal expenditure. Qatar Central Bank to Replace 1.2 Million ATM Cards: Qatar Central Bank heads told all banks in the Gulf state to change 1.2 million ATM cards with chip and pin technology to smart chip cards technology within seven days. The aim of this move is to offer greater protection to clients from prospective hackers and ATM fraud. While it will enhance security, it will also offer greater inter-operability .The banks sent SMS messages to clients informing them about their ATM card replacement move. Shari’a Banks may Impose Fees to Issue Guarantees: According to religious scholars, Shari'a banks should be permitted to impose a fee for issuing guarantees as it involves a transfer of risk to the bank. Supporting this, Mohd Daud Bakar, advisor, Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), stated that the nature of transactions for guarantee issuance has evolved from a family transaction (earlier guarantees

were issued between family members, whereas now they are issued to unknown parties) to a financial product issued to third parties. Similarly, opinions about imposing fees on guarantees are undergoing a change and many banks have already started charging fees for guarantee issuance. Citigroup to Expand in South East Asia: Citigroup is believed to be looking to open more branches in Thailand and starting equity brokerage businesses in Malaysia, Vietnam and Indonesia later this year, in an overall plan to expand in Southeast Asia. This signifies that Citigroup, which has been affected by huge losses in the United States due to the real estate market collapse, is now banking on Asia to bolster its business. Yemen Plans to Approve Modified Investment Law: Salah al-Attar, head of the General Investment Authority (GIA) stated that the Yemen investment law was undergoing modification. The modification involved a decrease in income taxes charged on companies from 35% to between 15-20%, customs exemptions and the amendments of the General Investment Authority’s board of directors (now comprising 50% public sector employees, and remainder from the private sector). Indian Public Sector Banks Cut Rates: Indian banks have begun reducing deposit and lending rates after the Reserve Bank of India announced a 50 bps cut in repo and reverse repo rates. Three public sector banks viz., Bank of Baroda (PLR-12%, down 50bps), Union Bank of India (PLR-12%, down 50bps) and United Bank of India (PLR12.5%, down 50bps) have reduced their rates. The rate cut is expected to encourage banks to offer credit for productive purposes at feasible interest rates. However, private sector banks such as ICICI Bank and HDFC Bank have yet to decide on the rate cut.

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INTERVIEW

Interview Kalpesh Desai CEO, Agile Financial Technologies Kalpesh Desai, founder and CEO of Agile Financial Technologies, envisioned the creation of an unparalleled enterprise that would be a technology partner to leading players in the BFSI sector enabling business agility. He formed Agile FT by acquiring and merging strategic software products and technology companies in the space of software solutions, technology services, BPO and KPO. Kalpesh has over two decades of experience in spearheading technology companies to achieve and sustain a position of market leadership and organic growth. He has earned a reputation of creating and building successful, scalable enterprises by defining and converting corporate vision into strategic intent and coordinated action. A firm believer of producing results through people, he has attracted and retained talented people. He brings a deep understanding of businesses having held multiple roles in executive management, product development, operations management, sales and marketing management.

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The BFSI industry is in a challenged state today due to the global financial crisis. Where do you see the industry going from here? Those who fail to learn from past failures are bound to replicate it - the current state of the financial services sector is a perfect example. As past experience fails to guide future behaviour, banks and financial institutions across the globe find themselves unable to understand what actually happened. Overwhelmed by the sheer volume of lending activity, many banks opened themselves up to tremendous risk - for which they now are paying the price. The current crisis facing the global financial services sector can be attributed to the contracted liquidity in global credit markets and banking systems triggered by the failure of mortgage companies, investment firms and government sponsored enterprises which had invested in subprime mortgages. The crisis, which became more visible

INTERVIEW

throughout 2007 and 2008, has exposed persistent weaknesses in the global financial system and regulatory framework. We believe that the domino effect of what happened to subprime will now impact the prime markets. There will be further write downs in the global financial industry, with investment firms taking mark to market losses and banks writing off non-performing assets over the next quarter due to rise in unemployment, lay-offs and pressures due to recession in the most economies. In the new economy, nobody is isolated from the crisis and global liquidity contraction is bound to put pressure on financial institutions. The BFSI sector as we know it has changed its outlook significantly. Emerging markets will become the new powerhouse considering that these economies have worked under stretched circumstances already and are in a position to adapt to change quickly. Most emerging economies have also been more or less isolated from exposure to complex financial instruments like derivatives and have been investing in fundamental businesses.

been the primary challenges in addressing these opportunities? In the current downturn, BFSI companies have increasingly new roles to play. The institution with the ability to demonstrate responsiveness, turnaround times, transparent reporting and effective advisory services will be well placed to retain and attract customers. Insurance companies will see a demand in clients who have made investments desirous of securing their assets. Long term insurance (Life) is also expected to see an anticipated rise in demand. Cash is now King. Liquidity management is of paramount importance to institutions since their liabilities have typically shorter maturity periods than their assets. Banks facing a reduction in their depository base have been forced to leverage and any capital expenditure should be viewed with concern. The system is under pressure and financial institutions have new challenges in establishing a balance between growth and survival.

Institutions will be challenged to manage customer expectations, increased regulatory oversight, contracted liquidity and a deteriorating quality of assets all at the same.

Current IT systems that were deployed in the "good times" were designed to function and deliver to a context that perhaps isn’t relevant today. It is imperative that systems that focus on liquidity, capital conservation and growth of capital need to have deep functionality with extensive risk and limit management capabilities. Institutions will have to give a lot more focus to moving risk management upstream to their front office, and examine the possibilities of working with service providers who can undertake to manage their mid and back offices. This will allow customer centricity, product development, quality of assets and capital adequacy to come into focus and enterprise risk management will shift its role to bring about a tighter integration with the business. Do you think that even in the current downturn, possible growth opportunities exist for BFSI companies? What have

The differences between the business and the IT teams of the financial institution become more acute in these circumstances and the challenge is to ensure business agility in an environment that is straddled with inflexible applications, islands of information, multiple interface points, tedious product development, succession planning imperatives and lack of research. What kind of role do you think technology can play in addressing these challenges? In the current situation of global economic slowdown and liquidity crunch, a re-orientation of technology plans of banks and financial institutions has to take place which needs thorough preparation on the part of the institutions. Only that technology platform, which offers a low total cost of ownership, can contribute to business growth quickly, and which at the same time can help banks to reduce their regulatory compliance burden and costs, while improving their business processes, customer retention and growth, is

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INTERVIEW

likely to be considered in the short to medium term. Given the enormity of the crisis, risk management technology will be a key industry focus for the next three or four years. While firms have invested significantly in their risk infrastructure over the past 10 years, significant investment and modifications to the existing infrastructure will be made. To provide the chief risk officer with the appropriate risk infrastructure, firms will augment their Value at Risk (VaR) framework modeling to embrace scenario analysis. Enterprise risk management platforms will become the need of the hour as market, credit and operational risk management become more essential in running a modern financial institution. Diversified financial groups will revamp the way to look at customer centricity around their cash & liquidity management, mortgage finance, wealth management, asset

Financial institutions, across the world, are considering their competitive position, capital base, and growth prospects. management, broking and insurance services. Applications with deep functionality in these areas and the ability to be rapidly implemented will see more increasing demand. Two other key technology initiatives will become increasingly important as firms revamp their platforms. First, normalising and validating data across the enterprise will become critical. Grid, cluster and virtualization will become more common within as institutions look at consolidating their resources within a central processing platform. Secondly, institutions will look for technology partners who can service them holistically, instead of just software product vendors or point service providers. Margins for BFSI companies are under severe pressure today. How do you think this will impact their technology decisions? Banks, both small and large, are under tremendous pressure to tighten their financial belts. Consequently, they are considering efficient ways of managing internal costs, particularly with respect to their IT applications. As capital markets firms recede, reorganise, and seek safe harbours, IT spending and priorities are coming into focus. Financial institutions, across the world, are considering their competitive position, capital base, and growth prospects.

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Platform enabled outsourcing services is emerging as the definitive IT model for many banks as they strive to lower operational costs to ensure a high return on investment. This can be defined as the ability of an outsourcing vendor to provide its services around functionality rich application software platforms that are used for fulfillment and dissemination. Platform enabled outsourcing is likely to experience tremendous uptake in the coming months, especially in the wake of the current credit crisis. Financial institutions should, therefore, take advantage of the benefits that can be sought from this model in order to stay ahead of the competition and drive innovation. Do you see any particular trend in terms of business requirements from BFSI companies? Have you noticed any significant change over the last 5 years? An increasing number of financial institutions have been using the software as a service (SaaS) model. The financial services sector is one of the largest industry users of SaaS. However, most of the current financial services SaaS deployments are CRM applications. But in the wake of the current market scenario, large asset managers and brokers have been increasingly using certain types of non-CRM SaaS offerings. In the risk and compliance space, there has been an upswing for vendors offering hosted applications and financial institutions willing to use such services. SaaSdelivered risk and compliance applications include corporate actions, approval mechanisms for complying with customer regulations and anti-money laundering applications. Many large institutions are increasingly using SaaS for wealth management advisory functions; they take these on a need basis from large clearing providers and wealth management software providers. Such arrangements are a good fit for institutions that have agent networks of 10,000 or more financial advisors. IT managers of financial institutions also face innumerable challenges as business needs have been extremely defined, and existing systems that have been loosely coupled together are unable to cope with demands from business. Customers have become very demanding on security issues. Informed and tech-savvy customers expect financial institutions to handle remote deposits, nationwide ATM and debit card services, online banking and electronic bill payment from multiple physical and digital locations. As a result, fraud detection & prevention, regulatory compliance and ID & data security issues have become as mission critical for the CIO as managing the operations infrastructure. In the current economic scenario, financial institutions worldwide are opting for SaaS to reduce IT costs and predict their IT spending. Banks can reduce the total cost of ownership (TCO) for IT by outsourcing the hosting of applications. Through this, banks are able to significantly reduce the implementation costs which otherwise would have been higher for custom built solutions. Banks save on

INTERVIEW

time and money as most of the risks of selecting and implementing new applications are avoided.

outsourcing ourselves.

The decision to implement SaaS for small and medium-sized banks helps them to gain access to flexible software applications that they traditionally have not been able to obtain. SaaS enables banks to benefit from the highly specialised applications at minimum cost and maintenance fee. Smaller brokerages, fund managers and asset management firms have a much easier time integrating data from different applications with hosted services-oriented applications than their larger counterparts. SaaS also provides increased flexibility in responding to changes in demand as well as seamless product enhancements, thereby allowing financial institutions to concentrate on providing better customer service to their customers.

What are your plans for Agile FT over the near-to-medium term?

Corporate clients can also benefit from SaaS. Financial institutions offer online web-based cash management service to corporate treasurers which can help them to automate and consolidate their financial processes by having complete access and control of their financial activities through the bank’s online cash management tool. The biggest obstacle to SaaS in large firms is integration integrating hosted Web services with back-end data storage and legacy systems. Although SaaS offerings can integrate with other programs, they operate more efficiently when the data is in the SaaS provider’s data centre. Security is another issue to be dealt with. From Agile FT’s perspective, opportunities will span from the smallest and the most cutting-edge, to the largest and the most secure. During times of crisis, firms traditionally cut back on IT spend, centralise development and operations to cut down on redundancy and look to outsourcing to reduce cost and thus focus on core deliverables. Our delivery model will enable our clients reduce the cost of core technologies (traditionally provided by larger vendors) and cut back on newer, riskier technologies (traditionally provided by smaller vendors). CEO’s of financial institutions are taking the rein alongside the Chief Information Officer since the need of the hour is not just the technology required to run the business, but to step into identifying what needs to be centralised, outsourced and managed by an outsourcing service provider. Thus a change of mindset is in the air - towards the adoption of platform enabled services adoption. We understand that a certain loss of control and having a third party handle the IT infrastructure and the operations can be a little un-nerving for any financial institution. Hence, alongside the cost and time efficiencies and a pay-onconsumption pricing model that is simple and attractive, we differentiate our delivery model by basing the same on the foundation of operational risk management, thus innovating on how we deliver our software platform and operational

services, and creating a differentiator for

Agile Financial Technologies provides business enablement services wrapped around its software products platform. We service businesses of financial groups that focus on the conservation or growth of capital. Our software products run the core businesses of investment management firms, finance companies and insurance companies. We have the

A change of mindset is in the air - towards the adoption of platform enabled services adoption. ability to provide financial institutions not just the software, but managed services around their technology infrastructure and the ability to take on the outsourced functions of mid and back office operations. We have a distinctive advantage by uniquely being able to provide an integrated offering. Our focus in the near to medium term is to target emerging markets in Latin America, Africa, Eastern & Central Europe, Middle East, South Asia and some parts of APAC. We identify and enable partners to operate as extensions of Agile Financial Technologies and hence are able to garner market information quickly and rapidly and delivery locally. We are young, nimble and our agility is drawn from the years of experience that the constituent companies that have now become part of Agile Financial Technologies bring to the table. Our belief is that to better service our clients, we need to think, act and behave like them. We treat clients with the same deep respect that a financial institution would treat theirs. We deploy systems and build products with a focus on flexibility, adaptability to change, and most importantly usability. Our outsourcing process inculcates the same operational risk management parameters that an institution would look at whilst deploying its own central processing infrastructure. With a delivery model that seeks to differentiate itself from other service providers, and the ability to reach and service clients whose needs are very, very different in the emerging markets, we believe we will create a niche for ourselves in this industry.

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SOLUTION SPOTLIGHT

Cash is King! The success or failure of a financial institution is determined by its ability to remain liquid and yet prudently invest money and lend judiciously to make profits. Most financial services companies borrow short and lend long, and at the same time, must not remain too liquid because cash does not yield interest and resultant profits. Many have failed in the past because of irregular asset and liability management practices. A treasury function in a financial services company is in charge of raising finance for funding the business, taking care of short term cash management and managing liquidity required for operations. What the perfect system must do, therefore, is take into account the complex transactions that a treasury of financial services company performs in its lending and record and track these transactions. The system must also simultaneously keep track of the cash position and adequately provide for the day-to-day operations of the treasury and generate accurate and regular MIS reports for the management. All this must be done in a scalable fashion applying the mandated regulations that exist so that the cash ratios are maintained.

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iDEAL LIQUIDITY

The two keys to good liquidity management are: (a) to ensure that the regulatory norms of the country are adequately met, and (b) to ensure that treasury has a good technology system that can help them model scenarios and track transactions on a real-time basis. iDEAL LIQUIDITY from Agile Financial Technologies is a comprehensive straight through processing (STP) liquidity management system that integrates the front office, mid office, back office, banking and accounting processes of any bank. It comprises iDEAL FINANCE, ALM and Risk Management. iDEAL Finance helps banks in smoothly managing multiple outstanding loans or borrowings and generating future cash flows and MIS reports with minimal manual intervention. The Asset and Liability management (ALM) component manages exposure. The risk management component is designed to manage net worth by risk management, capital management and liquidity management. The solution covers the following base product classes, with scalability to handle new product structures as the market evolves:






Commercial Papers Deposits Term Loans Floaters Non Convertible Debentures

The key features of iDEAL Finance are that it can manage asset as well as liability products, supports multiple product structures, supports fixed/floating loans, simple as well as compounded interest payment, hybrid loans, options

SOLUTION SPOTLIGHT

Asset Liability Management The Asset Liability Management (ALM) solution from Agile Financial Technologies is comprehensively designed to manage intermediation risk and the net worth of the institution by tracking risk, liquidity and capital. It provides a complete and dynamic decision framework of measuring, monitoring and managing liquidity and interest rate risks by uploading enterprisewide asset and liability portfolios. In the normal course of operations, financial institutions are exposed to credit and market risk in view of the asset-liability transformation. They are required to periodically determine their own interest rate on advances and deposits, subject to the ceiling on maximum rate of interest they can offer on deposits, on a dynamic basis. Intense competition coupled with increasing volatility in the interest rates brings intense pressure on banks and financial institutions to maintain a good balance among spreads, profitability and long-term viability. The quest for profitability and sustenance exposes these institutions to several major risks - categorised as credit risk, market risk and operational risk - which emphasises the need to address these risks in a structured and comprehensive manner. It is important for financial institutions to base their business decisions on a dynamic and integrated risk management system and processes driven by corporate strategy. In this context, Agile FT’s ALM system is designed to serve as a central system for analysing, monitoring and simulating the balance sheet and aid in enterprise wide risk management.

(put/call), stubs, termination, transfer out, rollover and adjustment entries as well as ad-hoc principal repayments against outstanding contracts. The system supports multiple currencies and can provide dynamic generation of future cash-flows with an option to override. Most importantly, the software is flexible and easy to configure and has built-in features that take care of eventbased charge definition (stamp duty, brokerage, taxes) and charge on charge (taxes on brokerage, service tax). iDEAL Finance for liquidity management allows treasurers to transact in a real-time environment and generate meaningful reports relating to their transactions. The system has interfaces that allow upload, addition or modification of benchmark values and also to upload/store beneficiary positions for outstanding non-convertible debentures. Managing Loans and Borrowings

This is a crucial function of the treasury. Using the iDEAL Finance module, they can place and withdraw loans in full or part as well as track multiple linked loans. The system allows treasury function to generate and estimate future cash flows as well which gives them a forecast in line with the liquidity needs of the financial institution. The system also has a settlement book that maintains scheduled cash flow information. This allows marking cash flow as principal redemption, interest payment or brokerage payment as realised, redeemed either fully or partially, capitalised interest, realised schedules/unscheduled cash flows and calculate interest accrual and event based charges. Managing Banking & Accounting Transactions

The key features of the system include:

Data management module for integration with legacy databases and retrieval and processing of branch data.

The banking and accounting module helps in tracking appropriation, payments and receipts and provides a comprehensive and reconciled view of the accounts. The accounting engine can also be configured to generate vouchers and accounting statements as required.

Identifying funding gaps and estimating pre-payments.

Administering Users

Standard analysis for assets, liabilities and integrated ALM analysis.

iDEAL Finance allows for easy administration of users through a centralised console. Every user has a secure and unique login id to the system and access to the system is defined based on his function, role, and authority in the organisation.

Comprehensive reporting and analysis.

‘Interest Rate Sensitivity’ and ‘Net Interest Income’. Facility to bucket non-performing assets as per the guidelines set by the regulator.

Generating MIS Reports

Enhanced risk management functionalities via analytical techniques like duration gap analysis and market value calculations.

iDEAL Finance has the ability to intuitively generate a variety of reports that are required by different executives in the management from time-to-time.

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PARTNER SPOTLIGHT

Making Strides in West Africa A listing of key Agile FT partners from West Africa Finance Application Systems Limited www.fasylgroup.com

Finance Application Systems Limited (FASYL), a Nigeriabased information technology company, was founded in 1998, and primarily offers specialist support services for enterprise and finance applications & software systems within areas of product sales, implementation, support and training. In addition to this, FASYL also provides consultancy services for the finance and telecom industries. While the company’s operations extend across Asia, Africa, Europe and the UK, its main focus is primarily pan-Africa. FASYL also has offices at Mauritius (slated to become the future group headquarters), Nigeria (to become a regional office), Ghana, Sierra Leone, South Africa, UK and India. The company, which currently has a staff strength of 120, also plans to set up offices at Cote d’Ivoire, Kenya and Angola in 2009. Key Clients

FASYL’s clients include Union Bank of Nigeria, Access Bank, Intercontinental Bank, Diamond Bank, Skye Bank, Ecobank Group, Sierra Leone Commercial Bank, First Securities Discount House Limited, NEXIM Bank, United Bank of Africa, First Bank, Bank PHB, Fidelity Bank and Spring Bank.

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Bade Aluko, Managing Director, FASYL, shares his thoughts with Agile Financial Times: What is the strategic rationale of your partnership with Agile FT? Agile FT follows a proactive approach while meeting customer needs compared to other partners who follow a reactive approach. They have a high level of responsiveness to the company expectations as well as the customer demands. In addition, Agile FT provides a suite of products and services that complement our current offerings and enables us to meet customer requirements. With the current economic scenario, what will be the impact on partner relationships? The current economic downturn is not going to significantly change the role of partners. Partners with a long term view survive an economic crisis as their prime focus is not only to have quick profits, but to align goals with the partner company in order to meet customer expectations. Thus, I believe that short term partners will perish whereas long term partners will continue to service the clients effectively.

PARTNER SPOTLIGHT

The financial services industry is undergoing a change; how will this affect client requirements and buying decisions? Banks are undergoing change due to the customer demand for better and faster banking services. There is significant competition amongst banks and hence they have to rely on technology to gain a competitive edge. Customer expectations are increasing manifold. The nature of services demanded by banks is changing drastically from the manual mode to a technological platform where banks are competing to provide faster and improved service to its clients. Similarly, the changing banking services are giving rise to a need for newer and better technology platforms to meet the changing customer needs.

ExpertEdge Software & Systems Ltd www.cwlgroup.com/ee

ExpertEdge Software & Systems Limited looks at Agile FT’s iDEAL suite of investment & banking solutions. Its business focus includes software development & deployment, systems analysis, design & implementation and smartcard applications. In-house expertise of providing implementation, support and training was the key reason for Agile FT to choose ExpertEdge to provide first level support to its customers in Nigeria. ExpertEdge Software & Systems Limited, headed by James Agada, is the software subsidiary of the Computer Warehouse Group, one of the fastest growing IT companies in West Africa today. Computer Warehouse Group (CWG), an information and communication technology company, provides integrated solutions to its clients. Apart from ExpertEdge, the group consists of two more subsidiary companies: Computer Warehouse Limited (provides supply and maintenance of computer hardware and ancillary equipment) DCC Satellite & Networks Limited (offers VSAT, metropolitan area network, wide area network, systems integration and network monitoring and management solutions). The company also provides training to IT professionals through its ExpertEdge Training Centre. The primary industry verticals serviced by the company include banking and telecom. Key Clients

A partial list of key clients includes First Bank of Nigeria, Union Bank of Nigeria, Nigeria Aviation Handling

Company, African Petroleum, Adeniran Ogunsanya College of Education, Ghana Telecom, British American Tobacco, and Multilinks. Besides Agile Financial Technologies, they work closely with Infosys Technologies and Oracle.

Pacific Solution and Technologies www.pacificsolutiontech.com

Pacific Solution is a system integrator founded with an objective to provide solutions to West African countries. The company provides hardware, security, software and communication services to its clients. Pacific Solution is essentially the information technology arm of the Budhrani Group of companies, which has a global presence. The company has offices in Nigeria, Ivory Coast, UAE (Dubai), UK, Malaysia, Singapore, Indonesia and India. The key industry verticals serviced include banking, insurance, internet service providers, telecom operators, government and corporates. Key Clients

Pacific Solution’s clients include Sterling Bank, Royal United Nigeria, Mikano International, Jubilee Brothers, Somotex Nigeria, Critical Rescue International, Reliance Textile, Millenium Furnitures, Hansbro Group, Park n Shop Retail, MTN Nigeria, Multilinks Telecommunications, GLO Mobile, Celtel, Lagos Metropolitan Area and Transportation Authority, Nigerian Postal Service, Industrial General Insurance, Linkage Assurance, Unic Insurance, Michael Stevens Consulting and Standard Life Insurance. Jeetu Hira, Head - Pacific Solution, speaks with Agile Financial Times: In what areas of business and technology do you share a partnership with Agile Financial Technologies? Pacific Solution and Technology is representing Agile FT for their Insurance application. We are offering to the market both, the product as well as the outsourced model of Agilis, the Insurance suite from Agile FT comprising Life, NonLife, Health, Takaful, BancAssurance, Broker among others. What is the key benefit of this partnership and how has it impacted the way in which you service your clients? There is a long standing relationship between the management of Pacific Solution and Technology Limited and that of Agile FT. We are bringing a blend of both, the domain knowledge of Agile FT, and the geographic and the vertical industry knowledge of Pacific Solution and Technology.

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CUSTOMER SPOTLIGHT

Leading Asset Management Company Selects Agile FT One of the fastest growing and largest mutual fund company in India that is part of a large Indian conglomerate chooses iDeal Funds from Agile Financial Technologies.

The Asset Management Company (AMC) offers investors a well-rounded portfolio of products to meet varying investor requirements and has a presence in 120+ cities across India. A key business driver for the fund manager is the company’s constant endeavour to launch innovative products and provide proactive customer service to increase investor value. In line with this philosophy, the AMC wanted to automate its asset management operations, achieve seamless integration across the front, mid and back-office, offer a comprehensive range of fund management products to suit the investors’ needs and inclinations and provide exposure to multiple asset classes like equity, bonds, mutual funds, deposits, equity derivatives and interest rate derivatives as also commodities like gold. More importantly, the fund house also wanted to maintain a strict vigilance on limits and exposures in line with its internal governance requirements as well as in keeping with the norms of the securities exchange regulator. In this context, India’s top Asset Management Company chose iDEAL Funds from Agile Financial Technologies to manage its funds and investor portfolio. Apart from more than adequately meeting the requirements of the fund house, iDEAL Funds was also identified as a platform to handle huge transaction volumes and cater to the large investor base of the fund. In addition, the system integrated with third-party price feed systems to provide valuation across markets, and also with register and transfer (R&T) platforms, business intelligence systems, equity straightthrough-processing and custodial files. iDEAL Funds generates timely and key management reports and has a biometric scanning security system for users. Most importantly, the system has proved to be resilient and scalable and hence supports the organisation’s expansion and growth strategy.

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www.agile-ft.com

Agile Financial Technologies Pvt Ltd 701-A, Prism Towers Mindspace, Malad (West) Mumbai 400064 India Tel : +91-22-42501200 Fax: +91-22-42501234

Agile Financial Technologies 808-A, Business Central Towers TECOM, Dubai Internet City P.O. Box 503007 Dubai United Arab Emirates Tel: +971-4-4331825 Fax: +971-4-435-5709

Agile Financial Technologies Pte Ltd 20 Cecil Street, #14-01 Equity Plaza Singapore 049705 Tel: +65-64388887 Fax: +65-64382436

Views expressed in this publication do not necessarily represent the views of Agile FT and the information contained herein is only a brief synopsis of the issues discussed herein. Agile FT makes no representation as regards the accuracy and completeness of the information contained herein and the same should not be construed as legal, business or technology advice. Agile FT, the authors and publishers, shall not be responsible for any loss or damage caused to any person on account of errors or omissions.