As the fallout from the credit crisis continues to wreak havoc on balance sheets and new credit and market risks continue to lurk around every corner, the need for accurate risk management systems has never been more apparent. And Fermat has won its clients' trust by delivering customised solutions, targeting a range of highly relevant risks and providing skilled support throughout the financial market turmoil.

"Rather than delivering a standard product, Fermat seems to focus much more on continuous development and client interaction," says Mark Wright, head of the asset and liability management (ALM) support group at Standard Chartered in Singapore. "They appear to be as interested in improving their methodology as they are in the commercial development of the products and have continued to accommodate our needs and develop different functionalities, even after the contractual obligations were fulfilled."

And despite being best known for its regulatory capabilities, Fermat has shaken off its image of being chiefly a Basel II services provider, demonstrating its worth as a provider of economic analysis tools, such as profitability analysis, capital allocation and the impact of simulations on capital ratios. "We realised early that it might be a challenge to convince new customers in Asia that we have strong capabilities in areas other than Basel II," says Mike Hall, head of strategic product marketing at Fermat's head office in Brussels. "Fermat has other strings to its bow - the first contracts we signed with large banks were as early as 2002 for ALM and limit monitoring."

This expertise enabled the company to respond quickly to changing customer requirements, as the effects of the credit crunch mounted. "We've seen a lot of our customers moving very quickly from a purely regulatory, Basel II-driven approach to more economic approaches, such as profitability analysis, capital allocation and the impact of simulations on their capital ratios," says Imad Abou-Haidar, Asia-Pacific director at Fermat in Singapore.

Fermat has also launched products to better serve the needs of large market participants in Asia in the past year. Early 2008 saw the launch of its risk-adjusted performance management (RAPM) product, which offers profitability and performance analysis features and a built-in cost allocation engine. The product was initially designed for Standard Chartered in 2006.

"At the time, Standard Chartered's team in Singapore was selecting a Basel II RWA (risk-weighted assets) calculation and capital adequacy reporting tool, and we needed to demonstrate that we could meet its requirements for business and client profitability reporting," says Hall. Fermat built the first version by extending its data model and credit risk engine to take into account specific features of profitability and performance reporting and also built a cost-allocation engine, he says. The vendor has since launched the forecasting part of RAPM as a stand-alone product in early 2008 with HSBC.

It has also developed scenario-analysis features for forecasting risk-adjusted performance under changing business conditions, particularly concerning stress testing of capital-resource requirements.

Meanwhile, Fermat has adapted some of its products to meet Asian market requirements. Its Basel II solution, for example, can handle calculations at national discretion, as well as supervisor-specific reporting for capital adequacy. The product has also been adapted to respond more quickly and accurately to market developments - that is, on a daily or weekly basis, rather than monthly or quarterly, as had previously been the case.

Client feedback has, again, been very positive. "Fermat engaged itself in this region earlier than other vendors and has attracted a very strong client base, which is partly what attracted us," says Simon Ng, manager of the Basel II project at Bank of China (Hong Kong). "The product itself is simple yet effective and saves us a lot of time and effort. And while the implementation of the system has been slightly more challenging, Fermat's consultants are highly skilled and have ensured the system went live within the stipulated 12 months."

Moreover, Fermat has tweaked its ALM product to account for different banks' and countries' liquidity risk measurement requirements. "Liquidity is a key theme at the moment, and we requested functionalities to enhance our stress-testing capabilities," says Standard Chartered's Wright. "While these weren't originally built into the product, Fermat developed a customised script to achieve everything we needed, parts of which were subsequently incorporated into its next product release."

The result is an ALM product that allows Standard Chartered to profile its banking book for interest rates and liquidity with greater precision. "The technical performance of the system has exceeded our expectations, and, due to the design, we have seen minimal degradation of the process with the increased load of daily reporting," says Wright. "It has maintained its original efficiency and, from that perspective, proven to be exactly the high-performance solution we were looking for."

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here