Investec Bank Enhances Credit Risk Operation

SOUTH AFRICA--Investec Bank, a specialist banking group based in South Africa, is beefing up its internal credit risk controls with the installation of RicosWatch, the credit risk software solution from Toronto-based Algorithmics. Risk managers will use RicosWatch in conjunction with RiskWatch, Algorithmics' market risk engine, for an integrated view of the risks associated with Investec's proprietary trading and banking activities, says a bank source.

Credit risk management is quickly becoming a more integral part of Investec's risk management solution as it increases its dealings with institutions of emerging market economies, adds another bank source.

The combined solution will integrate two of the six divisions that constitute group risk management at Investec, says a bank source. The other risk units are asset/liability management (ALM), operational risk, legal and compliance, adds the source.

Details of the RicosWatch implementation are still in the process of being finalised, says the source. Although the installation plan is aggressive, Investec is currently at the first phase--the proof of concept phase.

Investec will next complete a vanilla implementation of Ricos Watch before integrating the system with RiskWatch for a combined market and credit risk management solution, says the source.

The installation is then slotted for a global rollout. Investec has acquired several discount-trading firms in South Africa and the UK in recent years, as well as London-based Hambros PLC and small brokering operations in New York and Sydney.

In the future, Investec may consider using Algorithmics technology in its ALM group, to complement current methods used, says the source, though no plans are being formulated at the present time.

Currently, the ALM group relies on more traditional methods for interest rate and liquidity risk management, such as gap analysis, says the source.

The source adds that it will be difficult to make a mental shift from accrual-based accounting methodology used in ALM, to the consideration of interest rate and liquidity risk in terms of present value. However, the source says a VAR figure for these risks would add a meaningful dimension to risk analysis.

Another source says RicosWatch was selected for credit risk measurement because it performs credit exposure calculations in addition to credit limits management. Because it supports credit limits and exposure management, RicosWatch beat finalist Global Manager from the UK's Midas-Kapiti International (MKI).

Industry observers note MKI's parent company, Misys, recently acquired Cats software to fortify its limits management solution with Cats' robust Monte Carlo credit exposure calculation engine, Carma. The products will be grouped under MKI Risk, the new risk division of MKI (RMO, February 8).

--Adriana Saraceni