Westpac Centralizes Its Back Office Processing In Sydney

WESTPAC Banking Corporation is nearing the end of a project to centralize its global back office trade processing operations at its Sydney headquarters.

Bank officials say this centralization initiative will aid Westpac's risk management efforts by streamlining its back office processing, reducing errors and cutting costs.

The bank also plans to upgrade its global credit and market risk management systems. Westpac will deploy GE Information Services' RXM system for counterparty credit risk management. Market risk will be supported by another vendor-supplied application.

Westpac has trading rooms in Sydney, Wellington, London, New York, Tokyo, Hong Kong and Singapore. All of these offices are affected by the bank's decision to centralize its back office processing in Sydney.

David Issa, head of technology at Westpac's institutional banking group, says the bank started its centralization project just over two years ago, and is now close to finishing the effort.

"We have a 24-hour operation here in Sydney that does the settlement accounting for the globe," says Issa. Westpac trades in foreign exchange, fixed income and interest rate derivatives markets, he adds.

Sydney currently handles around 80 per cent of the bank's back office processing. That figure will go up to 90 per cent before year end, says Issa. The remaining 10 per cent will be transferred to Sydney during the second quarter of next year. This final piece includes general ledger items such as the bank's corporate loans.

Using Sydney as a hub for Westpac's global back office will reduce the bank's costs, says Issa, allowing it to service customers better "through a lower cost base".

Putting back office operations in Sydney will also simplify Westpac's operational risk management, he adds, since all the bank's trade data will be housed in one place.

Data consolidation

"We're actually consolidating all the data that we have globally in Sydney -- so getting to it is obviously a lot easier than when it's all remote," says Issa.

Trade processing for Westpac's London and Tokyo forex desks was recently moved over to Sydney (FX Week, September 30). The bank's New York forex trading desk will follow suit over the next few months.

Westpac also plans to conduct all its trading under the name of Westpac Banking Corporation Sydney. Issa says this switch to single-name dealing is primarily for legal and tax purposes.

The bank's London-based forex group is already booking its trades under the Sydney name, he adds. The New York forex and global derivatives groups will follow shortly.

Sydney holds not just trade information but also the local management information systems that previously resided in the bank's branch offices.

Westpac is now consolidating these disparate MIS systems into a single global MIS system that runs under Sybase's relational database management software.

These local MIS databases were originally housed on various database software products, including those from Oracle and Sybase. Sybase is now Westpac's standard database architecture, says Issa.

RXM rollout

Westpac's risk management initiatives don't stop at operational issues, however. The bank has also recently announced plans to use GE Information Services' Risk Exposure Management (RXM) service to monitor its global credit risks in real-time.

RXM replaces GEIS's older Global Limits System (GLS) at Westpac. GEIS originally developed GLS together with Westpac some 20 years ago.

Issa says Westpac is switching from GLS to RXM in order to take advantage of RXM's increased functionality, newer technology platform and resultant lower running costs.

He names close-out netting as something Westpac wants to develop further using RXM. "Close-out netting is something that we've been trying to work on with the old system," says Issa. But he adds that GLS is "very costly and expensive to change", while RXM is "more easily adaptable to changes".

The bank will start using RXM next year, initially to replace its existing credit monitoring functionality on GLS. Once that is achieved, elements like netting and close-out netting will become more of a focal point.

All Westpac's trading desks will be linked to a GEIS site in Amsterdam that receives and caches the bank's counterparty credit information, says Issa.

Bank traders use the real-time elements of GLS to check credit limits before actually conducting a trade, says Issa. GLS is connected to Westpac's four-year-old front office trading platform, a proprietary application that runs on IBM's OS/2 operating system.

Other options

Westpac considered developing its own credit risk management system and also evaluated other third-party systems before choosing RXM. Issa declines to name those other vendors.

Issa cites another key difference between the two credit risk systems: GLS is mainframe-based, whereas RXM uses a combination of client/server architecture and mainframe technology.

This hybrid architecture makes RXM less expensive to run, he says. Moreover, GEIS charges for RXM on a per-transaction basis -- Westpac believes this pricing structure will reduce the bank's costs, allowing it to pass savings on to its customers, adds Issa.

The RXM installation at Westpac will involve moving parts of GEIS's credit reporting functionality off its mainframe and onto Unix workstations and PCs, says Issa.

This will allow Westpac to run its credit risk reports from a single PC based in Sydney. "You download all your data from the mainframe and then you're able to generate as many reports as you would like off your database," says Issa.

Market risk system

On the market risk management front, Westpac currently relies on an internally developed system. However, the bank has started implementing a new vendor-supplied market risk application, which Issa declines to name. He adds that Westpac is writing a letter of intent and looking to finalize contracts soon.

Alan Rouselot, GE Information Services' general sales manager in Australia, says GEIS is finding that banks in the Asia/Pacific region are being pushed by regulators and market forces to increase their credit risk monitoring capabilities.

"In Australia, the banking system is moving towards intraday settlements, which again puts more pressure on monitoring risk," says Rouselot. Australian banks previously settled transactions at the end of each trading day, he adds.

Other global RXM clients include: ANZ Bank (Derivatives Engineering & Technology, June 12, 1995), Canadian Imperial Bank of Commerce (DE&T, July 10, 1995) and Hypo Bank (RMO, April 8).

Separately, GEIS has announced a partnership deal with Cambridge-based Brady (see separate story, this issue). Brady will supply GEIS with a version of its Trinity Riskmetrics value-at-risk module -- thus adding market risk management functionality to the RXM service.