![]() ![]() At the other end, vehicles not covered by insurance could also affect the company’s loan book. In fact, both of these events occurred in the closing months of 2014.Ĭustomers are serviced annually by BMW Financial ServicesĪt one end of the spectrum, another global economic crisis would have a dire effect on customer credit. The firm wanted to be able to model for difficult-to-predict, high-impact events, such as a sudden depreciation of a major currency or a slump in oil prices, which can have a major effect on sales. Threats mainly relate to residual value risk – the gradual depreciation in the value of vehicles with attached loans and lease contracts – and risks relating to customer creditworthiness, interest rates and liquidity. The captive’s product range may be less complex than traditional financial institutions but, with nearly EUR 100 billion on its balance sheet and operations in many countries, its risks are comparable. The captive bank has since built an integrated model around return on risk-adjusted capital (RoRaC) to create a better balance between profit and risks. Until that point, the firm’s risk-steering model mainly focused on growing top-line returns. A perfect storm of low oil prices, looming recession and Western sanctions sent the currency plummeting, and some automotive firms had difficulty pricing cars and making money in the usually lucrative Russian market.įacing many of the same threats to growth as other global financials, and bound by equally stringent banking regulation, it is easy to see why the captive finance arms of multinational car makers need to evolve their risk capabilities along with their product ranges.īMW Financial Services decided to put themselves in the driving seat in 2008, at the height of the financial crisis, recognising that a more harmonised data approach was essential in order to better manage risk and accelerate growth. In the closing months of 2014, a number of global car manufacturers were forced to stop taking orders or to downgrade sales forecasts for Russia in light of the volatile political situation and the collapsing rouble. Creating a central data repository is not a simple thing, but it is the only way to give management that all-important holistic view of operations, whilst satisfying regulatory demands and playing well to credit risk agencies.A harmonised and integrated approach to risk reporting can improve decision-making through better understanding of market trends on the up and downside.An effective risk capability is a critical platform in a financial organisation and must be managed beyond compliance requirements.Technology Due Diligence and Technology Vendor Due Diligence. Building credit risk engine software#
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