Banking Sector Risk Consulting - pkcadvisory.com Advisory_… · Banking Sector Risk & Control Service Offerings 1. Risk Appetite Framework 2. RAROC Framework 3. ICAAP & Stress Testing

Banking Sector Risk Consulting

2PKC Advisory

PKC Advisory – An Overview

3PKC Advisory

PKC Advisory – Differentiated Value Proposition

Incepted in Kuwait and focused on the MENA region, we offer a breadth of

regional experience. We have executed 700+ assignments for 100+

clients in the region

Regional

Experience

Having worked with numerous clients across sectors, we offer a depth of

operational expertise. Our long term engagement model ensures that we

are part of client teams and support them in implementation and execution

Deep Operational

Expertise

Our advisory services are focused on helping clients make informed

decisions and perform better through people, process and

procurement related improvements. We also provide innovative solutions

with our alliance partners

Complementary

Service Offerings

Our service offerings and deliverables are tailor made to meet the specific

needs of individual clients. We work collaboratively and enhance client

capabilities through effective knowledge transfer

Customized

Approach

Our robust governance, standardized procedures and control mechanisms

lead to increased efficiency and ensure delivery of the highest quality

with utmost speed to our clients

Robust Governance

& Controls

Our unique onsite-offsite model, allows us to hire the best talent from

globally recognized institutions and organizations, offer offsite execution

prowess and pass on the cost arbitrage and productivity gains to our clients

Competitive

Positioning

Banking

Sector Risk

& Control

Service

Offerings

5PKC Advisory

Banking Sector Risk & Control Service Offerings

1. Risk Appetite Framework

2. RAROC Framework

3. ICAAP & Stress Testing Framework

4. Early Warning Indicator Framework

5. Scenario Analysis & Modeling

1. Preparation of Management Reports & Board

Risk Packs

2. Credit Analysis & Appraisal (incl. Credit Memos

and Moody’s Risk Analyst Spreading)

3. Regulatory Reporting & Impact Assessment

4. Automated & Interactive Management

Dashboards through Business Intelligence Tools

A. RISK IDENTIFICATION,

ASSESSMENT & MEASUREMENT

B. RISK MONITORING &

REPORTING

1. PD, LGD, EAD Model Development

2. Development of Credit Scoring Models

3. Regulatory Analytics including IFRS 9 and BASEL

Models

4. Gap Analysis, Calibration and Validation of

existing Models

5. Documentation Support

1. Enterprise Risk Management (ERM)

2. Risk & Control Self-Assessment (RCSA)

3. Development and Review of Key Risk Indicators

(KRIs)

4. Development and Benchmarking of Policies &

Procedures

5. Testing of Controls for Design and Effectiveness

C. RISK MODELING & ANALYTICS D. RISK & CONTROL SOLUTIONS

6PKC Advisory

Determination of Risk Appetite

in-line with Global Best

Practices

Risk Appetite Framework

▪ Internal

− Bank’s Positioning

& Business Model

− Risk Identification &

Assessment

− Risk Register

▪ External

− Macroeconomic

Outlook

− Shareholders’

Expectations

− Rating Agency

Expectations

− Central Bank

Requirements

− Peer Benchmarks

Assessment of

Internal/External

Drivers

Risk Preferences, e.g.“Lending is at the core of

our business model. We continue to be

selective in our credit decisions with emphasis

on credit quality”

Risk Appetite Tolerance Statements and

Metrics, e.g."Average costs of credit in the

lending book should not exceed X%"

Limits Framework, e.g. "Average costs of

credit for portfolio X should not exceed Y% "

Defining Risk Appetite Statements,

Metrics, Limits

Revision of Management/Board Risk

Dashboard to incorporate Risk

Appetite, including key Trigger Points

Development of

Governance Manual

Breach Escalation and

Mitigation Plans

Annual /Periodic Review

Process for incorporation of

Risk Appetite into Strategic

Planning/Budgeting Process

Roles & Responsibilities of

Internal Stakeholders

Risk Appetite Framework Development Approach

Process for incorporation into

Strategic Planning/Budgeting

Process

1 2 3

A comprehensive Risk Appetite Framework has proven to be a key instrument in defining the operational boundaries for Banks

which helps to align their strategy, capital allocation, and risks. PKC Advisory helps its clients in development of a robust Risk

Appetite Framework in-line with the global best practices. The various components of a typical Risk Appetite Framework

development assignment are :

RISK IDENTIFICATION, ASSESSMENT & MEASUREMENT

7PKC Advisory

RAROC Framework

We, at PKC Advisory, support our clients in development of complete RAROC Framework in-line with Industry best practices.

Key components of PKC Advisory’s engagement are depicted below.

Key Benefits

Comparison of Profitability

across BUs, RMs, Branches

Risk Adjusted Loan Pricing

Loan Structuring (e.g.

Collateral Coverage)

Accept/Reject a Proposal

RWA Optimization

▪ Defining RAROC

Calculation

factoring in

Revenues, Costs,

ELs, RWA etc.

▪ Defining

Methodology to

ascertain Hurdle

Rates at

Bankwide, BU or

Customer level

▪ Development of

RAROC Reports at

Bankwide / BU /

Branches / RMs /

Customers

▪ Devising Customer

Level RAROC

Calculator

▪ Incorporation of

RAROC Targets in

Strategic Planning

Process

▪ Clearly Defined

Guidelines for

Hurdle rate

Calculations,

Reporting,

Proposal

Evaluation etc.

▪ Roles &

Responsibilities of

Various

Stakeholders

▪ Preparation of Initial

RAROC Reports

▪ Training and

Handover to Internal

Team

▪ Roadmap /Support

for further

embedding into

Performance

Management &

Policies

1 2 3 4

Overhead Expected Loss

Regulatory Minimum CapitalNet Income

RAROC

Asset & Liability

Spread

Post financial crisis, the importance of efficient capital management & conservation has increased manifold. As a result, Banks

and Financial Institutions globally are increasingly using risk-sensitive measures & frameworks to maximize shareholders’ value

and optimize capital usage. Risk Adjusted Return on Capital (RAROC) is accepted globally as a unique risk adjusted profitability

measure for capital management as it integrates Revenues, Costs, Expected Losses (EL) and Risk Weighted Assets (RWA).

PD, LGD, EADCost AllocationThird Party rate &

FTP

Taxes

Hurdle Rate

Economic Value Added (EVA)

Fee Income

Development of

Policies & Procedures

Implementation

Support

Devising ToolsDetermination of

Measurement

Methodology


8PKC Advisory

ICAAP and Stress Testing Framework

Assessment of Material Risks

▪ Study of Bank’s Business Model

▪ Identification of Material Risks

Development of

Measurement Approach

▪ Study of available Data

▪ Ascertaining

Computational Approach

Measurement of Stress Variables

▪ Ascertaining Mild, Medium and Severe

Stress Scenarios

▪ Determining Stressed Values

Risk Modeling

▪ Development of detailed Model

▪ Calculation of Base and Scenarios Results

▪ Submission to Management & Regulator

Development of Governance

Framework

▪ Roles & Responsibilities

▪ Risk Materiality Assessment

▪ High Level Mitigation Plan

▪ Independent Review

▪ Monitoring & Reporting

Regulatory Reporting Support

▪ ICAAP & Stress Testing Document

▪ Management Dashboard

1

2

3

4

5

6

A Bank must have an Internal Capital Adequacy Assessment Process (ICAAP) and Stress Testing Framework for development

of a robust risk and capital management process. This Framework helps the Banks in determining an appropriate level of

capitalization over the minimum regulatory capital under various stress scenarios. It is based on their respective business

models and risk profiles.

We at PKC Advisory offer customized and integrated solutions to develop robust ICAAP and Stress Testing Framework which

ensures that the Bank possesses sufficient internal capital for meeting various risks. Key components of our service offerings

include –


9PKC Advisory

Evaluation of Behavioral and Transactional customer level data

available through Core-Banking and other systems

Complex Statistical Modeling to identify significant variables and analysis

Development of scorecard to identify vulnerable customers

Preparation of automated Dashboard Toolkit for proactive monitoring

Roadmap to enhance Application Models

Assessment of the Bank’s Business & Financial Position and geographical

location

Ascertaining Bank and Business Unit specific leading risk indicators across

Risk Dimension

Benchmarking of identified indicators

Development of content rich Management Dashboard

Implementation support in terms of manual development, handover etc.

Bankwide and

Portfolio Level

Indicators

Customer Level

Indicators

Early Warning Indicators Framework

Development

of Early

Warning

Framework

The credit and investment losses for Banks across the world increased multiple times after the financial crisis. As a result of that,

Board Risk Committee, Management, Rating Agencies and Regulators are increasingly focusing on the Bank’s ability to predict

potential losses due to global & regional macro-economic/ sectoral trends and customer centric characteristics.

At PKC Advisory, we have the required key skills and competencies needed to identify, evaluate and measure Early Warning

Indicators (EWI) and develop a robust and sophisticated framework to help initiate preventive measures timely and minimize the

potential losses.


10PKC Advisory

Scenario Analysis & Modeling

PKC Advisory, helps its clients to meet these emerging challenges by developing a flexible, consistent and robust framework for

scenario planning. Key components of such framework in depicted below:

Why Scenario Planning?

▪ Heightened regulatory scrutiny – which is likely to escalate further

▪ Management focus to develop additional broad-based stress-testing capabilities

▪ Need for evaluation of core capitalization, funding & liquidity risks sensitivities

▪ New accounting, capital and data requirements

Modelling the Impact

Application of Output

Scenario Analysis and Modeling

AnalyticsInputs

Draw a Coherent & Plausible

Theme based on Expected

Evolution of Events

Develop

Scenarios

Identify key Variables; Gauge their

Interdependence & Impact on

Bank’s Cash Flows

Selecting

Key

Variable

Determine Impact on P&L, Balance

Sheet & Critical Regulatory Ratios

Develop

Analytical

Engine

Review Model Governance, Theory

& Techniques, Key Assumptions,

Data Integrity etc.

Validate

the

Models

Defining Parameters

Economic Activities:

▪ Macro Economic Possibilities

▪ Economic “Shock” Impacts

External Changes:

▪ Regulatory Initiatives

▪ Market Dynamics

Market Events :

▪ Key Markets/Sector Slowdown

▪ Volatility in Specific Areas

Internal Sensitivities:

▪ Known Concentrations & Issues

▪ One-off Events

▪ Ensuring Appropriate Capital Levels

▪ Facilitating Capital Allocation

▪ Linkage of LRP & Budget for Proactive Decision Making

▪ Ensuring all Regulatory Requirement Met

▪ Input to Risk Appetite Dashboard and Limit Setting

▪ Reporting of Output to External & Internal Stakeholders

Capital

Management

Strategic

Planning

Regulatory

Compliance

Risk

Appetite

Reporting


11PKC Advisory

Preparation of Management Reports & Board Risk Packs

Risk Reporting Packs often lack objective information and conclusions leading to delayed decision making and escalation of

risks. We at PKC Advisory assist in appropriate structuring of Risk Packs to clearly depict the big picture by capturing all top and

emerging risks upfront. With this, Board and Management can save the time spent in wading through unnecessary details and

systematically focus on critical information and core risks.

Additionally, PKC Advisory can set up a dedicated offshore team to support in preparation of comprehensive Risk Information

pack covering all risk dimensions across Credit, Market, Liquidity, Capital, Operation, Information Security, Anti-money

laundering etc.

Below are the key components of PKC Advisory’s service offering -

▪ Assessment of existing Risk Reporting

Packs

▪ Understanding expectations and pain

points of Stakeholders

▪ Development of Structure and Templates

covering below aspects

- Key Conclusions and Emerging Risks

- Top & Accepted Risks

- Stress Test Results, Risk Appetite

- Review of each Risk Function

▪ Preparation of revised Risk packs

▪ Preparation of Process Mapping and

Responsibilities Matrix

Comprehensive Risk Information Pack

covering below mentioned aspects –

- Detailed KPIs and Commentary

across Credit, Market, Liquidity,

Capital, Operation, Information

Security, Anti-money laundering etc.

- Details pertaining to key Early

Warning Indicators

- Risk Appetite Reports including

Breach and Potential Remedial

Actions

- Scenario Analysis / Stress Testing

Reports

- Risk Adjusted Return On Capital

(RAROC) & Economic Value Added

(EVA) Reports

Enhancement of Management Reports

& Board Risk PacksPreparation of Periodic Reports with

Dedicated Offshore Team

RISK MONITORING & REPORTING

12PKC Advisory

▪ Detailed evaluation of existing memos

▪ Benchmarking with best industry

practices

▪ Recommending key Structural, Content

and Analysis related Improvements

▪ Preparation of Sample Memos based on

recommended approach

▪ Development of user guide covering

details pertaining to each section of

Memo & MRA Spreading

▪ Conduct Onsite Training Sessions for

RMs / Financial Analysis Unit or through

Online Modules

Credit Analysis and Appraisal

▪ Update of Memos for renewal or increase

in credit facilities for existing customers

▪ Memos for prospective customers

▪ Update of Financial and Non-Financial

information in MRA

▪ Update in MRA (Quarterly / Half yearly

Financials)

▪ Update of Qualitative details including

Financials, Management, Company

Standing, Industry Risk etc.

▪ Update on significant developments

Training of

Bank Staff

Regular Credit

Monitoring

of Customers

Preparation of

Memos with

Dedicated

Offshore Team

Enhancement

of

Credit Memos

As Credit risk forms the biggest risk in a banking book, effectiveness of Credit risk identification capabilities of the Management

are often judged with robustness of Credit appraisal process of the bank. We at PKC Advisory assist our clients by setting-up a

dedicated offshore team to prepare Credit Assessment Memos in-line with Industry best practice and financial spreads in

Moody’s Risk Analyst (MRA) system.

Key components of our service offerings include:-


13PKC Advisory

Regulatory Reporting and Impact Assessment

Ever increasing capital adequacy and liquidity requirements have forced Banks to reassess their business model and optimize

capital and funding levels. We at PKC Advisory assists our clients with a detailed impact analysis and implementation support for

stringent capital & liquidity regulations. Additionally, PKC Advisory can set up a dedicated offshore team to support in periodic

preparation of regulatory reports.

The various components of our Regulatory Reporting and Impact Assessment services are depicted below:

Impact Assessment &

Action Plan for New

Regulations

Periodic Preparation of

Regulatory Reports

through a Dedicated

Offshore Team

Implementation Support for

Revised Reporting Framework

▪ Review of Regulatory

Guidelines including

Capital and Liquidity

Requirements

▪ Capital & Funding

Planning and action

plan for in-eligible

instruments

▪ Devising Capital &

Funding optimization

and rationalization

strategy

▪ Development/Preparation of regulatory

reporting kit

▪ Implementation of automation

measures for periodic reporting

▪ Preparation of periodic

regulatory reports including

- Capital Adequacy

Reports

- Liquidity Coverage Ratio

(LCR) & Net Stable

Funding Ratio (NSFR)

Reports

- ICAAP & Stress testing

Reports

- Concentration Reports

- Investment, Fx and

Derivative Reports

- Funding reports etc.


14PKC Advisory

Automated & Interactive Management Dashboards

▪ Unstructured /

Unconsolidated

Information

▪ Manual

interventions

▪ Lack of

systematic

approach for

periodic

reporting

▪ Siloed

approach

▪ Lack of

Integration with

Data Source

What May Be

Your

Challenges

How We Can Help

I

▪ Understanding Business Context and

related aspects

▪ Gathering available Information

▪ Identify key Emerging, Forward looking

and Historical Risk Indicators

Identifying Key

Risk Indicators &

Information

Gathering

II

▪ Understanding current / required

Information Technology Infrastructure to

implement BI tool

▪ Developing Data Architecture

▪ Designing ETL (Extract, Transform and

Load) Process for Data Modeling

Developing Data

Architecture

III

▪ Preparation of Interactive Dashboards

with Content Rich Visualization incl.

Charts / Tables / Graphs / Maps etc.

▪ Seamless Integration of Dashboard with

Data Source

Designing

Dashboard Toolkit

IVImplementation

Support

▪ Handhold the team through one cycle of

preparation

▪ Development of Business Requirement

Document (BRD) for further automation

▪ Complete

Integration with

Data Source

▪ Availability of

Risk Insights at

a Click of a

Button

▪ Fully

Automated &

Interactive Risk

Dashboards

▪ Ease of report

generation

from

Dashboards

▪ User manuals

for periodic

updates

▪ BRD for further

automation

What are the

Value Adds

Risk department in the MENA region often lack systematic and integrated risk reporting resulting in irregular reporting of core

and emerging risks to the management. This further leads to delayed decision making which might have a dire consequences.

PKC Advisory assists its clients in development and operationalization of fully integrated interactive and visual dashboards

based on application based Business Intelligence (BI) tools. These dashboards help senior risk management to identify,

measure, and analyse key risks and thereby facilitate timely decision making.


15PKC Advisory

Risk Modeling and Analytics

Regulatory changes and emerging risk dimensions have enhanced the requirements for Risk Modelling and Analytics for Banks.

PKC Advisory works with its clients to develop a effective and integrated risk management framework which can help

determine the portfolio at risk through predictive and prescriptive analysis. The various components of our Risk Modeling and

Analytics services are depicted below:

RISK MODELING & ANALYTICS

▪ Acquisition/Applications

Scorecards

▪ Behavior/Accounts

Management Scorecards

▪ Collections & Fraud Models

▪ IFRS 9/CECL Development

▪ PD, LGD & EAD Models

▪ Fraud analysis

Core Model

Development

Model

Validation

Model

Monitoring &

Annual Reviews

Model Risk

Governance

▪ Out of Time/ Out of Sample

Validations

▪ K fold Cross-

Validation/Bootstrapping

▪ Back Testing

▪ Documentation and

Submission

▪ Quarterly Model Monitoring

▪ Monthly Data Risk/ Early

Warning Indicators reports

▪ Annual Reviews of Models

▪ Analysis of Model

Performance

▪ Governance program

development

▪ Process Design as per

Governance rules

▪ Risk Ranking of Models

▪ Development, Validation &

Execution of Governance

Framework

Approach

▪ Data Mapping

▪ Variable Selection

▪ Model Development

Development

▪ Generating insights

▪ Finding areas of improvement

▪ Recommendations

▪ Quarterly Model review

▪ Performance tracking

▪ Governance submission

Validation

▪ Cross Validation

▪ Model Comparison

▪ Calibration

Monitoring & Annual

Reviews

Insights &

Recommendations

Service Offerings

16PKC Advisory

Enterprise Risk Management

Our Approach towards Developing and Implementing a Robust ERM Framework

Stages Focus Areas

Establishing Governance, Culture and Structure

▪ Document the Risk Strategy and Risk Appetite of the Entity

▪ Develop the ERM Program, ERM Charter and Risk Governance Structure

▪ Educate the key stakeholders on ERM Concepts and Methodologies

Identifying and Analyzing Risks

▪ Create a comprehensive Risk Universe by identifying the inherent risks prevailing across the entity

▪ Perform Risk Analysis, Evaluation and Prioritization for the identified risks

Risk Response Planning and Plotting Pertinent

Controls

▪ Plan appropriate risk responses - Avoiding, Sharing, Accepting, or Mitigating the Risks

▪ Establish and Plot appropriate controls for the Identified risks with clearly stated roles and

responsibilities

▪ Assess the residual risks after establishing the controls

Monitoring and Continuous Improvement

▪ Continuous Monitoring and Assessment of key Risks and Controls

▪ Periodic Evaluation and Updation of the ERM Framework basis the Entity’s Maturity Levels

Enterprise Risk Management (ERM) is a mechanism designed to identify, assess and prepare an entity against potential risk

events that may adversely impact the Strategic, Operational, Reporting, and Compliance objectives of an entity.

PKC Advisory assists its Banking sector clients in their endeavour for Enterprise-wide Risk Management by designing and

implementing the COSO Framework for effectively managing their enterprise-wide risks. It also provides them with a mechanism

to facilitate appropriate and timely monitoring and reporting of risks across its levels.

RISK & CONTROL SOLUTIONS

17PKC Advisory

Risk & Control Self-AssessmentO

ur

Ap

pro

ac

h

Determine Risk Tolerance and Likelihood

Determine and agree on Client’s Risk Appetite, Risk

Tolerance Levels, Risk Likelihood and Impact Scales

Risk Identification

Identify and document operational Risks

related to processes of each function

Inherent Risk Assessment

Hold Workshops with the Risk owners and

assess the likelihood and impact of the

identified inherent Risks

RCSA Scoping

Review Function-wise existing Policies/ Procedures/

Products/ Services and document the key processes

Control Identification and Assessment

Identify, assess and document the design and operating effectiveness

of individual controls for each Identified Risk

Residual Risk Assessment

Assess the Residual Risk based on initial

assessment of inherent risk and effectiveness

of the associated controls

Mitigating Action Plans

Determine and document the

mitigating actions for high impact

residual Risks

1 2 5 63 74

Risk & Control Self-Assessment (RCSA) is a proactive tool for operational risk management that enables businesses to identify

and assess risks and their associated controls through a RCSA Framework.

PKC Advisory assists its banking sector clients in development and implementation of an effective entity-wide RCSA framework,

empowering managers to assume greater responsibility in monitoring their risks and associated controls, and effectively

escalating key risk issues to senior management.


18PKC Advisory

Key Risk Indicators

Conduct Workshops/

Interviews with

Business Units

Track KRIs

and Report Instances

of Breaches

Set Tolerance

Levels for the

Identified KRIs

Identify the KRIs

basis Process

Understanding

Establish Risk Mitigation

Plans to Address KRI

Breaches

Add/ Strengthen the

Controls to Address

the Issues

Understand the

Client’s Business

and Processes

Re-assess the KRI

Inventory on a Regular

basis

Better Outlook of the

Company’s Risk

Position

Increased

Awareness of Risks

and Controls

Prompt Risk

Mitigation

Key Benefits

Quantified and

Predictive Risk

Signals

Timely Monitoring

of Risks

Key Risk Indicators (KRIs) can be broadly defined as the metrics used by organizations to provide an early warning signal of

increasing risk exposures across the entity’s business.

PKC Advisory assists its clients in design and implementation of an optimum KRI framework, thereby empowering the risk

managers to monitor the entity’s risks more efficiently and take timely and effective risk mitigation steps.

Our Approach in Building a Strong and Comprehensive KRI Framework

1

2

3

4

5

6

7

8


19PKC Advisory

Development and Benchmarking of Policies and Procedures

Key Considerations

Understanding 'As-Is’

Policies/ Processes and

Reviewing 'As-Is’

Documentation

Stage - 1

Mapping ‘As-Is’ Policies

and Processes with

Regulatory Requirements

and Leading Practices

Stage - 2

Developing 'To-Be’ Policy

Guidelines and SOPs with

Key Considerations

Stage - 3

▪ Policies and processes aligned with leading practices and regulatory requirements

▪ Standardized activities with clearly stated roles and responsibilities

▪ Streamlined processes with specified timelines for performance of activities, wherever applicable

▪ Well-defined documents and inter-departmental/ system interfaces for activities

▪ Enhanced process efficiency and accountability through adequate control mechanisms

▪ Appropriate change mechanism in place with scalable and easy to implement processes

The growing need for streamlining and standardizing functions and processes has led organizations to develop Policies and

Procedure documents to achieve the primary objectives relating to Quality, Cost and Delivery along with compliance to

increasingly complex regulatory requirements.

PKC Advisory helps its banking sector clients in developing Policy documents and Standard Operating Procedures (SOP)

manuals for various functions and processes. PKC Advisory also assists in undertaking benchmarking/ gap analysis of existing

policies and procedures vis-à-vis industry best practices and regulatory requirements.


20PKC Advisory

Testing of Controls for Design and Effectiveness

Our Approach - Test of Design

➢ Ascertain the Risk of

Inefficacy of Controls and

Mark the same as either

“Higher” or “not Higher”

➢ Design Substantive Tests

with Optimum Sample Size

for Testing the Controls, with

greater emphasis on

“Higher” Risk-rated Controls

➢ Conduct detailed Inquiry of

the Persons Responsible for

Control Performance

➢ Perform detailed Inspection

of the Reports/ Documents

from the selected Samples

➢ Determine the Nature and

Cause of the Deviations and

Report the Control

Deficiencies to the

Management for undertaking

Remedial Actions

Assess the Risk

Associated with the

Controls

Plan the Nature, Timing,

and Extent of Tests

Perform Tests of

Operating Effectiveness

Conclude on the

Operating

Effectiveness

1 2 3 4

▪ Understand the Processes

& Activities

▪ Review the Risk and

Control Register to identify

key Risks and Controls

▪ Reconcile Control

Activities specified in the

Register with the Entity’s

Policies and Procedures

for comprehensiveness

▪ Document the Controls with

Design Deficiencies and

Report the same to the

Management for undertaking

Remedial Actions

▪ Trace End-to-End

Transaction of the Control

Activity to ensure

Existence of Controls

Understand the

Processes and Identify

Key Controls

Assess Quality

and Sufficiency

of the Register

Perform End-to-

End Walk-Through of

the Control Activity

Highlight Critical

Design Deficiencies

to the Management

Control testing refer to the procedures directed towards evaluation of the effectiveness of the design and implementation of the

internal controls established by an entity for mitigating the risks associated with its business. PKC Advisory employs a

comprehensive approach to assist its banking sector clients in identification and testing of enterprise-wide controls, thereby

giving a comfort to the management on the efficacy of controls in mitigating the associated risks.

Our Approach - Test of Operating Effectiveness


21PKC Advisory

Case Studies

22PKC Advisory

Development of Risk Appetite Framework Sample Extract

THE BUSINESS SITUATION

The Bank required assistance in development of risk

appetite framework at bank holding company level and

further cascading it down to its subsidiaries and

business units.

OUR ROLE

PKC Advisory undertook gap analysis of existing risk

appetite principles & processes considering the

strategic objectives & regulatory environment. The

revised framework included:

▪ High-level risk preference & statements while

addressing all major risks across risk dimensions

▪ Defined KPIs against each risk statement along with

tolerance ranges based on historical analysis, peer

benchmarking and board & management guidance

▪ Cascading of risk appetite and tolerance ranges to

each subsidiary & business unit with limits and

targets

▪ Embedding risk appetite framework in strategic

planning, management dashboards, risk information

packs etc.

OUR VALUE ADD

The framework enabled the Bank to clearly define the

risk tolerance ranges. It also acted as a foundation for

effective communication with internal & external

stakeholders

Case Study – Risk Appetite Framework

23PKC Advisory

Preparation of Credit Application Memos Sample Extract


The Client required assistance in preparation of

comprehensive credit application memos for

prospective and existing clients.

OUR ROLE

PKC Advisory undertook a detailed credit appraisal of

the Bank’s new and existing clients using standardized

credit assessment template. Our role included:

▪ Preparation of detailed obligor profile comprising of

management credentials, group structure, business

model, SWOT analysis, corporate governance

measures, recent development etc.

▪ Detailed historical financial & operational

performance analysis and assessment of financial

statement quality.

▪ Critical evaluation of management’s business plan

including development of adjusted scenarios.

▪ Comprehensive macro-economic, social, industry

trend analysis

▪ Input of qualitative and quantitative details in

Moody’s Risk Analyst (MRA)

▪ Detailed coverage of risks and mitigants.

OUR VALUE ADD

Comprehensive and standardized Credit Application

memos helped the Client in reduction of TAT for credit

approval while capturing new business opportunities.

Case Study – Credit Analysis and Appraisal

24PKC Advisory

Automated & Interactive Risk Dashboards Sample Extract


The Client had a complex organizational structure with

multiple subsidiaries and geographical presence. It

required assistance in development of integrated &

automated risk reports and dashboards based on

Business Intelligence (BI) application to assess

emerging risks and to evaluate management actions.

OUR ROLE

PKC Advisory developed customized interactive

dashboards to produce actionable risk insights where

the risk indicators could be retrieved with just a push of

a key. The following tasks were performed:

▪ Developed in-depth understanding of external

environment and business aspects to identify key

leading, forward looking and static indicators

▪ Understood information technology infrastructure

and developed data architecture & ETL (Extract,

Transform and Load) process to seamlessly

integrate dashboards with source in order to

periodically refresh them with no manual intervention

▪ Created dynamic content rich dashboard tool for

comparisons across time, subsidiaries, geographies,

businesses & peers

OUR VALUE ADD

This powerful dashboard tool supported effective risk

based decision making for the management to optimize

risk adjusted returns

Case Study – Automated & Interactive Dashboards

25PKC Advisory

Development of Retail Acquisition Scorecard Scorecard Development Process


The Client intended to build Challenger Scorecard for

personal loans as current scorecard performance was

deteriorating.

OUR ROLE

PKC Advisory developed a retail acquisition credit

scoring model based on multi-Logit regression model.

The approach included:

▪ Detailed study of existing customers’ one year

development data and 18 months performance data

containing Customer behavior data, Portfolio data,

Bureau and Delinquency data

▪ Data wrangling including – Missing Value imputation,

Outlier treatments and Customer segmentation

▪ Variable selection through Clustering, IV and

Correlation analysis and finding relevant variables

and Reject inference

▪ Developing and selecting the best model out of

various models that had the highest Accuracy, KS

and ROC to predict default probability of applicants

▪ Identification of default cut-off rate

▪ Validation of model & further calibration

OUR VALUE ADD

The Client embedded the scoring model in its existing

retail credit appraisal process to ascertain credit

worthiness of prospective retail clients.

Case Study – Credit Risk Analytics

SamplingModel

Development

Reject

InferenceScorecard

Acquisition Scorecard

Category Characteristics Attributes PointsCustomer

Score

Payment History

No. of Months

since most

derogatory record

No Public Records 70

400-5 10

"6-11 20

12-23 30

24+ 40

No of time 30+ days

Delinquent in last 6

months

Number of Time

gone 30+

delinquent

< 0 90

900-1 50

1-2 15

2-3 0

Outstanding Balance

Outstanding

balance in Dollar

($) value

No revolving trade 25

50

0 40

1-100 60

101-200 55

201-500 50

500-1000 25

1000 + 10

Month on BookNumber of month

on books

< 6 month 20

356-12 months 25

12-18 months 35

18 months + 45

26PKC Advisory

Implementation of RCSA Framework Sample Extract


In order to improve its internal control environment,

prevent regulatory observations and minimize control

breaches, the client wished to conduct a series of Risk

and Control Self Assessment (RCSA) workshops for its

critical functions.

OUR ROLE

PKC Advisory assisted the Clients’ Internal Controls

Department in identification of key operational &

compliance risks and related controls through RCSA

workshops with process and controls owners. It also

helped the Client in assessment of effectiveness of

identified controls to arrive at the residual risks.

For the key risks identified, PKC Advisory also

suggested the remedial action plans. Additionally, Key

Risk Indicators and Key Control Indicators were also

prepared for the respective business units which

included defined thresholds, in order to enable effective

monitoring and improvements to the control

environment.

OUR VALUE ADD

The exercise enabled the Client to develop a detailed

risk-response strategy for effective mitigation of key

risks. Through the RCSA workshops, the individual

business units were empowered to review and self-

assess their control environment.

Case Study – Risk and Control Self-Assessment

Almost Certain 2 12 4 7

Likely 2 4 17 4

Unlikely 1 21 19 0

Remote 7 9 0 1

Minor Moderate Major Critical

Extreme High Medium Low

Lik

elih

oo

d

Impact

Inherent Risk Heat Map

Almost Certain 2 4 0 0

Likely 19 7 1 0

Unlikely 22 3 5 1

Remote 26 17 3 0

Minor Moderate Major Critical

Extreme High Medium Low

Residual Risk Heat Map

Lik

elih

oo

d

Impact

27PKC Advisory

Our

Esteemed

Clients

28PKC Advisory

Our Esteemed Clients – BFSI Segment

Commercial

Banking

Corporate Finance

and Investment

Banking

Insurance

29PKC Advisory

Our Esteemed Clients – Across Other Sectors

PKC

Advisory

Team

31PKC Advisory

Team Profile

Payal Soni - Chief Operating Officer

Sachin Bansal - Principal Consultant

Bhupinder Singh - Senior Director

Vinay Gupta - Director

Payal has a total work experience of over 18 years (including 14

years at PKC Advisory). Payal is a CFA Charter holder from CFA

Institute, USA and holds Masters in Finance from Delhi University,

India.

At PKC Advisory, Payal is actively involved in business development

and client engagement She has led projects related to strategy

consulting, risk & rating advisory, feasibility study, business &

financial due diligence, debt advisory, equity raising support and

transaction support services in Bahrain, Kuwait, UAE, UK and USA.

She has been involved in assignments in the financial services,

insurance, real estate and diversified sectors.

Sachin has a total experience of over 12 years (including over 6

years at PKC Advisory) in banking, insurance & financial services

sector. He is a CFA Charter holder from CFA Institute, USA and has

an MBA in Finance from Amity Business School, India.

At PKC Advisory, he has been involved in various mandates

including risk appetite framework development, preparation of

standardized risk reporting, early warning framework, RWA analysis,

ratings advisory, strategy consulting, scenario modeling, business &

financial due diligence etc. for banking and insurance clients across

MENA region.

Bhupinder has a total work experience of over 15 years (including 9

years at PKC Advisory). He is a Chartered Accountant and has

cleared CFA Level III from CFA Institute, USA.

He leads the Financial Services practice at PKC Advisory. Bhupinder

is actively involved in business development, client relationship

management and project management. He has vast experience in

risk advisory, strategy consulting, financial planning, ratings advisory

and transaction support. Bhupinder has led numerous mandates in

these areas for leading banks and insurance companies in MENA

region.

Vinay has over 13 years of experience (including six years at PKC

Advisory) in banking & financial services sector. Vinay is a CFA

Charter holder from CFA Institute, USA and holds Masters in

Business Administration from ICFAI Business School, India.

At PKC Advisory, he has handled various mandates in area of risk

advisory including risk appetite framework development,

standardized risk reporting, and ICAAP & Stress testing across

MENA region. Additionally, Vinay has worked on various assignment

related to capital planning, strategy consulting, financial planning,

and transaction support.

Rupesh Srivastava - Director

Rupesh has a total work experience of over 14 years in providing risk

and business solutions in India and Middle East. He is a Chartered

Accountant and an MBA in Finance.

Prior to PKC Advisory, he worked with KPMG in their Governance

Risk and Compliance Services Practice wherein the work required

extensive project management and execution of risk-based

assignments combining multi-disciplinary backgrounds.

At PKC Advisory, Rupesh leads the Process Consulting practice.

He is actively involved in business development and in managing

client relationships and is also responsible for quality review and

overall delivery of the engagements.

Amit Chandra - Principal Consultant

Amit has a total work experience of over 13 years in Banking &

Financial services. He is a Bachelor of Economics and holds a Post

Graduate Diploma in Management from IIFT, India.

At PKC Advisory, he has been involved in a variety of mandates in

the areas of Advanced analytics like PD, LGD and EAD modeling,

IFRS 9 validation. Besides, he has worked on various assignments

related to customer, operational and web analytics.

Prior to PKC Advisory, he worked with Wells Fargo Bank, Royal

Bank of Scotland and GE capital in their Modeling & Analytics

Practice.

Email : [email protected] Website : www.pkcadvisory.com

mailto:[email protected]

http://www.pkcadvisory.com/