Japanese banks go with strategic software

Japan’s banks, struggling with a mountain of non-performing assets, loss-making equity positions and growing competition from foreign firms, are increasingly turning to third-party risk management software to improve their competitiveness.

Fuji Bank, for example, has opted for an integrated market and credit risk management system from Axiom Software Laboratories. The package known as RiskMonitor — also includes compliance and regulatory reporting functions as well as capital allocation and performance measurement based on risk adjusted return on capital.

The bank expects to take six months to install the system. This will include integrating pricing analytics libraries from Monis Software and Financial Engineering Associates. Fuji will connect the system to its existing front- and back-office systems, which include Infinity’s The Devon System and in-house foreign exchange and general ledger systems.

Fuji looked at 10 systems before choosing RiskMonitor, says Toru Tanaka, head of risk management. They included systems from Algorithmics, Bankers Trust, Infinity and Sailfish Systems. Key factors in RiskMonitor’s flavor where its open architecture, which allows users to link in third-party analytics, its flexible data warehouse technology and the fact that the bank can readily alter the parameters of the risk analytics, says Garzon, vice president of risk management.

RiskMonitor offers a choice of risk analytics, including Monte Carlo and Historical simulation and mean variance. "It will allow us to toggle back and forth between, say, mean variance and Monte Carlo, for a reality check if need be," says Garzon.

Fuji plans to use the data warehouse to consolidate its positions across all its books and to integrate market data "so we can look at the main contributors of exposure in different books or across the trading floor as a whole", says Garzon. "We’ll be looking at different ways to cut the information to make it useable — primarily for senior managers so that they have transparency of what’s happening on the trading floor and also for the traders so they have another way of looking at their exposures and the impact of potential market changes on their values."

The system is initially being installed in the bank’s New York office. If successful there, it may be introduced in Tokyo, London, Hong Kong and Singapore. As it is, it will be Axiom’s largest installation, says Alex Tsigutkin, president of the company. Neither party would disclose the cost of the system.

Clive Davidson

Reprinted with the permission from Risk Publications • Risk • March 1998