Going Advanced: Improving Accuracy of Risk Weighted Assets and Driving Capital Efficiency in Brazil

REPORT PREVIOUSLY PUBLISHED BY OLIVER WYMAN
July 9, 2015
Industry Trends
Latin America

Abstract

Brazil’s robust banking system has been and remains a key strength for the country. To date, regulatory capital has not been a major constraint for the largest players. Banks pursued double-digit growth and supported robust returns allowing them to cover losses incurred and generate sufficient capital through retained earnings to sustain future growth and reward shareholders. Hence, over the past years, banks have focused on enabling the front-office, through growth strategies, optimization of channel management and more robust underwriting and fraud detection, rather than strategic capital and risk management initiatives, such as capital efficiency improvement, stress testing, scenario planning and management of distressed debt.

As Brazilian banks enter a more challenging market and regulatory environment, there is an opportunity to make changes in the sophistication of risk and capital management capabilities to meet regulatory requirements, sustain returns, and enable sustainable lending to customers.  In our view, this will be an increasingly important strategic issue for senior management and the board over the coming years and one that banks should be planning for now.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
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Table of Contents

Executive Summary

2

Risk-Sensitive Credit Risk Measurement

4

Integration of Operational Losses

7

Stress Testing and Scenario Planning

10

Conclusion

11

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