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10 March 2015

Banking Risk Management Excellence

This post is also available in: Spanish

Banking Risk Management excellence through BPM

Risk of losses in financial institutions could result from:

  • Credit risk, which refers to the risk of a borrower defaulting on any type of debt by failing to make required payments.
  • Operational risks, caused by breakdowns in internal procedures, people and systems. (Its optimal management should be performed through the entity’s general processes).
  • Market risk, whichis the risk of losses in positions arising from movements in market prices.

Regarding credit risk assessments, given their extreme importance, Basel establishes a clear difference between the banks that can efficiently and rigorously evaluate the basic elements of risk (PD Probability of Default, EAD Exposure At Default and LGD Loss Given Default) and the banks that don’t have these facilities.

The concepts and risk assessment systems required for the correct application of Basel are not trivial and therefore they require a certain degree of dedication to be understood. (AuraPortal has documented material which can be issued on request).

The greatest difficulty in Basel is its correct implementation and management, as adhering to its guidelines demands rigorous methodology and frequent controls from senior management.

Focusing on credit risk (In following articles we will look at operational risks). As a result, its management requires automated systems which are capable of performing reliable and rapid calculations. In this respect, there are specialized software applications designed to perform this work.

In contrast to other BPM software, AuraPortal BPMS (with its system of Business Rules) offers methodology formulations and risk assessment process executions which can be performed by the financial institution’s analytical and executive staff themselves without the need for any programming. This means that the process structures and any changes in daily requirements can be performed easily and frequently with the desired effectiveness and without the need for re-programming. This is possible regardless of the complexity or volume of data inherent to the operations involved.

Examples of Business Rules applied in a BPM process

An example of the use of Business Rules by AuraPortal is illustrated in the following outline of its application for the calculation of credit risk of Mortgage Loans through the Advanced IRB Method which includes the RAROC calculation.

RAROC (Risk Adjusted Return on Capital) is considered the best instrument to control banking activites.

The most adequate instrument for controlling the bank activity following the principles explained in the previous paragraphs is the Risk Adjusted Return on Capital, commonly called RAROC and is used today by practically all the important banks as a tool for economic management.


The Business Rules in AuraPortal can be interlinked without limitations, which is considered in the process engines. This is all done automatically with no human intervention.

AuraPortal is the most advanced Business Management software on the market for Financial Entities. Working with AuraPortal allows the almost immediate optimization of resources, an increase in credit and operational security, standardization of procedures, greater customer satisfaction, a drastic reduction in costs and great agility and quick reaction capacity.

 Are you ready for a new experience?