Qorus Banking Innovation Awards 2023

VARS – VakifBank Risk Solution

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25/09/2023 Banking Innovation

About

Our bank used an external application to calculate expected credit losses for future potential risks. However, the external application could not provide effective solutions tailored to our bank's needs. Leveraging our bank's robust technological infrastructure and human resources, we developed and implemented our own calculation application called "VakıfBank Risk Solution (VARS). The VARS application, which has been developed and put into use by the IT teams of our bank with the innovative approach, technological development and result-oriented concepts included in the goals of our bank, allows the fast, reliable and most accurate calculation of provisions for financial instruments.

Innovation presentation

Banks are required to calculate expected credit losses for their financial assets within the framework of specific accounting standards in order to account for potential risks that may arise in the future. Specific statistical methods and techniques are determined when calculating expected losses. Calculation applications are needed to implement these methods. Our bank used an external application to calculate expected credit losses for future potential risks.

In that tool:

 It was not easy to implement and deploy model changes.

 Implementing new model was open to make faults.

 When the application received an error, it was not easy to find the cause of the error.

 Local support was not adequate. We had to tackle problems with ourselves.

 Limited number (Only 2) of users could be able to create and run their scenarios. If more than 2 users wanted to run their scenarios, the had to wait completion of others.

 It was not possible to run the models on a daily basis because it took too much time to complete them. When the execution failed, all the cycle had to start from the beginning.

 Expected Credit Loss could not be run only for specific customers. Even if you want to calculate only 1 customer, you have to run all customer. To do this some code changes were needed.

For above reasons we started an initiative to build our own solution named VARS.

VARS is a tool to calculate Expected Credit Loss and it is developed to help the bank comply IFRS 9 requirements. VARS was also developed in house. It allows implementing complex models.

It also allows business user letting them to get results quickly by using its computational power.

Thanks to VARS for IFRS 9

 Large number of complex models can be implemented, executed and applying accounting rules easily.

 Model implementation and execution risk reduced.

 Expected credit loss are calculating on daily bases. Business users are able to see expected credit loss on daily basis.

 Business users are able to create their scenarios themselves without it support.

 Business users are able to calculate expected credit loss only for specific risks if needed without it support.

 Business users are able to experiment new scenarios by changing some parameters themselves without it support.

 Model change requests are implementing in reasonable time and effort when they occur.

 Business users are able to access risk reports easily.

 Business users are able to follow workflow.

 There is no need to restart the entire job when execution fails. The job can continue to run from the point where the error occurred.

Uniqueness of the project

Special changes:

Daily operations were automated by developing VARS.Business users are able to see expected credit loss daily.

Expected loss calculations with the external application typically take between 8 to 12 hours. However, our in-house developed VakıfBank Risk Solution (VARS) application can complete expected loss calculations within an average range of 3 to 5 hours.

They are able to run VARS for simulations. They are able to run VARS for specific risks. They are able to see workflow, by seeing it they are able to understand status of running

These features help them decide effectively

Genelral Changes :

• Significant Productivity Increase: VARS has greatly enhanced the efficiency of expected loss calculations. While the previous external application took 8-12 hours to complete these calculations, VARS can now accomplish it in just 3-5 hours. This substantial reduction in processing time has enabled the bank to make faster decisions regarding credit risk.

• Cost Savings: By developing an in-house solution, the bank has saved on external procurement costs and avoided the need to allocate resources to third-party vendors. This demonstrates a cost-effective approach to addressing a critical financial task.

• Customization and Tailoring: VARS has been tailored to the specific needs and requirements of the bank.

• Technological Advancement: The project showcases the bank's commitment to technological advancement. It signifies a proactive approach to leveraging technology for improved financial processes, demonstrating the bank's dedication to staying at the forefront of financial innovation.

• Reduced Dependency: By developing VARS in-house, the bank has reduced its dependency on external vendors and applications. This not only increases self-sufficiency but also minimizes the potential risks associated with relying on external solutions.

• Sustainable Innovation: The project reflects a commitment to sustainable technology development. By building an internal solution that can be continuously improved and updated, the bank is positioned for long-term success and adaptability to changing financial landscapes.

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