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UBIS CFO DWH & FTP (Fund Transfer Price)

Bucharest, June 2016

Overview

2

1. DWH Concepts

2. CFO – DWH data loading process overview

3. CFO Data Warehouse- technology platform Architecture

3.1 Mainframe platform

3.2 Unix Data Stage Server

3.3 Teradata DBMS Platform

4. FTP – Introduction

5. FTP – Overall Architecture

6. FTP Components

7. FTP – Phase 1

8. FTP – Phase 2

9. Related systems

1. DWH Concepts

3

• A data warehouse is a system used for reporting and data analysis, and is considered as a

core component of Business Intelligence environment.

• DWH are central repositories of integrated data from one or more disparate sources.

• They store current and historical data and are used for creating analytical reports for knowledge

workers throughout the enterprise.

• The data stored in the warehouse is uploaded from the operational systems (such as marketing,

sales, etc., shown in the figure to the right).

• The data may pass through an operational data store for additional operations before it is used

in the DW for reporting.

• A data mart is a simple form of a data warehouse that is focused on a single subject (or

functional area). The sources could be internal operational systems, a central data warehouse,

or external data .

• IN UBIS each asset has its own data mart (FTP also);

4

• The most important approaches are the dimensional approach (introduced by Ralph Kimball )

and the normalized approach (also called the 3NF model, introduced by Bill Inmon );

• In Ralph Kimball’s approach is stated that the data warehouse should be modeled using a

Dimensional Model/star schema , while in Bill Inmon's approach is stated that the data

warehouse should be modeled using an E-R model/normalized model.

• In a dimensional approach, transaction data are partitioned into "facts", which are generally

numeric transaction data, and "dimensions", which are the reference information that gives

context to the facts.

• In the normalized approach, the data in the data warehouse are stored following, to a

degree, database normalization rules. Tables are grouped together by subject areas that

reflect general data categories (e.g., data on customers, products, finance, etc.).

• The normalized structure divides data into entities, which creates several tables in a relational

database. When applied in large enterprises the result is dozens of tables that are linked together

by a web of joins

5

Kimball’s bottom-up approach:

• Data marts are created first.

• These provide a thin view into the organizational data, and as and when required these can be

combined into a larger data warehouse.

• Dimensional modeling focuses on ease of end user accessibility and provides a high level of

performance to the data warehouse.

6

Inmon’s top-down approach:

• Inmon defines data warehouse as a centralized repository for the entire enterprise.

• Data warehouse stores the ‘atomic’ data at the lowest level of detail.

• Dimensional data marts are created only after the complete data warehouse has been created.

Thus, data warehouse is at the center of the Corporate Information Factory (CIF), which provides a

logical framework for delivering business intelligence.

7

Inmon vs. Kimball:

8

Pros and cons of both the approaches:


9

• The CFO DWH stores data relevant for the Unicredit financial officer that contains

information for many products of the bank (mortgages, accounts, bonds, deposits etc..)

generated by other procedure.

• For each product that is integrated in the CFO Core Layer there is a standard workflow, with

some customization, that tracing how a row from a file received is included in the

datawarehouse.

• The general procedure consists of following steps:

File is received on the server

Datastage ETL extract and load a stage

Data quality checks

Surrogated Keys

The information are stored in the tables 3NF

Create history

10


3. CFO Data Warehouse- technology platform Architecture

11

• The technology platform of the CFO DWH is composed of 3 main layer, each one of

which is an area in which different tasks and processes are accomplished:

1. Mainframe platform

2. Unix DataStage Server : DataStage Engine and File System

3. Teradata DBMS Platform

12

JCL jobit contains a unix shell call that executes a DS command for running DS Job Sequences

Unix shellIt executes a DS command that runs the instance of DS Sequences dedicated to the DS parallel job for the upload on DB

DS job SequnceL’istanza della sequenze lancia, il job ETL Parallel di caricamento/Estrazione verso/da Teradata DB

DS job Parallel •Job Staging•Job Core•JobExtractor It executes the connection to Teradata DB for the process of data download/upload

Example of a CFO data flow:

3.1 Mainframe platform

13

• Is the environment from which the 90% of the source data that have to be loaded in the

datawarehouse come.

• Each data loading process start from the Mainframe platform through the OPC applications.

• Each application is composed of multiple JCLs that through the Beta92 scheduler

communicate with the DataStage environment through a set of shell scripts to execute in the

correct established order all the ETLs programs needed to complete the data loading process.

3.2 Unix Data Stage Server

14

Composed of:

• File System : A portion of the DS server file system is structured and dedicated to acquire

input data file that has to be loaded in the DWH.

• In the file system is also developed a software layer (composed of shell scripts) used to

let communicate the mainframe OPC schedule application with the datastage engine.

• DataStage Engine : The repository and the engine of the ETL tool adopted to manage

the data loading in the DWH (DataStage) are installed on that server.

15

Main Unix Shells

UNIX SHELL DATASTAGE SEQUENCE

Load_stg.sh It triggers the sequence Seq_Load_Staging

ScriptGenerator.sh It triggers the sequence Seq_Load_Primary

Extract_from_DWH.sh It triggers the sequence Seq_Extracting_File

In regards to the activities of implementation of load/extraction processes that use job ETL Datastage,

there are 3 main Unix shells, handled centrally:

•Load_stg.sh

•ScriptGenerator.sh

•Extract_from_DWH.sh

Each corresponds to a DS launch Sequence of load/extract Data Parallel Job .

16

Load_stg.sh

• The trigger of a Datastage sequence that runs Loading Staging ETL is done by surveying

the names of the ETL job in a single shell that contains the sequence Seq_Load_Staging.

17

ScriptGenerator.sh

• Shell generation process for the Primary is a semi-automatic process and consists in filling

out a shared document, named SCRIPT_GEN.csv, with the informations that characterize

the calls to ETLs .

• Once the modified file SCRIPT_GEN.csv is available on the server, from the

same folder you will run the script ScriptGenerator.sh that regenerates and

creates all the shells related to CFO-DWH core layer-

18

Data Stage Engine - ETL programs

The data loading process of the CFO DWH is composed of two specific standard typologies of

ETL programs:

Staging loading ETLs

Core loading ETLs

19

Staging loading ETLs

• The Staging loading usually read data from a file format source to load them in the Teradata

staging table. The process is represented bellow:

20

1) Enrich the record by adding the technical key (record counter).

2) Create an output DataStage dataset containing the copy of the input source data with the technical

key added.

3) Retrieve from the F-table the records discarded by the DQ checks during the previous runs and that

have been eventually corrected in order to try to reprocess them.

4) Performs the Syntactic DQ checks for the input fields that have to be put in a date/number format

output field.

5) Performs the input to output data conversion to load data in the staging table.

6) Fill a table called Q-Table with the details of the results of the syntactic DQ checks.

7) Load data in the staging target table.

21

Core loading ETLs

The core layer data loading ETLs respects a more simple structure (see picture below) and are

used to read data from the staging table to load them in the core layer table .

22

This kind of jobs will performs the following processes:

1) Read data from the staging table, by using also complex SQL if is needed.

2) Performs data transformations.

3) Performs the data normalization to store different information related to a given key (that usually

in the staging are contained in different attributes fields related to a single record) in a way that

respects the structure of the data model (3NF).

4) Create the target [N] table and load it.

3.2 Teradata DBMS Platform

23

• Some important parts of the data elaboration process, that make part of the common data loading

and treatment data workflow are performed by executing Teradata stored procedure.

• Each procedure performs a different data transformation or elaboration task, but all these SPs are

executed by using a main SP called CALLER_SP that dispatch the request to the specific SP

in function of a specific parameter that identify the typology of the process that has to be

executed.

• The execution of these steps (Stored procedures) are performed by using a UNIX shell defined on

the DataStage server called Call_master_sp.sh.

eg. Call_master_sp.sh P C0 DMUTUI X D MD 20140515 1

The last parameter (PROCEDURE_ID) is used to let the CALLER_SP identify the “slave” procedure

that has to be executed

24

The main procedures of a scheduling workflow are:

- Call Master n°1 Update of portfolio with new values using the parameters sets on table

TRS_PARAM (Used only for particular data)

- Call Master n°2 Performs data cleaning on the F_% and S_% table by comparing the

content of both in order to avoid the possibility to have duplicate records between the S_% table

content and the record stored in the F_% that can be reprocessed (in this case delete the oldest

record)

- Call Master n°3 Performs the surrogated keys generation and the data enrichment process.

The technical table in which SK and ENRICHMMENT rules are stored is the SP_KEYS_PARAM

(see par 3.4)

- Call Master n°4 Performs the semantic Data quality process by executing the DQ rules

stored in the DQ_PARAM_SIR related to referential integrity check, key uniqueness check and

value range validation check.

25

FTP – Introduction

• Fund Transfer Price (FTP) definition: an “arm's length” methodology of internal

remuneration/charge of deposits and loans at market prices, between two correlated parties as if

they were not correlated.

• FTP is a process to:

• Facilitate fair pricing of financial risk components and support business activity (pricing ex -ante)

• Constitute the basis to analyze business performance profitability and work out segmentreporting (performance measurement ex - post)

• Facilitate balance sheet steering

• FTP system should be defined FOR EACH PRODUCT (or by typology of products)

• FTP should reach as much as possible the final client (or products in terms of segmentreporting)

5. FTP – Overall Architecture

26

26

ET

L CFO

DWH

Legacy

Ext. Sources

DM

FTP

Phase 2FTP

Engine

Historicizing

DM

(Market data)

FTP Environment

Phase 2

Phase 1

FTP Data Mart loading

27

CFO Environment

Group CFO DWH (GCD)

Core Layer

Schedule

FTP Engine

1

Staging

Tables

5

FTP Data Mart

FTP Application Layer

2

4

6

7 8

93

Sources

EU

RO

SIG

OP

C/B

eta

48

Sources

3

Source procedures

integration with GCD via

ETL tasks

Data loading into the core

layer

Market Data DB is loaded

via scheduled ETL

Scheduled calculation are

started on FTP

FTP requests data in the

FTP DataMart via

application layer

Data loading from core

layer to data mart (via SP)

During calculation, FTP

Engine ask for Market Data

The output data is written in

the FTP Data mart

The output data is

historized into the core

layer

Calculation steps

1

2

3

4

5

6

7

8

9

28

FTP components

Equity

Rebate

SBA

Pricing

Liquidity

risk

Country

risk

Interest

Rate risk

Model

risk

= + + ++

Hurdle

Rate

(MIS) + + Managerial

α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

e.g. tax effects

FTP structure shared (EMC)

FTP components are further broken down in the following slides, in order to deepen

■ Definition and rationale

■ Calculation methodology

■ Perimeter of application

■ Engine rules

Liquidity

Spread

Basis

Risk

Loan

Prepayment

Adjustment

Eligible

Assets

Adjustment

Embedded

Option

Spread

Loan

Prepayment

Swaption

Spread

6. FTP Components

29

6. FTP Components

Base Rate

Equity

Rebate+ + ++ + + Managerial

α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

The Base Rate is, in principle, the contractual rate

Negative impacts on SBAs for assets, and positive

for liabilities

It depends on product time bucket (Sight, Short

Term, M/L Term), rate typology (Fixed vs. Floating),

fixing

Methodology

Perimeter

* Work in progress – part of UCIFIN was priced out of TIF procedure before One4C

Engine Rules (CFO CE)

All contracts under TIF

procedure (Retail

Network Italy, UCCB,

UPB)

All contracts

(UCIFIN)*

TIF (same rules as

FTP Engine)

All new contracts

calculated via CFO

CE

Repricing of True Sale

securitizations (CFO

CE)

Stock From September 2010 Sight Items: 1 month Euribor (365 basis) (monthly average to CdG, daily fixing

to Tmis, ALM, Murex)

Fixed rate: Euribor amortizing curve with the same tenor of the maturity date of

the contract

Floating rate: Euribor bullet curve with the same tenor of the index rate of the

installment date

According to the product typlogy, tenor may be equal to the maturity date of the

contract

Frequency: at each interest rate refixing and at each change in interest rate

typology and/or tenor of the underlying index

Sight: 1 month Euribor monthly average

Bullet curve*: Euribor (all bucket available on market data) + SwapEur

Amortizing curve*: built on the bullet curve, by applying a 3-month French

amortizing plan

Model

Engine

30

6. FTP Components

Maturity Premium - Liquidity Spread

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

Liquidity Spread is the premium for a specific

contractual maturity relevant to UCG cost of funding

UCG Senior Curve that is the cost, in terms of basis

points, for benchmark senior issues in the market; it

identifies the UCG medium long term risk on

wholesale public cash market.

Negative impacts on SBAs for assets, and positive

for liabilities

Curve built as follows, according to maturity

― Below 1 year: Euribor vs. Market Place UCGMI Bid/Ask quotation

― Over 1 year: UCG Senior curve

UCG Senior Curve horizon could be extended from current 10 years to whether 20

or 30 years

Input frequency: weekly

Always EUR-based

To be evaluated UCG Senior Curve calculation for different currencies

Perimeter

Sight items: n.a.

Short Term Items: Delta UCGMI Bid/Ask vs. Euribor

― Bid quotation for liabilities

― Ask quotation for assets

Medium Long Term Items: for each cash-flow of the contract, the

interpolation of the curve at the installment date (cash-flow maturity) is

required, and Liquidity Spreads referred to each bucket are summed

Frequency: at origination

All contracts new contracts calculated via CFO CE

(see Annex – “FTP AS-IS analysis” for details)

Temporal differences due to the starting time of

FTP application

Perimeter differences due to the starting time of

FTP application

FTP AS IS methodology for deals originated before 01/01/2005: an average UCG Senior curve of year 2005 is applied, since no specific curve is available

for deals originated from 01/01/2005 to 01/01/2007: Planning Retail provided a Balance Sheet Optimization curve

for deals originated after 01/01/2007: UCG Senior curve

Maturity

premiumLiquidity

Spread

Basis

Risk

Methodology


Model

Engine

31

6. FTP Components

Maturity Premium - Basis Risk

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description Methodology

Engine Rules (CFO CE)Perimeter

Premium (positive/negative) for the usage of an

index different from 3 month Euribor (reference

index in the FTP logic) for floating rate contract

It applies to floating rate contract linked to

parameters as Euribor 1/6/12 months

Positive/negative impacts on SBAs, depending on

the index parameter

ALM provides the spread to be applied, vs Eur3M, according to the tenor of the

index and the maturity of the floating rate contract

Input Frequency: weekly

Basis risk grants the aforementioned re-parametrizations for floating rate items

― Tenor: all Euribor rates with tenor different from 3 months (e.g. 6-month Euribor-based

deals) shall be adjusted via Basis Swaps, in order to equal 3-month Euribor rate

For all floating rate based contracts this methodology is applied

― Frequency: has to be computed at the same date for which the liquidity

spread is defined (at the origination)

― Interpolation on ALM curve

― Remark – mortgages with fixed interest rate “tecnico”, liquidity spread is

priced when the floating rate is effective, but under conditions of deal

origination

New FTP component,

priced by FTP Engine

starting from 1/11 and

applied to the contract

originated after 1/11

Stock New Positions

Maturity

premiumLiquidity

Spread

Basis

Risk

Model

Engine

32

6. FTP Components

Sight Stickiness

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

It represents the liquidity spread for the core

amount of sight items

Positive impacts on SBAs for sight liabilities

(e.g. Deposits) and negative for sight assets

(e.g. Loans)

Sticky profile based on behavioral model that

estimate the persistence over time of sight

items

Methodology


ALM provides a matrix for the stickiness of Assets/Liabilities of each SBAs

Input frequency: monthly

Sight stickiness below 1 year ― Amount: core below 1Y

― Spread: difference between Euribor and Swap vs 1 M with a tenor equal to the Weighted

Average Life (WAL) of the Core amount < 1 year

― Reference Period: the last N months where N is the Weighted Average Life (WAL) of the

Core amount < 1 year― for partial maturities the interpolation is needed

Sight stickiness over 1 year― Amount: core above 1Y

― Spread: the average value of senior curve with a tenor equal to the WAL of the Core amount

> 1 year + basis risk Euribor 3m vs Euribor 1M (since the index for the senior curve is

Euribor 3M)

― Reference Period: the last N months where N is the Weighted Average Life (WAL) of the

Core amount > 1 year

― for partial maturities the interpolation is needed

CFO DWH smoothes the overall stickiness amount modelled by ALM, according

to the product typology (Asset vs. Liabilities)

Frequency: every day

― Daily: to TMIS and MXG

― Monthly: to TX

Not applicable for stock

― Sight Items review their remuneration

every month

All Sight Items of all SBAs

― Products in scope are, for example:

current accounts, libretti liberi

Model

Engine

SBF (Salvo Buon Fine) are Short Term positions treated like sight items with a temporary maturity of 45 days, depending on their weighted average life estimation

33

6. FTP Components - Prepayment and other adj.

Loan Prepayment Adjustment

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

Base rate / maturity premium adjustment connected

to the modeling of loans prepayment

the prepayment reduces the duration of the loan with

a positive effect on maturity premium and base rate

Methodology

ALM provides the expected prepayment curves for the different types of loan

(mortgages, personal loan, CQS)

Input frequency: quarterly

Prepayment curve calculated using an econometrical function that defines the

survival probability of the loan based on historical data


Sight items: n.a.

Short Term Items: n.a.

Medium Long Term Items: same calculation methodology of liquidity spread,

but under an accelerated amortizing plan

Frequency: at the origination

ProductsMortgages and Personal Loans

Consumer financing

Stock New Positions

Pricing by FTP Engine for

UCCB only (equal to 0.18)

on constant monthly

probability

New FTP component, priced

by FTP Engine starting from

1/11 and applied to the

contract originated after 1/11

Deals of division Retail

Sub-division Family

Prepayment

and other

adjs.

Loan

Prepayment

Adj.

Eligible

Assets

Adj.

Model

Engine

34

6. FTP Components - Prepayment and other adj.

Eligible Assets Adjustment

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

Funding cost adjustment connected to the treatment

of eligible assets (e.g. ABACO products,..)

Methodology


ABACO assets

― ALM Matrix

― CRO Transition Matrix

BEI curve

― Spread now equal to null

OBG

― ALM Matrix (starting from 01 January 2011)

“cassa depositi e prestiti”

― Spread As Of Communication from CDP


* See Annex – “FTP AS-IS analysis” for further details

Sight items: n.a.

Short Term Items: n.a.

Medium Long Term Items:

― Eligible Assets Adjustment = Cost of Funding – Liquidity Spread

― Adjustments for Eligibility equal the ABACO curve weighted for the survival rate

of the deal as eligible, then accounting for the residual life of the deal itself

Frequency:at the origination

All eligible contracts

(on the basis of CRO

Transition Matrix)*

Stock New Positions

All eligible contracts

All new contracts

calculated via CFO

CE

Prepayment

and other

adjs.

Loan

Prepayment

Adj.

Eligible

Assets

Adj.

Model

Engine

35

6. FTP Components

Country risk premium

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

The Country Risk Premium represents the

compensation against risk of counterparty default due

not to specific factors related to the performance/trends

in the institutional business, but rather to macro-events

of a political nature (nationalization, impossibility of

conversion, violence)

It is proportional to the premium of the Credit Default

Swaps related to the specific country on the

expiry/maturity of the transactions

Methodology

The first step envisages the estimation of an econometric model that relates

the market CDS with the rating of each country, in order to extrapolate the

short term component – more subject to fluctuations especially during phases

of high market volatility.

Then we use the model output to compute the CDS indicator of each country,

that is the CDS long term component determined by the model estimation

The CRP will be simply the difference between:

― the CEE CDS Indicator (that prices the macro fundamentals of the

country, avoiding the CDS market volatility)

― the Eurozone CDS Indicator (weighted average of CDS indicator of

Austria, Germany and Italy)



Same calculation methodology of liquidity spread, by applying the Country Risk

Spread curve.

Frequency:at the origination

Perimeter

All contracts that fulfills the both conditions

― Residential currency of the counterpart is not

EUR;

― Contractual currency is different from the

residential currency of the counterpart

All new contracts

calculated via CFO

CE

Stock New Positions

Model

Engine

36

6. FTP Components - Interest Rate Risk Premium

Embedded Option Spread

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

Premium for the financial option embedded in the

contract (e.g. cap, floor)

Premium based on the market quotation of similar

option

FTP must be increased/reduced by the underlying

option cost/income sold to the customer

Methodology

Perimeter Engine Rules (CFO CE)

ALM provides the premium of the embedded option according to

― the option strike

― the maturity of the option

― the maturity of the contract


Option spread is given by the fair value of the option expressed in basis points

running to be applied up to option maturity (Option Fair Value) / (Notional *

Option duration)

The allocation of the spread is product driven

Frequency: starting date of the option

The spread is given by the Fair value of the option on the market expressed in

basis points running and it’s equal to: (Fair Value Option)/(value of a basis point

spread increase)*0,01%

It has to be charged to the client for the time period where the option is alive

New FTP component,


starting from 1/11 and

applied to the contracts


All mortgages with

cap/floor embedded and

within typology “salvarata”

Stock New Positions

n.a.

Embedded

Option

Spread

Loan

Prepayment

Swaption

Spread

Interest

rate risk

premium

Model

Engine

37

6. FTP Components - Interest Rate Risk Premium

Loan Prepayment Swaption Spread

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium


MethodologyPerimeter Engine Rules (CFO CE)

Premium to be paid for the early redemption of a

fixed rate loan without penalty

It is currently applied for fixed rate residential

mortgages only, where an early termination is not

applicable by law

It is the price of the embedded option under an interest

rate perspective

FTP must be increased by the underlying option cost

sold to the customer

ALM provides the premium of the prepayment option according to

― the tenor of the fixed rate period

― the maturity of the contract


Prepayment Swaption spread is given by the Fair Value of the option expressed

in basis points running to be applied during the fixed rate period

Fair Value cost is calculated using toghether a market and statistical model to

estimate a potential loss generated by early repayment in different interest rate

enviroment

The allocation of the spread is product driven

Frequency: starting date of the fixed rate

The spread is given by the Fair value of the option on the market expressed in

basis points running and it’s equal to: (Fair Value Option)/(value of a basis point

spread increase)*0,01%

It has to be charged to the client for the time period where the loan rate is fixed

Stock New Positions

New FTP component,


from 1/11

Applied to Fixed rate

MLT Mortgages


(EUR)

Deals of division Retail

Sub-division Family

n.a.

Embedded

Option

Spread

Loan

Prepayment

Swaption

Spread

Interest

rate risk

premium

Model

Engine

38

6. FTP Components

Replicating Portfolio

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium



Premium/cost over Euribor of the replicating strategy

for the core insensitive amount of sight & saving

Replicating Portfolio, through cash or derivative

products reduces the volatility of Net Interest Income /

Economic Value

In a low interest rate scenario, it is positive for sight

liabilities (e.g. Deposits)

No stock is available

― Sight Items review their remuneration every

month

All Sight Liabilities of all SBAs

― Products in scope are, for example: current

accounts, libretti liberi

CFO DWH smoothes the overall stickiness amount on base rate modelled by

ALM, according to the product typology

Frequency: every day

― Daily: to TMIS and MXG

― Monthly: to TX

Model

Engine

Replicating spreads rebated depend on the effective P&L result generated, i.e.

actual swaps traded on the market (as of current situation) or internal deals

closed with the Treasury

Starting from Jan 2011 effective margin of replicating portfolios is allocated on a

gross approach in terms of assets\liabilities and SBAs (Retail, Private, Corporate)

according to the amount of core insensitive* and the its Weighted Average Life

ALM provides a matrix for the Replicating Spread of Assets/Liabilities of each

SBAs

Input frequency: monthly

* Core Insensitive: stable base of sight & saving deposits that is insensitive to interest rate changes

39

6. FTP Components

Managerial Alpha

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium


On stock positions Managerial Alpha adjustment is currently set up for

Self securitizations, via Managerial Adjustment Metric = [-Current costs/(1+ Actual Overcollateralization Rate)] = -11 bps

Covered Bonds (OBG), via Eligible Adjustment Metric = {[Floating spread current/(1+ Actual Overcollateralization Rate)] - Liquidity spread} = NONE for funded

Covered Bonds vs. -13 bps for retained Covered Bonds


At Group level, allocation of diversification and

dimension benefits or mispricing of specific products

can be addressed through a managerial a

component (ex-ante / ex-post) in order to properly

support balance sheet steering/specific product

pricing

Corporate Center P&L affected

Spreads parameterized and applied to the new deals Covered bonds, Self-

securitizations

Stock New Positions

Not yet applied

Model

Engine

40

6. FTP Components

Commercial Adjustments

Equity


α

Base

rate

Replicating

Ptf +

Cost of

Equity ,

Credit

Risk,

Other

Commercial

adjustment

Prepayment

and other

adjs.

Maturity

premium

Sight

stickiness

Country

risk

premium++

Interest

rate risk

premium

Description

Commercial Adjustments

At SBA/commercial level, it allows for specific

incentives to support commercial flexibility on

products/customers satisfying marketing and global

commercial targets

Decided by SBA (Commercial Network)

Business P&L affected (SBAs)

Methodology

MethodologyPerimeter Engine Rules (CFO CE)

Both in LMIS and TX, Commercial Adjustments are reported via specific

Value Types / flagged items

Stock New Positions

n.a. n.a.

Commercial Adjustment

― SBAs may quantify Commercial Adjustments for each FTP component, in

order to rebate the overall Managerial Adjustment on single products /

Relationship Managers (MBO purposes)

Model

Engine

7. FTP – Phase 1

41

FTP is composed by 2 phases:

• Phase 1 – The data mart loading from Core (done thought the feeding process specific for every

product);

8. FTP – Phase 2

42

• Phase 2 – metric calculation done inside FTP engine (developed in java).

9. Related systems

43

Pricing Tool *

MUREXTreasury Position

Keeping

Selection of deals eligible to be

calculated (new deals, floating rate refixing…)

Preparation of input data for

calculation (deal data, market data, parameters)

FTP Calculation

Set of default values for errors

and data incoherencies

FTP

values

storage

On Line applicationsReal Time

EndOfDay Daily File to Mx

ALM PROBanking Book Position

Keeping

EndOfDay Daily File to AlmPro

TXNetwork P&L

EndOfDay

Monthly File to

Performances Meas.

System- PMS

TMISTreasury P&L

EndOfDay

EndOfMonth

Daily File to Treasury

MIS

Supported Systems Computed at Exploited by

Defaulted

values storage

Data Flows of FTP Engine based on CFO DWH

• Fund Transfer Prices (FTPs) are the value transfer drivers, since they build the rationale for

the internal remuneration of the deals among units involved in the Group.

• Down streams asstets are represented bellow:

ftp (fund transfer price) - info.cs.pub.roinfo.cs.pub.ro/scoaladevara/pdf/cfo dwh ftp -...

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