British Arab Commercial Bank enhances insight across the entire business

Instrumented: The solution collects data from a variety of financial systems across the bank into a central data warehouse.

Interconnected: Data is automatically standardised and validated to create a single source of truth. Analytic applications enable rapid insight into this data for analysts throughout the business.

Intelligent: Real-time analytics and predictive techniques such as Monte Carlo simulations enable the bank to identify and mitigate risks into the future, helping to maintain liquidity and reduce exposure.

British Arab Commercial Bank (BACB) is a London-based wholesale bank that specialises in providing trade and project finance for Arab markets. Building on a successful track record in the Arab Mediterranean region, BACB’s market coverage has expanded steadily in recent years, and it is also able to handle business throughout the Arabian Gulf. With 150 employees, the company has total assets of more than £3.3 billion, and achieved pre-tax profits of nearly £19 million in 2010.

To operate effectively in a highly complex and competitive international arena such as trade and project finance, BACB needs rapid access to detailed management information on the financial and operational aspects of its business. The bank is also subject to regulation by the UK’s Financial Services Authority (FSA) and other regulators, which require detailed reports on various aspects of its operations. As a result, business analytics has a vital role to play in BACB’s success.

However, creating an environment in which business analytics could embed itself into users’ everyday routine was a major challenge for BACB.

Complex information landscape
Like most banks, BACB has numerous different business units that deal with specific operational aspects such as core banking, trade finance, derivatives, and so on. Over a number of years, each of these business units had implemented and developed its own separate IT systems, which meant that data was siloed in numerous different formats and repositories.

“Analysts in our finance team had to collect data from all these systems and compile it into complex spreadsheets to calculate even the basic daily, monthly and annual figures,” explains Crispian Denby, Chief Financial Officer at BACB. “There was increasing demand for better management information in other areas too, such as customer profitability analysis, and we knew that a spreadsheet-based process simply wouldn’t be a practical option. We needed a real business analytics solution.”

Team effort
The bank’s finance and IT teams worked closely together to gather requirements for the solution, and decided to build a data warehouse that would integrate with all the different departmental systems and serve as a central repository for management information. Next, they began to evaluate business intelligence solutions.

“We looked at several products from all the major vendors, and we were most impressed with IBM Cognos TM1,” says Crispian Denby. “We realised that it was a very flexible solution, and could potentially be customised to meet all our different requirements. Another strong point was technical support: the team that came in to demonstrate the solution to us were extremely knowledgeable and understood our requirements almost immediately. This gave us a lot of confidence that we were choosing both the right product and the right partner.”

Building analytic applications
Once the Microsoft SQL Server data warehouse had been implemented, the BACB team began creating analytic applications in IBM Cognos TM1 to serve the needs of different groups of business users. The first application was built to handle traditional finance requirements such as daily, monthly and annual accounting and cost centre reporting. The application uses a number of online analytical processing (OLAP) cubes to provide insight into planned and actual expenditure. Detailed ledger balances are collected daily in their underlying currencies: movements from one day to the next are determined (balance sheet vs P&L), and results are translated into various reporting currencies automatically.

“From the general finance perspective, we have been delighted with IBM Cognos TM1 since the very beginning,” says Crispian Denby. “The creation and distribution of daily reports is completely automated through TM1 Web, so users can get hold of the latest figures as soon as they log on in the morning. Month-end reporting can be completed within two days of the monthly close, and the year-end is an absolute breeze now.”

Although the bank’s annual report has expanded from 42 pages in 2000 under UK GAAP to 91 pages under the more demanding requirements of IFRS, it can still be completed within a month of the bank’s year-end.

Crispian Denby adds: “It’s a very flexible solution. Changes to reporting requirements and the evolution of the business can normally be easily accommodated within the existing framework. As a result, the Finance department has been able to accommodate the increasing complexity of the bank’s business without needing to add to headcount.”

Faster, richer insight
He adds: “The solution provides a near-real-time view of the bank’s finances, which means that senior managers can track developments in a volatile market on a day by day basis. As a result, we can respond more quickly to changing situations: we can spot opportunities as they arise, and react to emerging issues before they cause problems.

“Besides the increased timeliness of the information, IBM Cognos TM1 gives us much richer insight into our financial position. Previously, analysts spent so long collecting and validating the data, there wasn’t much time for deep analysis. Now, because the collection is mostly automated, we can gather more data and perform more sophisticated analyses in the same amount of time.

Customer profitability
The bank’s second project was an application to analyse customer profitability. High-quality online enquiry reports are available to customer-facing teams and senior managers, listing the income and costs related to each customer, as well as their current activity in terms of deals and transactions, all up to date to the most recent end-of-day.

“Customer profitability analysis was one of the key requirements for the solution, and it has been a major success,” comments Crispian Denby. “The IBM Cognos TM1 application provides a huge and rich source of data for our customer-facing teams and senior managers, helping them understand how to manage individual accounts more effectively to maximise both profitability and customer loyalty.”

Re-using existing assets
Once these first two applications had been developed, the team began to consider the next steps.

“We had learned a lot about Cognos TM1 development, and we knew we could re-use the same structures and techniques to create other analytic applications relatively easily,” says Crispian Denby. “Our IT / Finance team quickly built an application to report on credit risk for each customer compared to acceptable limits. This flags high-risk customers and prompts us to take action to minimise our exposure as quickly as possible. We also built in email alerts that are generated automatically by the system, which enable users to identify problems quickly rather than having to review detailed underlying reports.”

Predicting risk and managing liquidity
In response to new FSA guidelines on liquidity management, the BACB team has also created an IBM Cognos TM1 application that uses Monte Carlo simulation to create forward projections of the bank’s balance sheet up to 90 days in advance. This enables BACB to assess its current assets, liabilities and commitments against ‘what if’ scenarios, and make crucial decisions to maintain the required level of liquidity at all times.

“The Monte Carlo analysis gives us a way to gauge probable best and worst case scenarios, and helps us decide whether we need to mitigate risk by buying more debt securities or raising more deposits,” explains Crispian Denby. “IBM Cognos TM1 performs these complex calculations automatically, giving us the information we need to make good decisions, as well as facilitating compliance with FSA guidelines.”

Improved information governance
Finally, the introduction of the IBM Cognos TM1 solution has led to cultural change within BACB – dramatically improving the standard of information and process-related governance. Instead of individuals managing a mass of interdependent spreadsheets, which often led to formula errors and inconsistent data, the bank has now instituted a more disciplined governance framework. Changes to the IBM Cognos solution are implemented in a development environment and then rigorously tested before they are released into production. The incidence of reporting errors has steadily reduced over time, and system availability has become much more reliable as a result of the implementation of these types of controls.

“Users like it because they can still use a familiar Microsoft Excel front-end to interact with the data, but behind the scenes, the analysis is much more structured and reliable,” says Crispian Denby. “Instead of each user relying on their own spreadsheets, there is a single, reliable source of business intelligence that is accessible to all.”

Adapting to a changing business environment
The bank’s operations have recently been impacted by events in the Arab markets in which it specialises. Access to flexible reporting and high quality information has been key to enabling the bank to adapt to a rapidly evolving business and regulatory environment.

“With IBM Cognos TM1, we have more confidence in our management information, which leads to faster, more responsive decision-making and ultimately helps us maintain our leading position in the Arab trade and project finance market.”