Strengthening Credit Risk Management

Initial Situation

The credit risk department of a major energy supplier wants to strengthen its management of counterparty and settlement risks in trades, e.g., power swaps, FX forwards and emission certificates, as well as in coal and gas contracts. Currently, the IT landscape has weaknesses w. r. t. the coverage of relevant control parameters. Thus, some processes require a high level of manual effort.

Project Scope

  • Maintenance and further development of credit clauses in framework agreements incl. representation of risk management in contract negotiations
  • Further development and automation of the existing risk measurement and management
  • procedures
  • More efficient calculation of relevant key figures
  • Improvement of data delivery to neighbouring departments and headquarters

Our Contribution

  • Managed the existing contract portfolio
  • Automated the calculation of collateral calls
  • (Re)designed the business data model to include credit risk metrics
  • Extended the business concept for risk exposure metrics including implementation in the company’s systems
  • (Re)developed a credit risk exposure engine including a front end for the presentation and analysis of credit risk metrics
  • (Re)designed and implemented the calculation of settlement risk in the company’s systems
  • Automated of reporting, including for collateral planning and line utilization

Customer Benefit

The development of the credit risk exposure engine enables detailed exposure analysis, enhanced credit risk reporting and thus more effective credit risk management. Operational process risks are significantly reduced. Due to process automation the day-to-day business is more efficient freeing up risk management resources for analysis tasks.

Relevant Skills/Tools

  • Microsoft SQL
  • Excel VBA