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Noor islamic baNk achieves real-time var aNd highly scalable stPcase study

koNdor global riskkoNdor+

Noor Islamic Bank achieves real-time VAR and highly-scalable STP

2 Case Study

Noor islamic bank, a leading shari’a-compliant bank in the United arab emirates, has adopted a comprehensive market and credit risk infrastructure from turaz for real-time risk management across its trading operations, including limits monitoring and var for all asset classes.

Innovative Shari’a-compliant productsNoor islamic bank provides a full range of banking, investment and risk management products and services for both private and corporate customers as well as government institutions. Noor commenced shari’a-compliant banking operations at the start of 2008, with its treasury division dealing in a wide range of asset classes including forex, money markets and fixed income. as a demonstration of the bank’s innovative approach, it has even developed shari’a-compliant derivatives products (otc forex options and profit-rate swaps).

Greenfield opportunitythe ‘greenfield’ status of Noor gave it an unrivalled opportunity to develop an organization- wide technology program to automate its front-to-back treasury processes and implement straight-through processing (stP). by streamlining its treasury processes, the bank wanted to reduce costs and implement a risk management infrastructure that could measure and monitor real-time credit, settlement and market risk and meet the regulatory and capital requirements demanded by both basel ii and the Uae central bank.

sami ainous, head of treasury and trading technology at Noor islamic bank, explained, “one of the key requirements for our treasury operations is the delivery of real-time risk management including limits monitoring and value at risk (var) reporting across all asset classes.”

even before Noor’s introduction of structured products, the treasury module in its existing core banking system was unable to cope with the complexity and volume of Noor’s standard financial instruments. the new treasury system needed tobe flexible enough to support the future introduction of further complex products as well as being capable of scaling with growing trading volumes.

Coping with market uncertainty2008 highlighted the need for the bank’s decision-makers, such as traders and heads of desks, to have real-time access to accurate portfolio information in order to make rapid and well-informed decisions, particularly during periods of market turmoil.

ainous added, “var gives us a clear understanding of the probable profit and losses across our portfolio, based on in-depth statistical analysis of historic prices and market volatilities. var lets us view our risk in real time and is a vital factor in determining all of our trading and hedging strategies.”

Key benefits

•Real-time risk management including limits monitoring and value at risk (var) reporting across all asset classes

• Internal model method (IMM) analysis of historic prices and market volatilities

•Pricing consistency between front-and-back-office systems and risk management systems

•Global risk management across different business units and ‘follow the sun’ trading

•Compliance with regulatory and capital requirements demanded by basel ii and the Uae central bank

•Support for Shari’a-compliant derivatives products (otc forex options and profit-rate swaps)

Noor Islamic Bank achieves real-time VAR and highly-scalable STP

3Case Study

Rigorous selection processafter Noor undertook a thorough review of potential suppliers followed by a rigorous rFi and rFP process, it chose the turaz kondor+ and kondor global risk (kgr) systems.

ainous said, “We chose turaz on the basis of both quantitative and qualitative selection criteria. First, turaz achieved one of the highest scores during the rFi and rFP selection processes. second, we were attracted by turaz presence in the middle east, its pricing and commercial terms, technical support capabilities. Furthermore, we were impressed by their asset and instrument coverage and their vision for islamic banking.”

Flexible pricing and deal captureto help address these challenges, turaz successfully implemented kondor+ and kgr. based on a three-tier service-oriented architecture, the systems give Noor a sophisticated and flexible means of pricing and capturing deals, real-time position keeping and managing credit and market risks. kondor+ enhanced functionality also enables ‘follow the sun’ trading and global risk management across different business units.

kgr comprises three main components – limits management, credit risk and market risk, all of which were installed at Noor. the credit and market components use an internal model method (imm) to simulate historic var for Noor’s treasury book. importantly, kgr ensures pricing consistency between front- and back-office systems and risk management systems by consolidating all pricing functions within kondor+.

Noor favored a phased implementation, with kondor+ and kgr deployed in september 2008 followed by kondor+ back-office module in september 2010. this module extends to the back office all of the asset classes supported in Noor’s front office for greater operational efficiencies and consequent cost and operational risk benefits.

Narrowing the gapthe long-term partnership between Noor and turaz is a clear demonstration of how islamic banks, while being governed by shari’a principles, are achieving both business and technological success and narrowing the competitive gap with ‘conventional’ banks in terms of stP and risk management.

Advanced risk management strategiesainous said, “the kgr implementation for var has enabled us to develop advanced strategies for measuring risk and performing complex market risk computations, with a particular emphasis on meeting basel ii requirements. this has all been achieved within the constraints of our existing it infrastructure.”

the system also gives Noor both business agility and competitive advantage as the risk management platform substantially increases the speed with which new financial products can be developed and launched, including stP integration with all front- and back-office systems. Furthermore, Noor is now one of very few regional banks and even fewer islamic banks to have achieved real-time risk management using historic price and volatility simulations.

commenting on the impact of the turaz risk management infrastructure, ainous said, “the kondor+ platform is working very well. With transaction volumes growing by 120 per cent year-on-year, we have stressed the system and we know that we can scale it to cope easily with increased volumes without needing extra staff – that’s the power of the system’s straight-through processing capabilities.”

“The kGR implementation for VaR has enabled us to develop advanced strategies for measuring risk and performing complex market risk computations, with a particular emphasis on meeting Basel II requirements. This has all been achieved within the constraints of our existing IT infrastructure.”

Sami Ainoushead of treasury and trading technology, Noor islamic bank

TURAZ’S RECENT MARkET RECOGNITION

About Turazturaz is the leading provider of trade and risk management software globally. it employs over 1,000 skilled professionals serving more than 600 fi nancial institutions across 66 countries. some 25,000 fi nancial professionals rely on turaz’s fl agship products including kondor+, kondor trade Processing (ktP), kondor global risk (kgr) and topoffi ce to trade and proactively manage risk across the enterprise.

Founded in 1992, turaz was acquired from thomson reuters by vista equity Partners in January 2012.

For more information please visit www.turazglobal.com

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