“In risk management, especially in banking, it is vitally important to be confronted with the brutal facts.”
Dave Morgan, head of portfolio analytics at Kiwibank, is a firm believer that facts come first. “I am about to create a little group called the anti-anecdote society. Anecdotes are useless, you need facts.”
Morgan joined Kiwibank in 2011, having honed his specialities in credit risk management, risk management infrastructure and modelling, and analytics at ANZ Bank, Barclays, and National Australia Bank.
“The core of what I do is, if it is going to go bad, can we still stand up, can we get up in the morning and keep trading? Do we have enough retained earnings and shareholder funds to continue?
“All large banks around the world have my function,” says Morgan, who has a 13-member team. “It was a new role, and an evolution of banking,” he says, referring to the steady ascent of Kiwibank from a ‘start up’ within New Zealand Post in 2002, to competing with Australian banks operating locally today.
“We are now in the teenage years, with that comes a sense of where we are growing. We need to put in place infrastructure to help us support and grow in the right way in the next 10 years, like all large organisations.
“You have got to primarily understand and measure all the risks the bank generates as it goes about doing business.
In risk management, especially in banking, it is vitally important to be confronted with the brutal facts.
“What you need to do is put in place those tools and processes to make sure the bank is aware of what is going on, what we are doing under the Basel II programme. That flows through saying ‘now that I can measure the volatility of the lending that we have got, you measure each asset and how risky it is’.”
Morgan says Kiwibank uses SAS for its predictive analytics, and the bank has increased its license from a single PC to 50 since he took over the role.
With analytics, concepts can be taken a little further, factoring in the impact of an event such as an economic slowdown or an earthquake.
“Do we have to seek capital from the parent company? Do we downsize, rescale or reshape the business? That is what measurement of risks is all about. First of all, if you can’t measure it, you can’t manage it.”
“We are introducing new technology and systems into the banking environment,” he says, so having executive and board support is critical, as well as working closely with the IT department.
Communicating the benefits of the project is another imperative. “You can pretty much answer any question about what you are doing, why you are doing it, how you are going to do it, how is it going to work, who is going to be doing it? Can it support growth? Is it strategic or tactical?
“Our implementation is certainly not tactical. It is very, very long term. You could not really grow a bank like we are growing without having this stuff in place.”
Read more: Face the brutal facts
Morgan also considers the availability of experts in analytics, where a lot of the “brains in this space are siphoned out of New Zealand,” because locally based Australian banks are run from their parent company.
He says having a local school or university take some of the concepts like the “deep dive stuff around credit risks” would be a big help.
He recently attended the SAS Premier Business Leadership Conference and met with some graduates of The Institute for Advanced Analytics at North Carolina State University. He is interested in local initiatives to develop a similar course.
“If you educate students to be ready for work and to understand the work context and the shape of the work, it is a perfect solution. They get an education [in an area] they want to be employed in and we get students who understand the way we work.”
Divina Paredes (@divinap) is editor of CIO New Zealand.
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