SAP FSCM-TRM-CRA Credit Risk Analyzer (CRA)

This TRM component enables you to measure, analyze, and control default risks . Default risk refers to the potential loss arising from a financial transaction should the business partner not fulfill his contractual obligations either due to specific, economic or political reasons.


The tightening of regulations (Supervision and Transparency in the Area of
Enterprise Act, Basel II, and IAS/IFRS) with regard to risk controlling underlines
the increasing importance of analyzing and limiting the risk of insolvency. It
also makes business sense to have system support for measuring, analyzing, and
managing or limiting counterparty default risks.

SAP's Credit Risk Analyser incorporates central limit management functions,
enabling you to set limits for counter-party default risk and monitor them online.
You can then let the system calculate the settlement and default risks arising from
your activities on the financial and capital markets, as well as classical credit risks.
By defining differentiated upper risk limits, you can restrict potential losses on
financial transactions as a result of business partner insolvency. In the same way,
you can use the limit system to maintain control over the activities of your traders.

The default risk and limit system contains an extensive range of standard reports
for evaluation and analysis purposes. This system is linked to the SAP drill-down
tool and SAP query. You can display all the existing utilizations in aggregated form
for any given key date and, with the appropriate system settings, take business
partner relationships into account. This allows you to track limit utilization over
time and see exactly which transactions affect it. This in turn enables you to
monitor all trading activities, thus offering you a high level of security.

Types of Risk



Counterparty/issuer risk:

Counter-party/issuer risk describes the danger of a loss in the value of a receivable due to a worsening of the creditworthiness of the business partner. Country risks arise when either the country of the business partner or the country of the transaction currency becomes insolvent.

Counterparty/issuer risks are subdivided into credit risk and settlement risk. The existence of both these risks depends on the timing of the analysis of the transactions.

• Credit risks exist over the whole term of the transactions.
• Settlement risks exist only during the settlement period.

Credit risk can consist in a pure counterparty risk or an issuer risk, depending on the transaction category (for example, securities transactions).

Note
The functions for country risk were developed only as part of a project solution and have not been released for the market. The relevant functions are referred to in the documentation.

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Process in Credit Risk Management

The default risk and limit system supports the quantification of various risk
positions and default risks in line with the current market position. The risk
exposures (attributable amounts) from the individual transactions then are
compared with the centrally-defined limits.


The exposures are calculated as part of end-of-day processing, and can be updated
during the day using the integrated default risk limit check. This means that traders
can use the integrated limit check before concluding a transaction to determine
online the exposure linked to the financial transaction. They then can let the
system check this exposure against limits stored centrally in Limit Management.

Once the transaction has been concluded, the exposure automatically increases the
utilization of the affected limits. As a basis for the integrated limit check, all the
financial positions must be valued consistently. The system displays the result of
the limit check and generates a log for later evaluations.