National Australia Bank deflects global risk with consolidated transactional data and a powerful analytics platform.
by Tara Swords, August 2013
After the economically booming years of the mid-2000s, the global financial crisis of 2008 wiped out several banks in the United States and the United Kingdom and brought many others perilously close to collapse. While the crisis sent shock waves throughout much of the world, banks in Australia—already operating in a more carefully regulated environment—had less exposure to the chaos. But in a highly interconnected global economy, it was impossible for large banks anywhere to remain entirely insulated.
Even before the crisis hit, the leaders of National Australia Bank (NAB) had already decided to take their organization through a massive IT transformation. A long history of mergers and acquisitions had created a siloed, redundancy-ridden infrastructure of 152 back-end systems from as many as 40 different IT vendors. That infrastructure became increasingly complicated as the company grew through acquisition. System complexity began to limit the organization’s agility, weighing on executives’ ability to react to change and seize opportunities.
As the fallout from the global financial crisis brought new regulation to financial markets, NAB’s systems were facing the addition of even more complexity. “When the crisis started to unfold and we started to see the reactions that were occurring around the world, we knew that regulation was going to not allow this to occur again,” says Brett Woolley, enterprise architect in enterprise services at NAB. “We had some insight that the regulatory environment was going to change dramatically.”
Sensing the changes ahead—and the bank’s need to better prepare for them—leaders decided to push forward with the core banking systems replacement they had been planning for a couple of years and selected Oracle as technology partner.
They also decided to simultaneously embark on a project to improve the way the bank managed risk. So in December 2009, NAB again asked Oracle to provide a new integrated risk and performance management system that would minimize the bank’s exposure to risk, increase the value of its assets, and improve overall financial performance.
Just as leaders at NAB were starting to feel the effects of tighter government regulation aimed at preventing another global meltdown, they were continuing to expand the bank’s portfolio outside of Australia. Aside from its 4 million customers in Australia, NAB serves millions of customers through divisions in the United Kingdom, United States, and New Zealand. So exposure to global risk is a real—and growing—factor in the company’s continued growth.
“Australia is becoming increasingly connected to the global economy,” says Ivan Zasarsky, a partner in Deloitte Australia. “The effect of the global financial crisis has begun as a number of these organizations start to increase their portfolio outside of the domestic client base, and as they seek business outside of Australia, they inject additional risk into their portfolios. That has a significant effect on how these organizations operate, and they’re leading to transformative programs to meet those global challenges.”
Meanwhile, volatility and uncertainty began to constrain the flow of capital among banks and markets, creating additional pressure on the business. “Before the crisis, there was consistently high growth that manifested itself in quite strong and sustained earnings in the banking sector,” says David Fodor, enterprise release director, NextGen finance and risk releases at NAB. “Today, we have an environment of next to zero growth, and that results in cost pressure within the organization.”
If we can give better insights to our execs to enable better pricing, we’ll produce a better return on investment and better capital usage.
The combination of new regulatory demands and timid capital flow added new exposure to NAB’s risk portfolio. Leadership already had a rigorous method of analyzing risk in place. But the system suffered from a fundamental problem: the quality of the data that flowed into its analytics engine. There were different data stores for credit risk and interest rate risk. There were also different data stores for the finance organization, so the risk analysis was different depending on whose data went into the analytics engine. Yet all of the bank’s groups were, in theory, working toward the same goals and the same perceptions of risk.
“Our chief financial officer and chief risk officer would come together for a meeting for an hour,” Woolley says. “They’d spend 45 minutes arguing about who had the right information, ignoring the fundamental fact that what they needed to do was actually come together and understand what [the data] was telling them.”
Executives agreed that there should be only one set of numbers. After all, numbers are indisputable facts: the company has a certain number of customers and a certain amount in deposits, for example, and opinions should have no place in that discussion. Getting to “one source of truth,” as NAB’s leaders say, would be the first step in minimizing the bank’s exposure to risk. It would also reduce the need for reconciliation across departments and enable consistent, auditable reporting.
NAB’s leadership engaged with Oracle to build a new enterprise risk and finance (ERF) system to process and reconcile tens of millions of transactions executed by NAB customers every day. These transactions pour into the company’s financial services data hub, which uses Oracle Fusion Middleware and Oracle Database to store, identify, and rationalize all the datatypes against a master data model. This step is essential to ensure that the data contained in the ERF system is understood as consistent, regardless of how it is accessed by users. “This initial review and cleanse of the data added a new level of the trust in the data for NAB,” says Stuart Houston, solution specialist, enterprise, risk, and finance, at Oracle.
The raw data, now scrubbed and rationalized, can then be accessed by two separate ERF-related systems. The first turns the transactional data into hundreds of thousands of accounting log lines, feeds those lines through a general ledger application, and makes the resulting balance sheet information available to an Oracle Hyperion enterprise performance management platform for consolidation. The result: a single source of truth about the whole of NAB’s transactions, which can now be used by all ERF executives to fully understand the state of the company’s performance. “If the data appears here, it’s fact. Every department that needs to work with data starts with these same facts,” says Houston.
But the accuracy of this data is essential not only for executives making decisions about the company’s risk exposure. The contents of the Oracle Hyperion system are used multiple times every day to meet regulatory requirements in financial markets around the world. Every market demands a full account of a bank’s daily transactions—some by the start of the next business day, but some as fast as two hours after market close. The Oracle Hyperion part of the ERF system ensures that data is consolidated automatically, reliably, and quickly to meet those regulatory demands.
Beyond the Oracle Hyperion consolidation system, the “single source” daily transaction data is also routed to an Oracle analytics engine, which produces the kind of information leaders need to make smart decisions about the business. For example, the data lays the foundation for profitability analysis, allowing managers and executives to understand the impact on the company’s bottom line of a transaction (or group of transactions) . Planning and forecasting analytics are also available, giving users the power to run “what if” analyses to model risk exposure. Still other tools enable insight into capital stress testing, capital allocation, and regulatory reporting.
Having a single platform for consolidated analytics is a significant step forward for the IT staff at NAB. Staff are replacing an IT environment that had more than 60 engines performing business analysis with each engine collecting source data using its own method. This lack of integration of the analytics platform prevents NAB analysts from making key assessments of the company’s risk exposure.
People should be spending more time on deriving insights from risk analysis rather than processing and delivering reports in a very manual fashion. I’m excited by the fact that it provides the opportunity to spend more time on real value-adding capability.
“As an underwriter, it might be profitable to write me a loan at five percent. But if I’ve got five times the risk of default but that data is contained in another reporting system, that risk will not be recognized,” says Houston.
Implementing Oracle Financial Services Analytical Applications across finance, risk, and treasury will ensure that all of the data—and the conclusions to be drawn from the data—matches up. More-accurate assessments of risk will help the bank’s leaders make better decisions about customers and products.
Better decisions start with a single customer. Previously, the risk department would come to one conclusion about the riskiness of lending to a particular customer. Finance would come to another conclusion. It was impossible to know whose conclusions were correct, and the wrong conclusions might lead to poor decisions about things like interest rates, origination, and loan terms.
Now that analysts can make better decisions, they can benefit more than just NAB’s bottom line. According to Fodor, the global financial crisis seriously constrained the flow of capital in the global economy, leading to a restriction of growth in all industries. This affects not only NAB’s bottom line but the economy as a whole. “If we can give better insights to our execs to enable better pricing, we’ll produce a better return on investment and better capital usage,” says Fodor. “Better capital usage will free up capital for us to then put back into the system in the form of lending”—thus spurring economic growth across all sectors.
NAB leadership also hopes that more-accurate data will lead to faster decisions about everything from individual customers to product pricing and potential mergers. “People should be spending more time on deriving insights from risk analysis rather than processing and delivering reports in a very manual fashion,” says Martin Whiteley, general manager, group nontraded marketing risk, at NAB. “I’m excited by the fact that it provides the opportunity to spend more time on real value-adding capability.”
Matthew Saines, national leader of governance at Deloitte Australia, says some organizations take a reactive approach to risk—“like looking at a train wreck in the rearview mirror.” The real excitement, he says, is a platform that can automate risk analysis and make risk management a proactive affair.
“Then you can see, in real-time analytics from various applications, the indicators lining up, and you can flag warnings to the appropriate people in the organization to see that something might be on the horizon,” Saines says. “The organization can then intervene and do something differently to change course.”
Five years into a massive transformation, executives at NAB can see the fruits of their labor. While the broader transformation is ongoing, other financial institutions are starting to look to NAB’s case as proof that such a transformation is possible.
Woolley says he’s glad that people are recognizing the value of choosing to tackle a transformation project before circumstances leave leaders with no choice.
“We’re hopeful that as others join the journey, we lose the maverick and trailblazing tag,” Woolley says. “If you agree on the journey, please join us, because the more people on the journey, the better the journey will be for all.”
Tara Swords is a freelance writer based in Chicago, Illinois.
Before embarking on a risk project, the leaders of National Australia Bank (NAB) engaged Oracle for an AU$1 billion overhaul that they called their “NextGen” transformation. It was designed to replace every part of the bank’s enterprise computing platform—from top to bottom—with Oracle software. That meant reducing 152 systems from dozens of vendors to just 2 systems from a single vendor. “I think the best way we could describe the back of the bank was functionally rich with an urban sprawl,” says Brett Woolley, enterprise architect in enterprise services at NAB. “That had a material impact on our ability to do mergers and acquisitions and our ability to implement change. We needed to change the underlying dynamics so we could get agility back into the organization.”
It was an ambitious project that most in the industry would agree was necessary but few were ready to commit to. Naysayers began to question the wisdom of such an overhaul, one that NAB’s own executives have likened to “remodeling your entire restaurant while staying open for business.”
Financial institutions are in need of technology overhauls for many reasons, but the biggest reason is the changing nature of banking. Customers are banking across multiple devices, many of them mobile, and they expect a consistent, secure, and user-friendly experience regardless of the channel they use: phone, branch, internet, or app. The IT upgrade at NAB is one that many financial institutions see on the horizon but are cautious about undertaking.
David Fodor, enterprise release director, NextGen finance and risk releases, at NAB, says he understands that hesitation but that it shouldn’t dissuade organizations from doing what’s necessary to remain competitive.
“If you take a long-term perspective on what you are trying to achieve and don’t lose sight of that, you will achieve your outcomes,” Fodor says. “That’s what we are focused on. That’s what anchors our decisions and provides us the energy to keep going.”