In banking there are a considerable number of financial calculations critical to areas like customer management, financial reporting, risk, analytics, tax, pricing, and regulatory operations. These calculations are varied yet all rely on inputs from multiple systems, drivers and generate an output. Calculations range in their complexity and volume requirements depending on the ease of data sourcing, the type of calculation, and the size of the organization.
Current approach and limitations
Often these various calculations are managed and run in siloes, whether in individual source systems, point solutions, excel spreadsheets or access databases.
This approach limits an understanding of the applied calculation logic, prevents real-time analytics, and requires manual intervention by the finance team. The volume of data and calculations required can also place stress on standard data processing systems and might mean that critical calculations take too long to complete. Off-line processes can also create a cottage industry of key man dependencies. Frequently there is an expert in their particular calculation who does not understand the wider business context.
As data volumes, business complexity and the desire for faster, more detailed data increases, the ability to automate these calculations is more valuable than ever.
A finance calculation engine can help finance teams centralize, standardize, and automate complex and multidimensional calculations, conversions, and allocations. Here are some of the most commonly automated banking calculations and allocations.
Banking calculation use cases
Share Base Payment Calculation: When employees based out of different branches or subsidiaries are compensated through a combination of cash and shares, the accounting, tax and disclosure requirements will differ.
Regulatory Ratios Calculation: For calculations like Risk Weighted Average (RWA), aggregated balances for the General Ledger must be broken down to a more granular level.
Impairment Analysis: Impairment analysis is required on the cost of investment of subsidiaries and associates at least on a quarterly basis.
Stress Testing: Stress testing by currency, by tenor, etc is performed by a treasury department either daily on in the event of a near miss. This requires calculations to create the simulated scenarios.
Banking allocation use cases
Fund Transfer Pricing (FTP): FTP is a regulatory requirement and an internal tool used to ensure costs, benefits and risks are attributed correctly to business lines, ideally at a product level.
Revenue Transfer Pricing for Tax: The allocation of P&L from a trade to the appropriate entity must be calculated.
Cost Allocation for Tax: There is a tax requirement to reallocate service costs like payroll, settlements, accounting, and IT support which may be performed in one geographic region but serve multiple locations. For tax purposes these costs must be calculated and recharged to the revenue entities at month end.
Sales Performance Allocation: Banks typically have a complicated sales credit and attribution approach that spreads sales credit between a salesperson, bankers, traders and others involved in the process and can differ by product, role etc.
The efficient, automated, auditable generation of these calculations are critical to a well-functioning bank.
Aptitude Calculate provides the elements and processing power required for business users to define and generate allocations, calculations, and conversions. The use cases are many and can include anything that requires a cost, expense, or investment allocation or any supplementary calculation needed to support the finance team in its functional and compliance data preparation and reporting requirements.
Learn more about Aptitude Calculate here: https://www.aptitudesoftware.com/product/aptitude-calculate/