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Financial Institution Risk Management in Germany: Navigating Complexity and Competition

In today’s challenging regulatory environment, financial institutions in Germany face unprecedented pressure to optimize their risk management practices while maintaining competitive edge. The emergence of new players such as peer-to-peer platforms and mobile banks has disrupted traditional business models, forcing institutions to adapt quickly.

Rising Regulatory Costs and Stricter Capital Requirements

High regulatory costs, stricter equity rules, and low interest rates are eroding achievable net margins for German financial institutions. To stay afloat, they must create new banking channels and customer experiences that increase agility, quality in customer service, product development, and process design while reducing costs.

Key Challenges

  • High regulatory costs
  • Stricter equity rules
  • Low interest rates
  • Disruption of traditional business models by new players

A Holistic Approach to Risk Management

Financial institutions seeking to succeed in this environment should adopt a comprehensive approach to risk management that includes:

Key Strategies

  • Reduction of unnecessary content, standardization, and modularization
  • Optimization, standardization, and automation of processes, including digitalization without disrupting existing systems
  • Identification of new sources of information and the use of advanced data analytics methods (machine learning/AI, text mining, etc.) to enhance results quality and speed while reducing expert reliance
  • Integration of proactive customer relationship management (CRM), agile credit scoring, and efficient credit processes for positive customer experiences and high satisfaction

Implementing External Standards

In addition, German financial institutions must optimize their implementation of new external standards such as the Future of IRB, Basel IV, NPL Guidance/Guideline, and IFRS 9 Impairment. This requires integrative coordination to ensure redundancy-free credit processes and consistent credit risk information.

Key External Standards

  • Future of IRB
  • Basel IV
  • NPL Guidance/Guideline
  • IFRS 9 Impairment

Expertise and Experience

KPMG offers a holistic approach to increasing competition and meeting external requirements in the context of credit for financial institutions in Germany. Our experts possess interdisciplinary know-how in areas such as:

Key Areas of Expertise

  • Credit risk modeling (rating models, credit risk portfolio models, early warning systems, etc.)
  • Independent validation of credit risk models
  • Credit process optimization and digitalization
  • Data analytics (identification/generation of new data sources, machine learning/AI, text mining, etc.)
  • RWA optimization
  • Regulatory compliance (CRR, MaRisk, NPL Guidance/Guideline, etc.)
  • Reconciliation (IFRS 9)
  • Efficient organizational and operational structure in credit risk controlling and management
  • Technical and IT architecture
  • Customer relationship management (propensity models, retention, customer value, campaign models, etc.)

Get in Touch

KPMG is committed to supporting German financial institutions in navigating the complexities of risk management. We invite you to get in touch with us to learn more about our expertise and experience in this area.