Should Treasury be a profit center and how should the financial result be distributed?

Marcel Burtscher

Agenda

What are the goals of Treasury?

What are possible operating models?

What are the right KPIs?

Should the financial result of Treasury be allocated?

Interactive part

What are the goals of the Treasury function?

Are goals of the bank and Treasury

strictly aligned?

Which conflict of interest exists?

How are they (not) reflected in the

KPI system?

FundingLiquidity

IRRBB FTP

Balance Sheet

Management

Capital

Risk taking

Profit budgets

What are the goals of the Treasury function?

What are possible operating models?

Soft Profit center

(through the cycle)

No profit intended /

AdvisoryCost centerProfit center

Business model?

Steering implications? Granularity and complexity of FTP? KPI system?

Allocation?

What are possible operating models?

Can most of the

market risk be

hedged?

Does the risk appetite allow significant market

risk?

Do you accept the

market risk?

Business model?

Income driven

TreasuryReactive Hedging

Pricing / Steering /

Optimization

No profit (neutral

result) intended

Soft profit center

(through the cycle)

Allocation

Granularity and complexity of FTP

Mandate of Treasury and KPI

yes

no

yes no

no

yes

Soft profit center

(through the cycle)

The Treasury NII contribution

What are the right KPIs?

Segment PnL Bank PnL

Risk appetite

and -limits

Qualitative/

project goals Business model

Strategic goals

Clear mandate

Incentivization

of behavior

Stakeholder

interaction

Risk/behavioral

Modeling

Product

innovation

Funding cost

Should the financial result of Treasury be allocated?

Operating model

Motivation for allocation

Allocation basis and -mechanism

Implications

Performance assessment

Example

Treasury segment result

YTD 2018; in monetary units

Revenues interest

Interest rate risk gapping 100

Liquidity risk gapping 50

Optionality premiums (net of

realized effects) 30

Valuation result -20

Gross income 160

OPEX -20

Net profit before tax 140

Equity cost -30

Risk adjusted profit before tax 110

Assets Liabities avg. RW RWA

Corporate 100 30 80% 80

SME 20 80 40% 8

Retail 120 150 60% 72

Private Banking 10 70 50% 5

FI 20 15 100% 20

Capital Markets 60 20 100% 60

Treasury 50 15 15% 8

380 380 245

Balance sheet RWA

Example

11

46

5

41

311

34

SME

RWA

Corporate Retail Capital MarketsPrivate Banking FI Treasury

42

8

51

4 8

25

TreasuryPrivate BankingRetailSMECorporate Capital MarketsFI

Assets0

200

-40 -3 -5 -3-5

30

Corporate

0-20 15

SME Capital MarketsRetail

-3025

Private Banking

-8

5

-2

TreasuryFI

0 0

155

-2

Maturitytransformation

Optionality0

-2OPEX

-8 -2

0-20

1

2

3

Interactive part

12

raiffeisen.ru

Thank you!

13

Marcel Burtscher

+7 985 390 62 73

marcel.burtscher@raiffesien.ru