Risk Adjusted Pricing

To assure adequate pricing

With zeb//control financial, zeb/ offers a solution allowing banks to ensure the risk-based and earnings-oriented pricing of new business and to compute the present value of earnings generated by a new transaction in preliminary calculations. Specifically, zeb//control financial and its pre-calculation module support you with the following functionalities and features:

Representation of bank-specific product structures

Each bank offers unique products. Therefore, a modern pre-calculation tool has to process the bank's specific product structure and supply all the key basic terms and conditions of these products at a mouse click. zeb//control financial meets this requirement through a bank-specific user interface that can be configured in line with each product.

Bank-specific structure of contribution margins

In pre-calculation, zeb//control financial allows you to use both a present-value and a classical period-oriented contribution margin system. Both systems can be configured in line with your requirements. Deviations from the bank's strategic reference values are highlighted by traffic lights. The earnings thresholds used by the traffic light system can be laid down separately for each product. Traffic lights also support the advisors when they adjust individual product parameters.

Present value calculation

The present value approach is consistently used to valuate individual transactions. To determine the interest condition contributions, commissions, risk costs and unit costs, the system computes the relevant cash flows, discounts them in the next step and finally aggregates them to obtain the present values of the individual earnings components.

Customer-based pricing of new transactions

Customer-based pricing requires detailed information on credit collateral. Earnings-oriented terms and conditions can only be developed for new contracts if you have an overview of all the existing transactions of the customer. By accessing zeb//control data management, the customer's contracts are analysed in their entirety and the overall contribution margin of the transactions is calculated. Thereby, zeb//control financial allows for earnings-oriented decisions to be made before each individual contract.

To determine ratings-based risk costs, the risk cost cash flows are calculated whose payments represent the risk-based premium for the period concerned. This approach takes account of both the current creditworthiness of the customer as well as any future rating changes during the contract's term. This results in a significantly more realistic risk assessment in comparison with models that only consider the customer's current rating.

Flexible creation of standard condition tables

Especially in the field of loans, each customer has his/her specific demands for contractual terms and conditions. Redemption schedule, nominal interest rates, partial disbursements and extraordinary redemption rights are contractual conditions that can be negotiated on a case-by-case basis. If the customer's demands are largely accommodated by adjusting the product's design, this may be a crucial aspect when the customer decides for or against a specific bank. However, the earnings requirements of the bank also need to be safeguarded. zeb//control financial creates the transparency necessary for defining customer-specific, risk-adjusted terms and conditions. The condition tables can be processed and presented with the help of Excel.

Do you need further information or are you interested in using zeb//control financial in your bank? We would be pleased to arrange a meeting at your office to present all the functionalities of zeb//control financial and discuss its application in your bank.