Serafim Finans – Risk Measurement & Treasury

Serafim Finans is a fast growing Swedish credit institution founded in 2004 with a business concept to offer financial solutions to companies and consumers. Serafim Finans today helps 13 000 companies and consumers in Sweden with financial solutions and secure savings. Serafim Finans strives to find flexible and long-term solutions that make it easy and smooth for our customers to reach their full potential. As a fast growing and expanding company Serafim has since the end of 2020 chosen to utilize FCG:s services within the market risk area including IRRBB analysis and reporting services as well as market risk calculations for the liquidity portfolio.

The challenge

Serafim, with a rapidly growing balance sheet, needs to be able to continuously evaluate and control how the interest rate risk develops, both the structural interest rate risk (EVE) and the net interest income risk (NII). In addition, new regulatory requirements were drawn up by the EBA during 2022 which entail changed calculation methods in several areas. Perhaps the most significant of which is that non-maturing deposits are assigned a duration in accordance with regulatory pre-defined levels. This has significant effects on how the interest rate risk is to be measured and also on the assessment of the capital requirement for interest rate risks.

Serafim felt that they had a need, in addition to the ongoing IRRBB reporting, to obtain an analysis for how they could structure the balance sheet in the long term to balance profitability, capital and new regulations considering the interest rate risks in the bank book

Because of Serafim Finans’ extremely rapid growth, there was a need to analyze the IRRBB effects in order to manage the risks. The choice of advisor fell on FCG which delivered above expectations.

Erik Lundberg, CFO Serafim Finans

The Solution

FCG assisted Serafim in analyzing various outcomes of forward-looking strategies of structural changes to the balance sheet as well as conducted analyses regarding the new RTSs proposed by the EBA. Duration-weighted NMD was also introduced as a parallel calculation for Serafim in the ongoing IRRBB reporting from FCG. The analyses were carried out in ARMS, which is a market risk system from FCG’s subsidiary Algorithmica Research AB, which FCG uses for its service customers regarding IRRBB and market risk calculations. In ARMS, FCG was able to implement ongoing parallel calculations for both current and future regulations as well as providing Serafim with several what if analyzes and what effects they would entail.

The Results

Serafim was given an overall picture of how the interest rate risk levels would be affected, forward looking based on possible changes to the balance sheet structure and also taking into account effects of a changed regulatory framework within IRRBB. In addition, the introduction of calculations in accordance with upcoming regulations meant that Serafim could, at an early stage and continuously, assess and include the effects in its future business and capital planning.