Carla Noya Mkt&Communication Manager Elsag Finance Solutions Elsag Spa carla.noya@elsag.it

1. The IT&C and Financial & Banking Convergence Bucharest 29 October 2003 The Banking governance system and its implication regarding IAS and Basel II – the vision of Elsag Finance Solutions Carla Noya Mkt&Communication Manager Elsag Finance Solutions Elsag Spa carla.noya@elsag.it

2. Our future won’t be any longer the same of the past… Reference operator in the Italian Information Technology, with about 3.000 employees and 420 mil/Euros turnover in 2002, belonging to one of the most solid industrial Italian groups – Finmeccanica - Elsag projects, carries out and manages information solutions and services. Elsag considers absolutely strategic the Finance market and for this reason created the division Elsag Finance Solutions specialised in products and solutions for all the financial institutions, the reference partner not only for the financial core business. Innovation and evolution capability do not change what is the fundamental role of Elsag: to provide Information Technology, one of the most important enabling factor for the modern company business processes.

3. The Group Elsag Back- office Services 100% Elsag Gest Shoplà 65% 50% Banca Intesa Banks 83% Elsag Banklab Ales 51% Banks 51% Elsag ERP Alitalia Private investors 51% Elsag Solutions 50% Italdata Ingegneria dell’Idea 51% Elsag STI Private investors Banks 100%

4. The Company Marketing 3% 9% Installation and implementation Staff 10% 9% Project concept and services 10% Project management and services 24% Service delivery and customer assistance 35% Development Ascoli Benevento Bergamo Brescia Florence Foggia Frosinone Gorizia L’Aquila La Spezia Palermo Perugia Piacenza Reggio C. Turin Varese Venice Bucharest Villingen Riyadh Genoa Rome Milan Naples HUMAN RESOURCES AND STRUCTURE 2,926 employees at 31.12.2002 Main and secondary offices

5. EFS The Elsag Finance Solutions Division

6. The new Elsag Finance Solutions (EFS) division • On June 2003 Elsag had approved a new industrial plan to reinforce of the company into the FINANCIAL MARKET. The plan provides: • the creation of the division EFS • a newmanagement • investments for 10 millions Euro in the next 2 years • the consolidation of our presence on the banking market (with more than 100 active references) with a particular focus on the top ten Italian and International Groups • The reinforce of our presence in the developing countries market(Elsag has developed the entire information system of the Al Rajhi Banking & Investment - one of the major Saudi financial institutions) • The extension of the presence also in the insurance and parabanking market through the development and integration of core solutions Year 2002 Revenues 52,8 E/mln Resources 380

7. EFS for the financial market

8. The market Banks and financial institutions opearting on international financial markets are facing the challenges of rapid change, increasingly fierce of competition, reduced margins and new technology, all at a time when customers are becoming more demanding. So one pf the keys to success in this environment is an ability to respond to the market demands, anticipate customers needs and use information to maximise profit.

9. The market: some of our customers

10. Our offering The knowledge of the needs of the financial environment, the large number of projects developed, the technological competences, the solidity, make EFS the startegic partner for all the financial institutions • Solutions • Consultancy • Projects • Services • System Integration

11. The theme of today

12. Major functional limitations of the previous accord(1988) … • The lack in considering the different creditworthiness of private companies, all subjected to the same risk pondering (100%); • The lack in considering the different risk grade implicit in the different life of the residual debts; • The lack in considering the different risk grade related to portfolios that present a different grade of diversification; • The limited consideration of the risk reduction effects related to policies of hedging account with warrants or credit derivatives Cfr. Prof. Caselli –Università Bocconi Milano

13. … And the criticality in the information systems • Objectivity • Redundances • Reliability • Presentation architectures • Timeliness • Stratification of the extractors • Qualitative data not usable • Limited or not sufficient integrations • Destructured processes Information Systems • Mismatches in the customer segmentation between executive and CRM systems • Limited availability of historical data • Limited matching between internal and external data • Limited use of data collected during the preliminary investigation • Limited integration between the Finance and Credit areas Executive Systems

14. The Elsag Finance Solutions’ vision • Design an architecture: • Governable for its complexity • Flexible for different levels of use and/or Countries target • Adaptable to business models (investment optimization) • Maintainable in the future but, most of all • Integrablein the production system • Quickly usable and for this estimable Back Testing Simulations

15. Integration with Basilea - IAS “In financial institutions that will adopt the IRB approach, internal credit ratings and evaluations of default and loss must have a crucial role in the authorisation process of granting loans, risk management, internal capital allocation and corporate governance functions.Rating and evaluation systems, drawn up only with the scope to enable the bank institution to the IRB approach and used only to provide input IRB, are not acceptable.” (cfr. Basel Accord –406)

16. Our methodology Relialability Integration (coherency) Functionality Analysis Profiles National Central Bank Protocol and/or Company values Structured Management of Processes and N.I. (WorkFlow & Document management) Operations Analysis Model Solutions/semi finished products • Definition of data to be acquired • Collection and organisation of information elements • Processing • Integration

17. Our vision of the project The new scenario Front Office • Request • Revisals/ Extensions • Conditions operations Positions/operations Positions/operations • Back Office • Control • Measurement • Management Integrated rating system Credit DB MEASUREMENT AND EVALUTION PORTFOLIO CREDITS C.A. – F.V. – VaR MODULE Delegation system Information Providers

18. To Support the logical process … Inquiry & Grant Conditions & Pricing Management & Monitor Definition & Default Up date Small Customers Credit Scoring Monitor & Warnings Central Bank Conditions Risk-adjusted Credit Collection Management Managerial systems Guarantees Management Rating Retail Customers Portfolios Management Rating / Grading Corporate Customers CRM IAS

19. Relationships between customer segments and analysis paths Methodical use of the external rating produced by information provider on a base of sectorial, economic-financial and trend data Methodical and mandatory use of Targeted examinations scoring Targeted examinations with ad hoc report providedby information provider. Production of the internal rating according to the Elsagbest practices shared with the Bank Methodical and mandatory useof the internal rating that integrates the external rating according to the Elsag designed best practice path shared with the Bank Customers oriented towards relations (Corporate) Customers oriented towards transactions (Retail) Small size Customers (Small e Consumer credit) Internal Rating (Grading)

20. The solution for the credits procedure The inquiring path (WorkFlow) The creditworthiness judgments for “Grading”

21. The solution for monitoring the positions The synthesis model The analysis path

22. The solution for credit portfolio management

23. IAS 39 Credit Architecture Management processes Alimentation Value Calculation Process • Standard data for surveillance of central bank. • Additional data (Business / Rating ) Info Provider Rates and currencies Output for Business I.S. • IMPAIRMENT • Portfolios management • Time series management • PD Curve • Impairment functions • Analyticals • Generals • RECOGNITION • Data loading in calculation engine • Exposures • Contract data (rates, deadlines,ecc.) • Customer Data • Rating • Portfolio variables (sae, rae, localization, ecc.) • Aggregation calculation • Parameters/Values Management • Functions of file management • Inquiry functions • Data extraction for business I. S. (Balance/General Accounting) Calculation engines • Fair Value • Actual Interest Rate • Amortized costs • Market rates Analysis & Reporting Components external to the IAS project Procedures that will be changed by the IAS project Procedures directly touched by the IAS project

24. IAS 39 Securities Architecture GIANT Central Finance Department Main Frame Operational procedures Securities Daily Balance Info Provider Customers’ Information file (Sectorial analytical accounts) Rating • Ratios • Chart of accounts • Allocation Management • Analytical values production • Synthesis values production • Data production for general accounts BilG - Ledgers (Asset, Investments, Passive) Calculation engines General accounts • Portfolios Management • Impairment • Accounting movements generation • Accounting and economic covers and their efficiency • Future projections • Fair Value • Amended cost 4 1 2 3 securities 5 Credits Covers Derivatives DB

25. Thank you for the attention Carla Noya Elsag Finance Solutions carla.noya@elsag.it