Uruguayan Mortgage Bank (BHU) has updated its system and reduces credit risk with the Integral Bank Managing System by SONDA

Client: Banco Hipotecario de Uruguay (BHU) Industry: Banking Solution: Banca y Finanzas e Integración de Sistemas

Summary

The BHU challenge, being the number one financial institution issuing mortgages in the country, was no easy task: it had to go from paper and obsolete applications to an updated system that could enhance the organization of customer’s data, reduce the portfolio’s risk, and improve its own management.

After evaluating different propositions, they decided to accept the solution offered by SONDA, an Integral Bank Managing System that allowed them to get in tune with the new times to continue with the important labor that it performs: giving access to housing for a large part of the population of Uruguay.

Client Profile

The BHU is a traditional state institution created in the year 1892, whose mission is to assist with the access to housing for Uruguayan families, throughout credit operations, occupying 90% of the market share within the country. In society it is highly regarded and appreciated, since it has allowed thousands of middle and low class citizens to have their own place to live for generations.

The BHU mission is to assist Uruguayan families to obtain houses, with credit operations carried out with efficient risk management, with appropriate working conditions in a competitive financing market, preserving its legacy.

Business Need

To modernize systems to operate in a new legal setting, diminishing credit risk and improving efficiency and customer service.

The BHU is a financing institution whose mission is to grant Uruguayan families access to purchase housing, throughout credit operations, occupying 90% of the market share in the country. In society it is highly regarded and appreciated, since it has allowed thousands of middle and low class citizens to have their own place to live for generations.

The data handling methods were based on two important platforms: on one side there was a Mainframe IBM with outdated software from a few decades ago, which registered basic data, and on the other side, a paper-based registration of information.

As the years went by, this IT setting, once sufficient, was no longer so and made it impossible to fulfill the minimum information requirement of the supervisory authority, a situation that became critical when the bank had to practically stop issuing credits because of this outdated technology.

This is why in the first few years of this decade the IT system proved to be obsolete and the international tendering process to implement a new solution began.

After almost a year in which the bank carefully studied the offers, in the year 2005, SONDA is chosen as a supplier of the solution and implementation of a new system that would be known as Integral Bank Managing System (SIGB), and that would allow the BHU to fulfill the legal requirements and finally recover and preserve the international prestige which it had enjoyed for so many decades in the Uruguayan society.

 

Solution

After a very demanding implementation project carried out in its entirety by SONDA, on May 5th 2008, there was a “Big Bang”, a euphemism used to describe the day on which the old system was replaced by the new solution, which would be used from that moment on to deal with the general public.

Returning to the origin of the solution, it’s important that we understand that this project not only implied a complete radical change in the banking system core, but also it was necessary to manually type over 150 thousand mortgaging archives, of which, each one had information about the debtors, the loan, and the housing, among other things, a task that was performed by approximately 100 people for data input and the control of logistics needed when working with such delicate and critical information, to such a point that they worked triple shifts for around 2 years, after which the Bank continued its regular functions.

On top of this, teams of specialized Change management, IT infrastructure, Training and Documentation, Software Development, Data Quality and others were added to coordinate endeavors that concluded the new system’s release into production.

For this entire period, we had to develop an ad-hoc system in parallel with the objective of synchronically gathering the information hand-inputted by the employees, with the information that came directly from the obsolete Mainframe system, and that also had to consider the new data that was being produced in the present, due to the fact that the bank never stopped its operations, since the loans, among other operations, were still being paid off.

Results

Update the way of doing business in a modern era.

The benefits obtained are immeasurable, starting with the fact that the entity had multiple accounting systems that the personnel had to manually fill out. Having part of the information on paper and the other part in the Mainframe, obviously there were loose Excel files, databases on Access or Dbase. Now they have all the information but integrated and centralized.

From a business point of view, the bank had limited information about the customers. In spite of it being impossible to know the expiration date of the current month, it wasn’t possible about previous months. In fact, the balance could be checked but it was impossible to know the moment that the previous installments had been paid. After the implementation of the Integral Bank Management System, the institution had historical records.

Other benefits of this were the incorporation of new concepts, such as the client, since previously there were only loans and properties. “If this credit was not paid off in a determined period of time, or there was dfaulting, the law enforcement was applied against the property, but the client was unknown. Solorzano says, and adds “In fact there was no information neither about him or her nor his or her behavior. Not even the name was known unless you went to the physical archive of the loan. What has been achieved with the new system is the integration of all the data, thus making client follow-up possible, preventing bad debts, assessing early defaults, identifying any mismatches in the debt security, etc., and by doing this we are able to organize recovery campaigns oriented according to the bank’s own parameters or conveniences.

The different departments of the BHU, as well as the departments that deal with customers for the first time, or those which rate properties, may now use integrated information and manage and observe one single set of information.

Thanks to the new solution, the BHU was able to implement a new scoring system and in this way, perform a better selection of the person who would ask for a loan. Previously, the loans were given only on the perception of the customer, but with no analysis of his/her financial profile, which is analyzed nowadays, and has allowed the reduction of the portfolio’s credit risk

Additionally, with the new solution, the bank was able to transact new business by generating, up to now, 6 new trusts (there are more in progress for the current year) incorporated by low qualification or very delayed loans, handing over their administration to another institution, and in this way the BHU was able to charge the value of the mortgage portfolio sale. To formulate a trust, it is essential to have a vast amount of information certified by a notary public.

“It was a great effort to keep the same portfolio inside the system and it also implied the migration to a new and separate portfolio to be able to transfer it to the new institution that would be in charge of managing it. These shareholdings, six in total, were only possible thanks to this new system” stated Solorzano. Definitely, thanks to having such detailed information, these operations allowed the bank to capitalize at over 250 million dollars.

Benefits

  • Allows the bank to comply with all the rules required by the State Control Institution and in doing this start loaning money to the people again
  • New business possibilities are encouraged
  • Credit risk is reduced
  • Having an integrated solution that allows the sharing of data to all the bank staff
  • Implementing the new scoring system

Testimonial

Testimonies

“The Mainframe was so old that the data stored there was a subset of very basic information in comparison to what an institution such as Banco Hipotecario requires, which can be supplied by modern IT technology. The system contained the loan’s identification code and nothing more. The rest of the information, the data of the account holder, property, guarantees, the loan itself, etc. was all hand-written.

We worked under a lot of pressure, at a frantic rhythm against the clock to have one of the most important banking institutions of the country, with over 30 branches and a thousand employees , permanently shut down an old Mainframe and resume operations on a new and modern IT platform on May 5,2008”.

Jose Zeballos, Application Coordinator and Project Manager of the BHU-SIGB

“Now we have the knowledge of how the repayment of the loan was carried out. With the old system it was impossible to have this information.

With the SONDA solution we have precise information that allows us to make better decision based on the best business lines, income, or family composition, in a way that we can grant loans with optimal conditions as far as the installment collection goes, and with this the risks are considerably reduced.

Gustavo Solorzano, IT manager of BHU