SME Programme Lending

8/19/2019 SME Programme Lending

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SME Programme LendingOverview Group Best Practices &Key Challenges

SME ConferenceLahore, Pakistan - May 2005

David Yong

GRM Consumer & Programme ending


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Agenda

Introduction

Sco e

!"er"ie# ma$or %&' %M(! SME )usinesses

&usiness Mode*sCredit Process + Product Programmes

Portfo*io MIS

se of scoringey Cha**enges


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ABN AMRO Pakistan

1948: First foreign bank in Pakistan

1993: Expansion of bran ! net"ork #$ bran !es in 3 ities%

1998: &ntrod' tion ()* deposits + penetration into Aff,'ent seg-ent

1999: &ntrod' tion Persona, (oans + Mortgages

.//.: (a'n ! )o--er ia, Banking fo 'sing on Mid0si ed )orporates

.//2: (a'n ! )redit )ards


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istor of ABN AMRO #1%

In 1./ , ' M merged #ith e 3#entsche &ank to form %*gemene &ank 'eder*and 4%&' #hi*e %msterdamsche&ank and (otterdamsche &ank $oined to )ecome

%msterdam-(otterdam 4%mro &ank6

In 1..1, these t#o )anks merged as %&' %M(!6

!n 2. March 172 , ing 8i**em Iissued a roya* decree creating the'eder*andsche ande*-Maatscha i$4' M #ith the aim of re"i"ing trade)et#een the 'ether*ands and the

utch East Indies6


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ABN AMRO toda 555

conducts )anking, fund management +insurance6

ranks 11th in Euro e and 17th in the#or*d )ased on tota* assets6

has o"er 9,000 )ranches in more than/0 countries, a staff of a)out .:,000;3Es and tota* assets of E ( : 26.)i**ion 4as at 91 March 2005 6

is *isted on the Euroneterritories ?/ =

trong Ba,an e !eet 7E@R #b,n%

ota, assets $4.59;ro'p apita, 325?Risk "eig!ted assets .425?

> as at 91 March 2005 >> 3he &anker, ?u*y 200


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ope ME !ara teristi s + seg-entation

&ack)one of economy;ami*y o#ned@de endent 4informa*

Aarious ty es of *ega* entity

Im ortance of ersona* re*ationshi #ith c*ientBua*ity of financia*s

nderstated re"enues for ta


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arget -arket definitions a ross o'r sa-p,e aried

"ide, a ross -arkets and "it!in -arkets

'ote n F 92 )anks

Main SB segment definitionby geography

)'t0off t'rno er # MM%

NorthAmerica

410)anks

Benelux49 )anks

UK4 )anks

Europe412 )anks

Other 49 )anks

0 2 / 7

!"# #"$ %"

!"' #"( )"*

06: !"+ #"(

#" *" )"(

#"* %"# +"'

Average

Specialist segmentations observedS ecific segments ser"ed according to #e)-site 4e6g6 :0G of the 29 )anks had a defined

H%gricu*ture offer

'on- rofit

Minorities

;ranchises

%gricu*ture

Mercer Oliver ,yman


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P,a ers !a e positioned t!e-se, es as !a ing a fe"

prod' ts in ea ! fa-i, Csi-p,e and standardSimplicity of external offering4Products er fami*y according to #e)-site

D prods

n F 17 )anks

!ften standardised Hcore offer #ith segment "ariation in$ected "iathe communications mi<

o#e"er, most *ayers inter"ie#ed said they had many moreroducts interna**y

Poor record of roduct management and rationa*isation

Most *ayers a *ied a "ariety of standard customer insight too*sinto S& roduct design

Market siJing and ro$ected rofit oo*s research Com etiti"e research

HMystery sho ing

'et#orking #ith *oca* inf*uencers or t rade associations

&est ractices #ou*d )e )anks that conducted S&-s ecificDuantitati"e research around needs More s ecia*ist roducts suchas *easing, factoring norma**y outsourced to sister com anies

!n*y a fe# offered e


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O er ie"

ome Market & s 4'L, S and &raJi* ado ted ProductProgrammes for SME s

Identify otentia* for further migration 4'L + &raJi*

Products across markets are simi*ar and Htraditiona*

Emerging markets cautious start )y other & s 4India,Indonesia, Pakistan + 3ai#an

no#*edge-sharing across the Krou

Cut-off oint rogram *ending + non- rogram *ending to )edetermined er market

!"erseeing 1: Product Programmes #ith E'( of E ( 2,7&i**ion, #ith transition ortfo*ios


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O er ie" 0ota, Portfo,io # e e-ber .//4%

3ota* ortfo*io E ( 2,7&i**ion 4 ec 200Largest ortfo*io & S#ith S 1,9 &i**ionPortfo*io consist oftraditiona* and sim *e

roducts 4 B200 7 G(a id gro#th in 'L4organic and &raJi*4organic acDuisition3ransition ortfo*io &'L earmarked E ( 2,2&i**ionCautious start in India +Indonesia

e"e*o ment of *ansfor AKP& &usiness!#ners in 'KM %sia


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B'siness -ode,s

o-esti positioning: o-e Market B@s ,arge ,ient base

traditiona, do-esti standardised prod' ts

re,ati e, ,arger distrib'tion net"ork

;reenfie,ds: &nternationa, Net"ork start fro- #Ca,-ost % ero

o-petiti e edge

,i-ited distrib'tion net"ork

,i-ited re,iab,e data for redit assess-ent


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!ere are -an "a s to reate gro"t! in -a,,

B'siness banking

A's>NG Bank !ad ,ost -a,, B'siness # B% s!are afteratte-pting to b'i,d ,o"0 ost re-ote !anne, -ode,

Re0,a'n !ed a na-ed ,o a, point of onta t #RM orbran ! -anager< dire t dia, n'-ber% "it! ,etter

a-paign and o'tbo'nd fo,,o"0'p

a" =2/H in rease in 'sto-er satisfa tion< 402points of s!are gain and no" ba k in top . s!areposition< in ,ess t!an 18 -ont!s

)apita, One entered B -arket in 990 // app, ing &Bte !niI'es

)o-bined -arketing and risk ana, ti s< "it!predi ti e -ode,,ing to target asset0based prod' ts"it! a dire t -arketing -ode,

39H 30 r )A;R in asset gro"t!< no" D. in B ardsand D3 in BA ,oan origination

nformation!based Strategy"eturn to #ocal ntimacy

BO s -erger !ad gi en it a strong B b'siness"it! t!e Bo fran !ise b't ,o ked into s-a,, bran !footprint

Rapid, !ired net"ork of RMs to ta k,e t!e J101/MMt'rno er seg-ent C!'nter for e to so'r ea I'isitions and do'b,ed @ s!are fro- 3H to ?H

No" re0branding 4// bran !es #o't of 8//% in Eng,andin .//2 and reating in0bran ! B spe ia,ists toexp,oit f',, retai, presen e and go after J/01MMb'sinesses

@ bank !ad red' ed bran ! net"ork and ,apsed inser i e I'a,it s'ffering B attrition rates of 3/H

eg-ented b'siness into 3 distin t propositions:nationa, dire t< Caff,'ent >'pper0end B and bran !0based -i ro0 B< o-bining persona,>b'sinessa o'nts

Expanded B fran !ise be ond bran ! footprint< no"in op 3 in @ B ,enders5 ;re" profits at 3/H )A;Ro er 2 ears< s5 bank gro"t! of ./H )A;R

Multiple Business Model $ocusExploit "etail Branch %overage

Mercer Oliver ,yman


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)redit Pro ess: )o--er ia, ers's )ons'-er> ME

)o--er ia, (oans

(o" o,'-e(arge !eterogeneo's

ea,0based

A'dited finan ia,state-ents

A o'nt -anage-entRe ie" ,oan0b 0,oan

enior -anagers appro e,arge> o-p,ex ,oans

)ons'-er + ME (oans

ig! o,'-e-a,, !eterogeneo's

Ko,'-e0based

(i-ited ons'-er finan ia,data

Portfo,io -anage-ent bstatisti s

enior -anagers appro eredit prod' t progra--es

ransa tion!ara teristi s

Appro a, pro ess

)redit data

and,ing and!e king

ierar ! ofappro a,


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Traditional deal-based underwriting don’t work in high volume lending

P,anning @nder"riting Operations )o,,e tions

!e Boss


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Portfolio Management is in the core of Risk Management function

)redit ) ,eProd' t P,anning

Manage-ent &nfor-ation ste-s

)redit A I'isition

A o'nt Maintenan e

)o,,e tions

6rite0Off

Risk Manage-ent

&ntera ti e

na-i

Portfolio Management


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Risk Manage-ent 0Progra--e (ending feat'res

tandardised and Csi-p,e prod' ts

)riti a, -ass>s a,e

Risk re"ard ba,an e

Predi tabi,it

Fa tor 0 st ,e

Manage-ent b ex eptions

Portfolio Management done through approved Product Programmes


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% standardiJed set of ru*es of credit e


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!e Prod' t Progra- ontains 555

Product escri tion3arget MarketEconomic and Com etiti"e En"ironmentE*igi)i*ity Criteria 43erms and Conditions

%ccount Initiation %ccount MaintenanceCo**ection and 8rite-!ff Po*icy3reasury, ;unding, and Pricing Considerations

Su ort Systems and MIS re ortsProduct Profita)i*ity and Stress 3esting

The Product Programme process is strongly supported through MI


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&-portan e of M&

)ontin'o's, pro ess and transfor-s data intoinfor-ation< "!i ! "i,, be 'sed in t!e de ision-aking pro ess dire ted to"ards opti-i ing

res',ts:

Risk0Ret'rn rade0Off

er es as a base for effe ti e redit ,e andportfo,io -anage-ent: ontro,,ing risks andassessing opport'nities


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Exa-p,e & 0Portfo,io Perfor-an e

( di b fi


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Progra--e (ending benefits:Base, . Retai,N %n incenti"e to *ace as much of the SME ortfo*io into astandardised Program-Lending format, as is ractica* +

rudent6 4K(M *imit E ( 5MMN8hi*st the ad"anced a roach has distinct ad"antages, the

standardised a roach is a*so )eneficia* #ith risk #eightsat :5G6

N&oth Ca ita* re*ief and cost efficiencies can )e e< ectedfrom standardisation6

N %s more -M. ortfo*ios )ecome standardised to take

ad"antage of &ase* II, the roduct #i** in turn )ecomeeasier to securitiJe, so the roduct #i** )ecome moreattracti"e to )anks, #ho may choose to kee it on or off)a*ance sheet )ased on ca ita* need6


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&-p,e-enting Progra- (ending fa es!a,,enges

ponsors!ip of enior Manage-ent and (ine s'pportA ai,ab,e redit data to assess ,ients and prospe ts

'-an reso'r e and Organi ation iss'es

Pro ide adeI'ate and on0going training in redit ,e -anage-ent

and progra- ,ending

Ens're an organi ation apab,e of -eeting t!e need for greateroordination and tea-"ork

Redesign of b'siness pro ess

&dentif a pro e t tea- of indi id'a,s "!o represent f'n tiona, areasof t!e redit ,e

Be read to s'pp,e-ent interna, reso'r es "it! externa, ons',tants


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&-p,e-enting Progra--e (ending fa es!a,,enges # ontin'ed%

'ffi ient & s ste-s and data base reso'r e Reso, e gaps on data so'r e< data I'a,it < data integration and data

'sage Ens're an a'to-ated front0end (oan Origination ste- #(O % and

)o,,e tion ste- in p,a e

Effe ti e and onsistent M& reporting Estab,is! one sing,e standard or o--on ,ang'age reporting s ste-

Pro ide end0to0end M& onsistent "it! Prod' t Progra- definition Ens're t!at t!e M& !as t!e abi,it to pee, t!e onion or

disaggregate perfor-an e data at ario's ,e e, of detai,


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&-p,e-enting Progra- (ending fa es!a,,enges # ontin'ed%

&-p,e-entation of s oring -et!ods oring s ste-s -ake sense on, for !ig! o,'-e b'siness

App,i ation oring

N in rease 'nder"riting pro ess effi ien

N i-pro e portfo,io I'a,it t!r' statisti a, ontro,

Be!a io'r oring N in rease profitab,e 'sto-er re,ations!ip


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coring tries to evaluate who is the best risk!

'perBad ore ard Maxi-'- Benefit

'per;ood


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ifferent s ore ards for different p'rposes

&nterna, App,i ation Risk ore ard Based on app,i ants past perfor-an e Ne" a o'nts

&nterna, Be!a io'r Risk ore ard #Be!a io'r and)o,,e tions oring%

Existing B'siness Based on a o'nt !o,ders past perfor-an e

Externa, )redit B'rea' ore ard Based on a o'nt !o,ders externa, redit a ti it

1 1 1


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o" &t 6orks Po,i

F e

f a '

, t R a t e

F e

f a '

, t R a t e

Lo# ScoreLo# Score igh Scoreigh Score

Simplified UnderwritingSimplified UnderwritingOn Low Risk ApplicationsOn Low Risk Applications

Reject High Risk AppsReject High Risk AppsTo Lower Bad DebtTo Lower Bad Debt

Rank A,, App,i ations B efa',t Risk

et )'toff o A !ie e Appro a, Ob e ti es

an!al Re"iewan!al Re"iewarginal #asesarginal #ases


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Re ap 0 e !a,,enges

enior Manage-ent o--it-entki,,0set + !'-an reso'r es

O er!a', of existing redit pro ess

&n est-ents in &

)o--en e ata o,,e tion

Rationa,i ation of Prod' t Manage-ent

A,ign-ent of ser i e on ept to ost>benefit

A ai,abi,it of redit data


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da id5 ong n,5abna-ro5 o-

!ank o'
mailto:[email protected]:[email protected]

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SME Programme Lending