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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'
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