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Customer Management in SME Banking
Qamar Saleem Head of SME Banking, ANB
IFC MENA SME Conference
January 2012
Strategies and Practical Insights
Arab National Bank
Arab National Bank was established in 1979
Amongst the 10 largest banks in the Middle East
183 branches across the Kingdom; including 42 ladies branches/sections; 1 branch in London
85 TeleMoney centers specializing in remittances business; 2nd largest market player
Net profit $ 579 million in 2011; customer deposits of $ 23.4 billion; total assets of $ 31.4 billion
3 Subsidiaries: – ANB Invest – 100% owned, investment vehicle to manage
bank’s investments, securities handling – Arab Heavy Equipment leasing – 62.5% owned, leasing
(Islamic) – Saudi Home Loan Company – 40% owned – Islamic home
and real estate finance team
Current Credit Ratings: Standard & Poor : A; Moody's : A1; Fitch : A; Capital Intelligence : A+
Nearly 3,500 employees across the Kingdom
The Bank is committed to significantly enhance its SME business across the Kingdom
2
SME Market in Saudi Arabia
3
Nearly 1.1 million registered entities in the country; 0.8 million are operative
Wholesale and Retail Trade (~72%); Building & Construction (~21%); Transportation, Storage and Cooling (~6%) key SME activity sectors
3 prime geographies housing SME population; Riyadh (31%), Makkah (25%), Eastern Province (17%)
No uniform definition of SME; turnover ceiling of $ 8 million for obtaining Kafalah backing (government guarantee program) used widely
Within the turnover $ 8 million sales bracket, 0.4 million entities deemed as bankable
SME Market Revenue Pool estimated at $ 1.2 billion; Lending 31%, Transactional 40%, Deposits 29%
Limited SME proposition offering by commercial banks
Lending to SMEs forms nearly 1.8% of the total lending by banks; expected to grow as public sector projects rolled out
SME lending ~ $ 4 billion; liabilities ~ $ 25 billion; Significant government focus aiming to reach SME lending level of $ 80 billion in 5 years
Building blocks & customer focus
4
Process
Systems Business Underwriting CRM
People
Structure Training Scorecards Deployment
Proposition
Service Transactional Credit Treasury Strategic
Intent
Functional fit
Investment Capacity
Change
readiness
Initiative significance
Revenue Pool
Competitive positioning
Economic dynamics
Regulatory
environment
Government focus
In an effort to strike this sensitive balance, customer centricity can potentially be impacted
Internal factors
External factors
0
Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
SME is a highly structured business
Proficiency across 9 key areas is required effectively manage customers
Customer Management
9 key models:
• Relationship Management: Tiered structure & KPIs
• Customer Acquisition: Prospecting, sales, handover
• Customer Servicing: telephone hotlines, service team, alternate channels migration
• Product Development: Lending, trade, transactional, treasury
• Credit Risk: Credit evaluation engine, Portfolio monitoring, Collections
• Operational Risk: AML, Transactional, error rates
• People Alignment: Certification program, Scorecards, sales toolkits
• Information & Analytics: CRM tools, KPIs, risk analytics
• Communication: Branding, Collateral, market visibility, welcome packs
Relationship Management
Customer Acquisition
Customer Servicing
Product Development
Credit Risk Operational Risk
People Alignment
Information & Analytics
Communication
5 Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
6
Approaches to segmentation
Profitability Focused at distributing
customers into
“revenue to bank” tiers
Industry Focused at finding
attractive market
sectors with
homogeneous needs
Turnover Simply segmenting
customers with respect
to their size in terms of
sales turnover
5 key approaches to
market segmentation;
a mixed approach
seen more in practice
Need based Geared towards
forming customer
cluster groups of
similar need profile
Geography Aimed at Segmenting
customers based on
their locations
Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
7
Industry based segmentation
Prioritization criteria illustration Rank industries based on:
– Total sales revenue – 3 year CAGR – Gross Profit Margins – Through the cycle credit
performance
Select industries based on sizable presence of SMEs and industry growth rates higher vis-à-vis country GDP
Double-check to ensure the priority industries based on – Industry outlook – Exclusions due to credit policy – Level of government support – Barriers to entry (such as
Franchises and co-operatives) – Revenue pool/ wallet size
Calculate revenue pool of High and Medium industries based on earlier classification
Knock-out low potential industries
Estimate revenue pools of selected industries (By assets, Liabilities, Trade and FX income)
Sequence industries in order of: – Income potential – Industry growth outlook – Industry credit performance
Top 3 - 5 industries Including attractive liabilities only industries
30
Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
• Cheque payments
• Debit Cards
• Bank Transfers
• WCF & trade finance
• FX Conversions
• Electronic Banking
• Credit Cards
• Bill Payments
• Payroll
• Documentary Collection
• Receivable discounting
• Factoring
• Export bills discounting
• Cheque purchasing
• Credit Insurance
• Import Collection
• Letters of credit
• Guarantees
• FX hedging
• Purchase order finance
• Insurance
• Cash handling
• Cheques handling
• Inward transfers
• Liquidity Management
• Investment solutions
• Fixed deposits
• Savings Accounts
• FX conversions
• Merchant/POS services Get Paid
Buy Resources
Pay for resources
Sell goods & services
Customer banking needs cycle
8 Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
Import corporate and retail products, and channels customising for appropriateness
Move talented people, idea transfer natural outcome
Product Transfer
Whitespace
‘Obvious’ needs, wants or demands not being met by competitors
Localise solution for a market based on approach of banks in other countries
Build out product bundles to cater to business and personal needs
Critical when establishing or managing small business asset products
Joint segment and product management improves outcomes
Product Management Disciplines
Product Lifecycle
Focus on building out base product set, focusing on service and reliability
Increase automation for efficiency and cost management
Hygiene before differentiation Active management of annuity income
products crucial for sustained high growth
Product &
Channels
Product Transfer
Product Lifecycle
Whitespace
Sourcing Product Development Initiatives
Additional considerations
Organizational dynamics
Revenue recognition
Product management
9
50
Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
Achieving sustainable profitability
Revenue Management – Optimal wallet share
– Products per customer
– Cross selling & bundling
– Activity & sales Management
– Acquisition sales discipline
– RM toolkits & certifications
Cost Management – Customer profitability tiers
– Resources alignment metric
– Defined productivity KPIs
– Multi products frontline team
– Standardization
– Performance linked remuneration
Risk Management – Credit & behavior Analytics
– Differentiated ME & SB models
– Segmental diversification
– Operational risk triggers tracking
– Dedicated SME Credit set-up
– Portfolio churn
10
85
Lending, 27%
Transactional, 32%
Deposit, 40%
Lending, 21%
Transactional, 52%
Deposit, 28%
0
0.5
1
1.5
2
2.5
3
3.5
4
2005 2006 2007 2008
Revenue
Cost
LI
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Revenue
Cost
LI
Note: Above figures scaled to revenue index at starting point
HSBC SME Set-up executed
Standard Chartered SME Set-up executed
Plan Structure Segment Understand
Needs Tailor
products
Achieve & sustain
profitability
In Summary
11
SME is a highly structured business; achieving and maintaining customer
centricity is key to sustainable business success
Multiple area proficiency and strong framework across Proposition, People and
Process disciplines is required for effective customer management
Customer segmentation is crucial and a key factor driving the business and credit
operating model as well as SME organisational fit
Understanding the customer needs cycle in the realm of his own business helps
define participation model and strategic orientation
Product development and bundling should be aligned to segment & customer
needs and optimize on institution's product and infrastructure availability
Sustainable business profitability can be achieved through disciplined
approaches and specific tools across Revenue, Cost and Risk Management