BANKS PERFORMANCE
To improve banking operations It's important to adapt
their processes to respond to internal and external users in shorter times.
Generally, there is a tendency to compare financial results between different regions. The impact on net interest income becomes the results
comparative metrics which, do not necessarily represent the real money market impact on balance because is in a different context in terms of regulations , customers and
culture.
The Latin America
region, banks have adapted to use specific applications, not always performed by
appropriate advisory team, so It makes dificult to have applications to bring a
full range of banking services available in a region, if these applications are
not in context and do not provide appropriate solutions, which are not oriented
to real customers needs. These solutions usually are sold and forced to be
adapted rather than being adopted , thus generating more work, major changes,
more cost and more effort , issues which ultimately may also be more
frustrating due to longer time invested in its implementation.
Investments oriented
to operational improvements based on reducing decision making time, must be
supported by best in class teams in the industry, where low tolerance to failure must be implemented because it affect banks financial results
in different ways (customers, delinquency , operating errors ... finally
returns and profitability).
How can be defined
the profitability of a bank in practical way so it is involve simple process
improvements and technological support?
Must be defined the
priorities of a commercial bank, where main clients in Latin American, has specific
consumer expectations, culture, and needs which are substantiated on the
current environment.
Regulatory impact on financial margin requires greater analysis, and a management team oriented
towards financial efficiency.
Lets see an example:
Analyze whether the performance indicators are representative in circumstances where the environmmet is volatile. Some indicators such as Bad Debt can be transformed into Bad Debt under assesment, where the assets are adjusted to market risk + risk inherent to the own portfolio. An example: From a risk perspective, an in-customer is low risk, same out-customer is high risk, it is an overall good customer?
How can this point be
achieved without technological support? How can we achieve reorienting
technology to support to functional experts at work, so they can take proactive tinking and make assertive business decisions? One of the most important aspects for
considering these changes is time of response, which is crucial to obtain valuable
information that let analysts answer the following questions.
Lets see an example:
Analyze whether the performance indicators are representative in circumstances where the environmmet is volatile. Some indicators such as Bad Debt can be transformed into Bad Debt under assesment, where the assets are adjusted to market risk + risk inherent to the own portfolio. An example: From a risk perspective, an in-customer is low risk, same out-customer is high risk, it is an overall good customer?
What it is the CFO, asking
for, when arrives to your office?
• It is the liquidity level within the tolerance
margin?
• Is the transactional cost being optimized?
• How are the costs vs. income, expenses, revenues,
gross margin, etc.?
• Pool rate
is appropriate to the opportunity cost?
What’s the CMO ask?
• How is the customer level satisfaction for each channel?
• Has improved customer profitability?
• Has changed customers loyalty, retention rate?,
queries?
What's the CIO ask?
• Does the platform operating 24x24?
· Which are
the top reasons affecting delinquency level?, economical environment reasons?
• Are risk assessments and compliance polices applied?
• ...
To answer some of
these questions, have been developed some solutions that let redirecting functions from the technological support to the functional expert, letting IT
Team focus to maintaining the operation of the systems available 24x24.
It is vital for the
banking operation to adjust the response in shorter time; we should not talk
about researches cross regions; in our region, we have to see how banks adapt
the use of targeted applications with an appropriate equipment and with
appropriate consulting. It doesn’t makes any sense to have all banking solutions
available if does not have the right consulting and functional team working together
for finally satisfied customer’s needs. The Investments based on operational improvements
for the reduction of time in the decision making must be supported by the best
ones in the industry, no opportunity is given to failure, because as we saw
earlier, this issues directly affects bank financial results by different
angles (customers, delinquency, operational errors, and finally profitability)
What prospects solutions
do we have available on Market?
A set of solutions
that allows answering all the questions outlined above and many more ... EPM Enterprise
Performance Management and Business Intelligence, both designed to create a
view integrated and consistent of the different angles listed above. https://help.sap.com/boepm/
1. So, how is defined profitability
in banks?
As ROA, ROE, Margin,
Spread (%) and any ratio that connect
cash flow or net income to the resources invested
2. What about profitability by branch?
First, in order to
be profitable, there must be continuity in the operation and innovation process
in the branch; in this case, we measure quantitative effects (customer assets,
deposits, gross interest income, fees, expenses, costs, etc.) and qualitative effects
(customer service) that impact the
overall result of the bank. They are (branches) almost self-sufficient entities
that distribute products and services.
If we look at the
portfolio of EPM (Enterprise Performance Management), we would find a solution
that will allow us to model this vision of profitability; a tool for example as SAP PCM (Profitability and Cost Management).
Other solution is SAP Business
Objects, which allow you to create logical cubes with ETL process that will
leave us assign costs, expenses and income to a particular type of branch.
Let’s take a view:
A. SAP PCM
PCM provides a more
intuitive and focused interface to be used by the finance team, so it is a more
flexible tool that can be used independently of the IT team to create profit/cost models.
It can be integrated with DB SAP and Non-SAP.
BENEFITS
There is a higher
quality in the reports of profitability and costs in different dimensions, due
to SAP PCM eliminates the distributions of
income, costs, expenses and investments layers and iterations which is done
through a large volume of data and dimensions. Example:
• Customer profitability.
· Customer Net revenue
• Customer Service satisfaction.
• Profitability per branch.
• Cost per serving.
• Logistics costs.
• Costs per transaction: back, middle and front
office.
• Customer value, over the time.
• Economic Profit (Economic Value Added) by cost
object.
Several alternatives to issue information, either on
own web reports, emission data to other databases and data warehouse or
business intelligence tools whether or not SAP.
In relation to the model and financial process
• Management of the financial model independently of
the IT area.
• Flexibility to handle various versions of the
financial model (Actual, Budget,
Prognosis, Economic Value Added).
• Provides the simulation scenarios based on
indicators planning and continuous forecasts.
• Reports of errors and warnings of calculation, which
allows to the owner of the model to have better control of calculations, and
maintain safety and reliability of the information that is provided to users.
• Execution of calculations with a large volume of
data in a short time (this point it is certainly a great differentiator).
B. SAP BUSINESS
OBJECTS
Other solution is Business Objects, which allow you to
create logical cubes with ETL process that will leave us assign costs, expenses
and income to a particular type of branch.
It’s possible to
create indicators as KPI, KRI, and other performers to track the branch
profitability. We must incorporate some predictivity potential with Predictivity
Analytics to make a best practice and become a successfully branch management.
Do you think this it is possible?
This article is
dedicated to the profitability and cost management, in future articles will be
analyzed the different EPM solutions that deal with Planning and Strategy,
including more details.
