Retail Banking in CEE: Exploiting the Potential of ... - Roland Berger

RISK MANAGEMENT – MANAGING RISK COST WITH FAST PROCESSES 29
SOLUTION DEPENDING ON THE APPLIED SEGMENTATION
The recommendations to avoid an unexpected growth of NPL rates can be grouped
into two major topics:
A. Segment-specific risk assessment and scoring
Generally banks assume: one client group with a high NPL is not a problem if it
was priced accordingly. To be able to price accordingly, however, banks need to
forecast the risks as exactly as possible before a loan becomes an NPL. Thus
elaborating a proper risk assessment (scoring) tool for micro sub-segments has a
huge added value but was not found in many participating banks. Setting up such
a tool requires the following steps:
Homogeneous risk groups of micro
sub-segments allow an efficient
scoring model and a fast lending
process
1. Having defined suitable target sub-segments, create a proper scoring database
for micros
2. Analyze the existing loan portfolio of the targeted sub-segments with their loan
volumes (min, median, max) and NPL ratio
3. Incorporate the identified risk cost into the normal pricing of lending products
for the targeted sub-segments
B. Fast and transparent processes to assess loan requests
Loan request assessments usually take time because the evaluation processes and
criteria are not properly defined. That means, standardization is not possible and
each request is evaluated on a case-by-case basis. The root cause is the non-proper
scoring system, thus each process weakness is in reality a workaround to compensate
for the weaknesses of the scoring model. Establishing a sub-segment based
micro scoring model allows a fast and automatic evaluation of loan requests in a
standardized form. This satisfies the clients in terms of processing speed and helps
the bank avoid non-planned NPL growth.