Retail Banking in CEE: Exploiting the Potential of ... - Roland Berger
Retail Banking in CEE: Exploiting the Potential of ... - Roland Berger Retail Banking in CEE: Exploiting the Potential of ... - Roland Berger
6 SUMMARY OF KEY FINDINGS SUMMARY OF KEY FINDINGS From CEE banks' perspective, micros are attractive because they represent growth potential in a stagnating market OVERVIEW The financial market crisis rearranged the priorities of CEE banks within a very short period of time. After the stabilization of bad loan portfolios, the number-one priority of banks is now to find break-through segments with a realistic growth perspective – even if we do not talk about annual market growth potentials of more than 10% anymore. Certainly the real driver is lending. Therefore banks focus on segments that have a relatively low loan penetration and show lending potential with reasonable risk. The micro segment meets the above described criteria. Thus it is definitely planned to become one of most CEE banks' focus areas in the upcoming three to four years. However, those banks still need to elaborate and detail the respective segment strategy and especially its impact, e.g. on sales and service models or risk modeling. CEE banks' challenges and questions can be grouped into three topics: strategy, risk management, cross-segment offering CHALLENGES The micro segment challenges identified by CEE banks are the large number of potential clients and their heterogeneousness. The banks' uncertainty is reasonably high to avoid NPL rate growth or a too high cost level caused by over-servicing. Generating more profit from this segment requires the understanding of the main micro-specific cost and revenue drivers. As a result of the study and of Roland Berger's project experience, three key success factors can be highlighted: 1. Detailed micro strategy aligned with all relevant internal departments to guarantee the highest operational efficiency with focus on two major topics: > Segmentation – grouping micros into homogeneous sub-segments, identifying target groups and their specialties > Service model – defining the level of service and organizational setup required for cost-efficiently selling to micros and servicing them 2. Tailor-made risk management considering all micro specialties via elaborating a sub-segment specific, efficient scoring model to avoid NPL growth and to speed up "time to yes" process 3. Enhancement of cross-segment offering by increasing sales and service efficiency of advisors and sales boost by utilizing best practices of joint private and business need services
SUMMARY OF KEY FINDINGS 7 REGIONAL CENTERS' APPROACHES IN CEE An essential trend is that more and more regional head offices increase the control of local banks as regards the micro segment. When this study was being prepared, most of the major CEE banks had at least a standardized reporting form to grant comparable, transparent and traceable micro operations. In addition, a few banking groups showed a strong head-office competence in micro business. They elaborated their own best practice model and now these banks are ready to roll it out in the CEE countries. On CEE level, standardized reporting has become usual, while bestpractice model elaborations and roll-outs are still rare The study interviews clearly showed: although the majority of banks want to grow in the micro segment, the level of strategy elaboration together with the commitment and ability to implement varies significantly by bank and by country. For example in Russia, Ukraine and Belarus, the large corporate segment still generates enough business potential with moderate risk to fulfill banks' growth demand. Therefore for them, the fragmented, per-deal lower business volume and more risky micro businesses are too problematic to focus on. At the same time, there are best-practice models in CEE banks that are focused on micros, have the necessary level detailing of their micro strategy and a proper scoring model and apply cross-segment offerings. These strategies, however, are quite fresh, they were implemented recently or are still in the process of implementation. Therefore it is difficult to compare them from a proven success and result point of view. POSITIONING STRATEGIES All the interviewed CEE banks do not intend to start a price war and to win clients with aggressively low prices. They prefer to differentiate themselves via high-quality service compared to the competitors' ones, often formulated as "being close to the customers"; and the majority believes that others do not exactly understand the banking needs of micros. Products are considered to be "easy to copy" and therefore the product focus is not perceived to be a winning strategy. CURRENTLY APPLIED SEGMENTATION The targeted sub-segment focus is not spread yet. Interested banks are rather focusing on healthcare related professions (pharmacists, medical doctors, dentists and veterinary doctors) and lawyers. However, there is room for improvement considering the country-specific market opportunities. For example, in Croatia it is common to focus on the HoReCa segment which has no real micro priority in other countries. Banks want to differentiate and compete with their service level assuming that others do not sufficiently understand micros' specialties There are popular sub-segments targeted by most of the banks having micro segmentation – above all in the healthcare sector
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- Page 11 and 12: 9 PART I IMPORTANCE OF MICRO BUSINE
- Page 13 and 14: IMPORTANCE OF MICRO BUSINESS - HIGH
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- Page 18 and 19: 16 MICRO STRATEGIES - ELABORATING S
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- Page 29 and 30: 27 PART III RISK MANAGEMENT - MANAG
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- Page 34 and 35: 32 CROSS-SEGMENT OFFERING - UTILIZI
- Page 36 and 37: 34 CROSS-SEGMENT OFFERING - UTILIZI
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- Page 41 and 42: 39 PART V SUMMARY - RECOMMENDATIONS
- Page 43 and 44: SUMMARY - RECOMMENDATIONS FOR "MICR
- Page 45: METHODOLOGY AND SCOPE OF THE STUDY
- Page 49: 47 Many thanks to the following per
SUMMARY OF KEY FINDINGS<br />
7<br />
REGIONAL CENTERS' APPROACHES IN <strong>CEE</strong><br />
An essential trend is that more and more regional head <strong>of</strong>fices <strong>in</strong>crease <strong>the</strong> control <strong>of</strong><br />
local banks as regards <strong>the</strong> micro segment. When this study was be<strong>in</strong>g prepared, most <strong>of</strong><br />
<strong>the</strong> major <strong>CEE</strong> banks had at least a standardized report<strong>in</strong>g form to grant comparable,<br />
transparent and traceable micro operations. In addition, a few bank<strong>in</strong>g groups showed<br />
a strong head-<strong>of</strong>fice competence <strong>in</strong> micro bus<strong>in</strong>ess. They elaborated <strong>the</strong>ir own best<br />
practice model and now <strong>the</strong>se banks are ready to roll it out <strong>in</strong> <strong>the</strong> <strong>CEE</strong> countries.<br />
On <strong>CEE</strong> level, standardized report<strong>in</strong>g<br />
has become usual, while bestpractice<br />
model elaborations and<br />
roll-outs are still rare<br />
The study <strong>in</strong>terviews clearly showed: although <strong>the</strong> majority <strong>of</strong> banks want to grow <strong>in</strong><br />
<strong>the</strong> micro segment, <strong>the</strong> level <strong>of</strong> strategy elaboration toge<strong>the</strong>r with <strong>the</strong> commitment and<br />
ability to implement varies significantly by bank and by country. For example <strong>in</strong> Russia,<br />
Ukra<strong>in</strong>e and Belarus, <strong>the</strong> large corporate segment still generates enough bus<strong>in</strong>ess<br />
potential with moderate risk to fulfill banks' growth demand. Therefore for <strong>the</strong>m, <strong>the</strong><br />
fragmented, per-deal lower bus<strong>in</strong>ess volume and more risky micro bus<strong>in</strong>esses are too<br />
problematic to focus on.<br />
At <strong>the</strong> same time, <strong>the</strong>re are best-practice models <strong>in</strong> <strong>CEE</strong> banks that are focused on<br />
micros, have <strong>the</strong> necessary level detail<strong>in</strong>g <strong>of</strong> <strong>the</strong>ir micro strategy and a proper scor<strong>in</strong>g<br />
model and apply cross-segment <strong>of</strong>fer<strong>in</strong>gs. These strategies, however, are quite fresh,<br />
<strong>the</strong>y were implemented recently or are still <strong>in</strong> <strong>the</strong> process <strong>of</strong> implementation. Therefore<br />
it is difficult to compare <strong>the</strong>m from a proven success and result po<strong>in</strong>t <strong>of</strong> view.<br />
POSITIONING STRATEGIES<br />
All <strong>the</strong> <strong>in</strong>terviewed <strong>CEE</strong> banks do not <strong>in</strong>tend to start a price war and to w<strong>in</strong> clients<br />
with aggressively low prices. They prefer to differentiate <strong>the</strong>mselves via high-quality<br />
service compared to <strong>the</strong> competitors' ones, <strong>of</strong>ten formulated as "be<strong>in</strong>g close to <strong>the</strong> customers";<br />
and <strong>the</strong> majority believes that o<strong>the</strong>rs do not exactly understand <strong>the</strong> bank<strong>in</strong>g<br />
needs <strong>of</strong> micros. Products are considered to be "easy to copy" and <strong>the</strong>refore <strong>the</strong> product<br />
focus is not perceived to be a w<strong>in</strong>n<strong>in</strong>g strategy.<br />
CURRENTLY APPLIED SEGMENTATION<br />
The targeted sub-segment focus is not spread yet. Interested banks are ra<strong>the</strong>r focus<strong>in</strong>g<br />
on healthcare related pr<strong>of</strong>essions (pharmacists, medical doctors, dentists and veter<strong>in</strong>ary<br />
doctors) and lawyers. However, <strong>the</strong>re is room for improvement consider<strong>in</strong>g <strong>the</strong> country-specific<br />
market opportunities. For example, <strong>in</strong> Croatia it is common to focus on <strong>the</strong><br />
HoReCa segment which has no real micro priority <strong>in</strong> o<strong>the</strong>r countries.<br />
Banks want to differentiate and<br />
compete with <strong>the</strong>ir service level<br />
assum<strong>in</strong>g that o<strong>the</strong>rs do not<br />
sufficiently understand micros'<br />
specialties<br />
There are popular sub-segments<br />
targeted by most <strong>of</strong> <strong>the</strong> banks<br />
hav<strong>in</strong>g micro segmentation – above<br />
all <strong>in</strong> <strong>the</strong> healthcare sector