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A GlobeRisk Perspective on Retail Banking

Retail Banking is in transformation

In the old, predominantly branch based distribution model, Retail banks offered three high margin products - money transmission, interest based savings and lending products, the latter split further into residential mortgages, overdrafts, credit cards and personal loans. Whilst each product normally had its own operational platform, the overall operating model was one of close integration

This model no longer works. Several structural changes have placed massive pressure on margins requiring a new approach to make acceptable return on capital. The principal structural issues are

In 2007 economic conditions banks also need to invest in collections , recoveries and workout capabilities to maintain a measure of control should interest rates rise further. New technologies are offering considerable scope to improve the outcome from problem loan categories (both pre- and post- default)

Notwithstanding these issues, many Banks have achieved impressive profit growth in recent times. However, analysis of typical bank results shows that the profit growth is due to

In short, most so called retail banks achieve most profit outside retail lending and short term savings sectors.

GlobeRisk has developed several consultancy services to assist banks as they address these structural changes

In the lending/credit risk arena, GlobeRisk has developed several world class reference models, which can be used for benchmarking and transformation of existing activity. Examples include

Expanding the World Class Lending Processes as an example, GlobeRisk describes a retail lending process in four key parts:

Communication and linkage between these elements is typically weak leading to any number of issues including real difficulty in planning for economic cycle developments and in learning from experience.

The GlobeRisk World Class Retail Lending model focuses on two elements

GlobeRisk also has considerable experience in developing retail credit rating (scoring) models to Basel2 Advanced standard, and transforming underwriting activity

More generally, GlobeRisk can help with cost management reviews and can assist with Transformation programs both as program manager and as lead consultant

From a Firmwide risk management perspective, GlobeRisk services include: