Dear community members,
Months ago I proposed on this SAP Banking Community, my view, that Banks should plan their retail business based on a Sales Planning, which in a second planning step should be made feasible by including the solvency (or in other words the Capital Consumption) in the planning model.
From that perspective, the Bank’s most Critical Resource is it 1st Tier Capital, and an Integrated Business Planning should consider the available Capital as its main constraint.
Nevertheless, planning is not enough; any successful plan must be complemented by Control tools which assure that Business Execution is aligned with Business Planning.
Going back to the planning, the proposed approach is based on the idea that when the Bank management defines a Business Strategy, followed by a Business Plan, they must consider, in addition to the expected profit, the Capital Consumed by implementing that strategy due to the legal Capital Requirements (Basel II and local regulation).
For example, if the Business Strategy is targeting the “Young/Mortgage/SouthWest/High Rating” Business Segment. Bank management must determine the conditions offered for targeting the Business Segment, the expected profit (margin and volume), and also the Capital Consumed.
Once we’ve arrived to this point, we must assure that execution is aligned with Business Planning.
How to do that?
In my opinion Bank Analyzer-Limit Manager offers a very powerful tool for doing this, as we can evaluate the Default Risk of the Financial Instruments/Financial Transactions which a common combination of Descriptive Characteristics (that combination would determine the Business Segment defined on the planning process).
Theoretically, we can allocate the expected consumed Capital on that business segment (according to our planning).
Later, during the Loan (or Financial Instrument) Origination process, we can verify that the Default Risk Exposure (Capital Consumed) of the Business Segment remains close, but below the allocated Capital.
Doing this we’ll assure that the Banks most critical Resource (Capital) is utilized according the Bank’s Business Plan.
Looking forward to read your thoughts.
Kindest Regards.
Ferran.
Months ago I proposed on this SAP Banking Community, my view, that Banks should plan their retail business based on a Sales Planning, which in a second planning step should be made feasible by including the solvency (or in other words the Capital Consumption) in the planning model.
From that perspective, the Bank’s most Critical Resource is it 1st Tier Capital, and an Integrated Business Planning should consider the available Capital as its main constraint.
Nevertheless, planning is not enough; any successful plan must be complemented by Control tools which assure that Business Execution is aligned with Business Planning.
Going back to the planning, the proposed approach is based on the idea that when the Bank management defines a Business Strategy, followed by a Business Plan, they must consider, in addition to the expected profit, the Capital Consumed by implementing that strategy due to the legal Capital Requirements (Basel II and local regulation).
For example, if the Business Strategy is targeting the “Young/Mortgage/SouthWest/High Rating” Business Segment. Bank management must determine the conditions offered for targeting the Business Segment, the expected profit (margin and volume), and also the Capital Consumed.
Once we’ve arrived to this point, we must assure that execution is aligned with Business Planning.
How to do that?
In my opinion Bank Analyzer-Limit Manager offers a very powerful tool for doing this, as we can evaluate the Default Risk of the Financial Instruments/Financial Transactions which a common combination of Descriptive Characteristics (that combination would determine the Business Segment defined on the planning process).
Theoretically, we can allocate the expected consumed Capital on that business segment (according to our planning).
Later, during the Loan (or Financial Instrument) Origination process, we can verify that the Default Risk Exposure (Capital Consumed) of the Business Segment remains close, but below the allocated Capital.
Doing this we’ll assure that the Banks most critical Resource (Capital) is utilized according the Bank’s Business Plan.
Looking forward to read your thoughts.
Kindest Regards.
Ferran.
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