Accenture Banking Retail Lending

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Transcript of Accenture Banking Retail Lending

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    Retail lending origination excellenceKey capabilities for enabling sustained and profitable growth in

    Asia Pacific

    Banking

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    1

    Contents

    Introduction ..................................................................................................................................... 2

    Strong prospects for growth in Asia Pacific lending .................................................................... 3

    Growth in retail lending is driven by

    consumer demand and government policy

    Headwinds in the Asian retail lending market ............................................................................... 5

    Rising expectations and growing appetite for risk from customers

    Increasing regulatory pressures

    Intense market competition and restrained profitability

    Challenges to retail lending growth ............................................................................................... 7

    Capabilities required to achieve retail lending origination excellence .......................................... 8

    Empower people

    Establish lean and automated processes

    Build in flexible technologies

    Conclusion ........................................................................................................................................ 12

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    2

    Across Asia, consumer demand for

    credit cards, unsecured loans andmortgages has increased substantiallyin recent years. With positivedemographic changes and favorableeconomic conditions, it is expectedthis growth will continue at pace.

    However, while banks are takingadvantage of these trends, theyface a number of challenges:greater competition; an increasinglysophisticated customer base;regulatory demands. These are making

    the achievement of lending portfoliogrowth, in a timely and profitablemanner, extraordinarily challenging.The evidence for this is illustrated indeclining interest margins, particularlyfor banks operating in Advanced Asiamarket. The need for focus by bankson retail lending origination excellenceis not simply an option; its a necessityif banks are to close the gap betweengrowth aspirations and executionreadiness.

    To achieve retail lending originationexcellence, banks need to developand refine a number of capabilitiesacross the value chain, therebyfostering revenue growth, cost

    reduction, higher credit quality

    and, ultimately, profitability.

    However, one size does not f it all.Due to differences in the maturitylevels of the various Asian bankingmarkets, each country faces differentchallenges. We believe the capabilitiesthat banks need to create orrecalibrate will vary depending on thematurity of markets they operate in, orplan to enter in the future.

    Based on our analysis of market

    maturity we have segmented Asiainto three groups and recommendeach group focuses on a core set ofcapabilities to achieve retail lendingorigination excellence in the short tomedium term.

    Advanced Asia (Australia, HongKong, Japan, Singapore) - it willbe critical to focus on end-to-end process automation usingintegrated technology platforms;standardization of processes

    via cross-product regionalfactories; investment in advancedsegmentation, and analyticsto support greater sales forceeffectiveness.

    Maturing Asia (Malaysia, South

    Korea, Taiwan, Thailand) it willbe critical to focus on creating acustomer origination mindset;empowering a skilled salesworkforce; simplifying legacybusiness processes; introducingautomated credit decision-making,and improving credit monitoring toenhance end-to-end profitability.

    Emerging Asia (China, India,Indonesia, Philippines) it willbe critical to increase process

    control; develop simple sales toolsand educate the sales force aboutproduct complexity and pricing; andimprove credit risk management inorder to achieve rapid and scalablegrowth.

    Banks looking to expand beyond theirdomestic borders need first to ensurethey address the requirements oftheir home markets. Addressing theirdomestic challenges first will providethem with a platform - based on a

    high degree of standardization andoperational discipline for geographicexpansion across Asia, not only atspeed, but also with the prospect ofhigher profitability.

    Introduction

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    3

    Retail lending1 growth is particularly

    evident in Emerging Asia and inselected other markets across Asia (ieThailand, Singapore). Most notably,demand for retail lending is growingfaster in comparison with othertypes of lending in Asia (Figure 1).

    Growth in retail lending isdriven by consumer demandand government policy

    Markets in Asia show significantdifferences in lending growth trends

    across the product portfolio. Forexample, mortgage lending is a keyfocus for banks in Advanced Asiadue to the influx of professionalmigrants, increases in the proportionof young, first-home buyers, and therise in foreign purchases. In addition,investors in these markets are moreinclined to focus on the perceived lowrisk nature of property.

    Lending growth in Emerging Asia isexpected to be the fastest, driven bystrong domestic demand, a growingmiddle class and government policydesigned to boost credit availability.

    For example, government investment

    in telecommunications has improvedthe take up of mobile banking in ruralpopulations, particularly in India andIndonesia, where large customer basesare being served with simple retaillending products.

    In Advanced Asia, increasing consumersophistication (demonstrated bythe rise in foreign purchases andinvestment in the property market) isdriving growth in retail lending, withboth unsecured debt and mortgage

    debt growing at an exceptional rate in2010 (Figure 2).

    In contrast, banks in Maturing Asiatend to have a more balanced retaillending portfolio, with greateremphasis on non-mortgage products(eg personal loans, auto loans). Themain challenge for banks in MaturingAsia is declining demand for creditcards (Figure 2). The reasons forthis vary from country to country,but include stricter eligibility

    requirements in Malaysia, andincreased competition in Taiwan.

    Finally, mortgage and other lending

    products (ie personal loans, auto loansand other consumer loans) represent agreater share of the lending businessin some Emerging Asia countries(Figure 2).

    For example, the Philippines risingaverage incomes and levels ofeducation have given rise to stronggrowth in the credit card business.However, the rate of consumer creditdefaults in the Philippines is almosttriple the average in Asia2, so borrower

    quality remains a key issue.

    Strong prospects for growth inAsia Pacific lending

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    9.3%

    14.4%

    18.5%

    1.7%

    10.9%

    8.4%

    11.0%

    2.5%

    18.7%

    10.2%

    16.2%

    41.7%

    14.4%

    37.6%

    27.5%

    22.9%

    14.7%

    -1.8%

    10.1%

    4.2%

    19.7%

    6.8%

    11.8%10.6%

    22.2% 22.8%19.6%

    21.5%

    -10%

    0%

    10%

    20%

    30%

    40%

    50%

    Australia

    Hong Kong

    Singapore

    Japan

    Advanced

    AsiaKorea

    Malaysia

    Taiwan

    Thailand

    Maturing

    Asia

    India

    Indonesia

    Philippines

    China

    Emerging

    Asia

    2010 Retail Lending Growth (%) 2010 Total Lending Growth (%)

    4.6%

    70.4%74.2%

    45.6%

    50.7%

    74.3%

    54.4%

    50.9%

    39.9%

    3.9%

    7.9% 4.5%

    5.8%6.8%

    2.6%

    25.5%

    9.3%21.8% 21.3%

    48.6%

    42.4%23.1%

    45.6% 46.3%34.7%

    -10%

    0%

    10%

    20%

    30%

    40%

    50%

    -20%

    20%

    60%

    100%

    Australia Hong Kong S ingapore Korea Malaysia Taiwan Thailand India Philippines

    2.8%86.8%

    Mortgage Credit Card Others Growth of credit card receivables (%)

    Growth of credit card receivables (%)

    Growth of mortgage credit (%)

    Growth of mortgage credit (%)

    4

    Figure 2: Key components of retail lending and growth in mortgage and credit cards, 20104

    Figure 1: Growth in retail lending (%) vs. total lending in Asia, 2009 -20103

    Source: Asian Central Banks

    Source: Asian Central Banks

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    5

    While there is very strong demand

    for retail lending products in Asia,other market forces will continueto challenge the momentum ofgrowth. These diverse forces acrosseach banking market will requiredistinct responses. What is certainis that an increasingly complexenvironment is making it morechallenging for banks to grow lendingrevenues and sustain profitability.

    Rising expectations andgrowing appetite for risk fromcustomers

    Asias banking markets are maturingalongside evolving customerexpectations and appetite for risk.The burgeoning Asian middle classis driving demand for new, moresophisticated financial products andservices. In Asia, the middle class isestimated to more than triple in sizefrom 525 million in 2009 to 1.7 billionby 2020. In less than ten years, Asia

    could be home to more than half ofthe worlds middle class population.5

    Nearly one-third (31%) of Asianmass affluent customers intend toincrease their overall level of risk

    by borrowing more (Figure 3). This

    is especially true in Maturing Asiawhere 39% of this group intendto increase their borrowing.

    Changing custo