Category Archives: Introduction to workflow management

Workflow management for the credit underwriting activities of retail and wholesale banks

BC&T has partnered with Stachanov BV (www.stachanov.com) to bring to the market a process flow management solution tailored to the smaller banks. I will introduce this application (ARGOS) in this blog.

Interested institutions should contact me on cw@bankstrat.com.

Introduction

The banking industry is faced with fundamental challenges that will impact their activities, business model, process and organisation. The needs for these changes resulted from the great Banking crisis that started in 2008.  The consequences of the crisis were regulatory, but also the fundamental equilibrium of the industry was impacted, of which the most fundamental was certainly the discontinuation of the “trustful” relationship between bank and client. This has resulted in increased investments in regulatory compliance and an increasing risk of the bank being disintermediate and hence in an increasingly competitive environment.

The challenges of the shareholders and senior management are to implement business strategies that respond to contradictory constraints:

  1. Comply with a growing set of regulations for all risk classes, including operational risk, solvency and business risks. Compliance is more extensive than capital adequacy as it includes minimum risk assessment procedures and processes, model risk etc. Management must seek to leverage these investments to create value!
  2. Optimise operational efficiency. In its simplest form this means generating more risk adjusted revenues with a given level of operating expenses. Without doubt this implies process improvements and enhanced operational policies.
  3. Optimise operational effectiveness. Not only does the bank need to be financially efficient, its process must also be effective. By this we mean that the operations of the bank must lead to the strengthening of the service and product delivery to enhance client satisfaction, recreate client trust and hence reduce the business risks.
  4. Optimise financial efficiency. The banks are faced with scarcity of financial resources (equity and borrowed capital). They must allocate these resources effectively to generate the required return on risk. This requires that all the previously mentioned challenges be integrated into a business model that is adapted to the bank’s market and clients and manages all the component of this model in an integrated way.

Many banks do not have the size and means to invest huge amounts of money to buy solutions developed for the larger banks in more advanced financial markets. ARGOS was developed to respond to the challenges by bringing simple but effective solutions to smaller banks to

  1. optimise their process
  2. optimise their risk underwriting and management.

We have started with the most important activity of many retail and wholesale banks which is the credit underwriting process and the credit scoring and rating models. We have extended the development vision to include collateral valuation and through the calculation of expected losses generate the management information for credit risk provisioning and risk based pricing. The proposed solution is not invasive as it will use the rules, policies and procedures of the bank. If the bank’s management wishes to review these rules, policies and procedures to adapt them to a more effective and efficient business model and implement enhanced risk models, we can help in the development of these and of course implement the new rules in ARGOS.

With ARGOS, bank will have an automated credit underwriting process from origination/ credit application to disbursement. The process flow will respect the ban’s defined credit policies with structured process. This approach is Basel II, pillar 2 ICAAP compliant and will furthermore enhance the risk adjusted profitability and financial efficiency of the Bank.

The solution is geared towards the development of an integrated risk management system for emerging banks. It can be applied in retail banks, for SME banking or for wholesale banking. The priority is to develop a pragmatic and efficient solution that can be implemented easily for a low “cost of ownership”.

In the next blog we will discuss some of the benefits of the system proposed.

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