Corporate Banking Relationship Management Masterclass

How to increase the quality and depth of client relationships and create client dependency to the bank, through strategic thinking, adapted product or solution development and sale, and the on-going development and delivery of ideas of strategic importance to the client rather than a series of transactions dependant on price competitiveness.

To be an effective the Corporate (and/or Institutional banking) Relationship Manager must have many human and technical skills and competencies. He must also operate in an organizational environment that leverages interdepartmental expertise and a spirit of collaboration to achieve a common goal.

To develop an efficient relationship management capability, different competencies are required. The components of this training have been developed over time through direct “in the field” experience and exchanges with many banks around the world. The management concepts and the related case studies have been taught to banks in many countries in Western and Eastern Europe, Africa and Asia, with a very high satisfaction rating by all participants. The proposed management model is used in all leading corporate banks.


The training is organized for maximum 24 participants because of its interactive nature.

This course is directed towards:

Bank corporate sales and marketing teams:

  • Corporate Industry Team Leaders,
  • Institutional banking Team Leaders (Sovereign Relationships, the Banking clients, Insurance clients and Pension Funds, Asset Management and securities firms…),
  • Corporate Relationship Managers (SME and Large Corporate and Institutional).

Bank product specialists and support teams:

  • Treasury client teams and financial engineering teams,
  • Corporate Finance and Investment Banking specialists (origination and sales).

Bank support units

  • Senior Bank Management and Finance Management,
  • Risk management staff (credit and other financial risks),
  • Corporate legal teams.


Participants must have a minimum knowledge of corporate or institutional banking and a good understanding of financial markets. They should have minimum financial analysis competencies (understand a balance sheet and income statement).

Participants must be willing to participate actively in the case study and role play game.

Course objectives

The objective of this program is to develop competencies to optimize “value based corporate client relationships”. We propose methodologies and management process that will maximize the efficiency of relationship managers (RM’s) and help them maximize the benefits that their customers will derive from a partnership relationship with the bank.

We believe that banks should move from market share and wallet share (retail banking concepts) to a concept of “share of the mind”. This will generate rewarding client partnerships (profit and financial value optimization). To achieve this RMs require financial and management skills and access to product specialists and other competencies of the bank. More specifically they must get the support of the Product Specialists (PS’s): Treasury, capital markets and Investment Banking, Risk Managers etc…

This approach implies good technical competencies and skills in financial value based management, corporate finance, project management competencies as well as soft skills such as leadership, selling and negotiation skills.

The Desired Outcome of the process is to increase the quality and depth (penetration) of client relationship and create client dependency to the bank, through strategic thinking, adapted product or solution development and sale.

The core processes of the approach are:

  • to generate a flow of “proprietary client information”,
  • to develop value based analytics,
  • to convert the information into creative ideas of strategic importance to the client,
  • to manage a Client Response Team including all the subject matter experts required,
  • to structure and price the proposed solution on a relationship based and risk based approach.
  • to sell and negotiate efficiently for a win-win outcome.

The success of the process is the on-going development and delivery of ideas of strategic importance to the client rather than a series of transactions dependant on price competitiveness.


The program is organized to review of theoretical concepts and methodology required to implement a Relationship Management capability based on a “Corporate Finance Model”, focused on client value maximization rather than a “Product Push Model” which is these days inappropriate. The competencies required to go beyond the simplistic sale of “off the shelf product”. They are those required to build a 1 to 1 partnership with the client. The proposed approach allows a true understanding of the customer needs, value drivers and Key Performance Indicators and hence allows the bank to respond in a focused and rational approach with high value product and service.

The Role Play Simulation Case Study will give the participants the opportunity of implementing in a quasi-real life situation all the ideas and concepts reviewed with them. Through this approach we place participants in a situation that is close to the daily responsibilities of client executives and product specialists, but in a controlled way so that we can check the implementation of the methods and concepts. We also believe that RM’s must produce their best results in a competitive environment. Hence the case study is created so as to develop competition between the participants. For a description of the case study please see below.In practical terms we will review the concepts in the morning and apply them in the afternoons through the case studies. The concepts reviewed include:

 The Relationship Management Process

– Introduction
– Determining high potential prospects and clients
 A four-part analysis for high value client selection
 Information sources and their management
 Building the Knowledge Base
– RM process and methodologies
 Deal Assessment
 Idea generation and deal structuring
 Calling Strategy
– Management templates
 Relationship Review
 Relationship Plan

Applied Corporate Finance for Relationship Managers

– Introduction
 Why Financial Management skills and Corporate Finance skills?
– Review of Corporate Finance principals
 Corporate Finance Introduction
 Corporate Value Analysis: qualitative and quantitative analysis
 Value Creation variables and valuation methodologies
 Develop and manage client value by focussing on “value drivers”
– Review of Financial Management principals
 Financial Markets and Products
 Basic financial contract valuation techniques
 The building blocks approach and financial engineering
 Pricing and managing complex financial solutions
– The “Corporate Finance” model organisational impacts
 The CF model from the marketing and sales perspective
 The CF model from the product delivery perspective
 The CF model from the support unit perspective

 The Rain Man with the Role Play Case Study 

– Introduction: the Rain Man!
 Relationship and sales performance measure
 Marketing versus Sales
– Managing Multidimensional relationships
 Relationship dimensions and stages
 Marketing yourself, the organisation and the products and services
 Relationship assessment (with self assessment exercise)
– Selling & negotiation skills
 Review of the prerequisites from an effective negotiation
 Negotiation tips and tricks

Role Play Case Study description:

Group divided into 2 banks and 2 corporate prospects (or any other combination as decided by the trainer on the basis of the number of participants).

  • All banks and companies are managed by a team of 2 to 5 managers;
  • Banks have Relationship Managers and Product Specialists,
  • Companies have only global management representatives.
  • All banks and companies have known business characteristics and some “confidential and specific characteristics” only known by those that need to know.

The two companies both have a new project that requires financing and/ or other financial services/ products needs. The projects have been mentioned in the press. Meetings will occur between the banks and the companies to:

  • Discover the details of the potential transactions;
  • Decide on the financing needs. Companies will express their requirements and banks develop an appropriate “solution”;
  • The “confidential information” has value and will only be shared with the other party if a true partnership can be developed. This confidential information is essential to make the best proposition.
  • Present the requirements, the offer and negotiate conditions
  • Make a choice of partnership.

Bank/Client meeting will last between 30 and 45 minutes and preparation and debriefing meeting will last between 20 minutes and 1 hour. Classroom meeting will occur between each step of the simulation game for the course director to comment on what he heard and saw and to expand/ review some of the skills or technical characteristics required.

At the conclusion of the program the participants will have gained a real practical and pragmatic understanding and skills in:

  1. How to generate fruitful partnerships with their customers and prospects,
  2. How to develop innovative value based financial solutions that meet their clients real strategic needs,
  3. How to manage the Bank’s Product Specialists to ensure a smooth delivery of the proposed solution,
  4. How to quantify the contribution of the relationship to the value and profitability of the bank
  5. How to sell and negotiate all conditions (including price) with the bank management and with the client.

The case study although simple (it does not require in depth credit analysis and a lot of data modelling) is very close to participant’s day-to-day reality.

The course avoids generic academic management concepts and models, to focus on real life, innovative Corporate Banking Relationship Banking models as they have been applied in the leading international corporate banks.

The participation of product specialists of the bank is enriching for them and for the RMs participating in this training, as is the participation of market specialists and corporate managers.


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Risk & Relationship based Pricing Part 3.2

So what was your recommendation to the bank for the quiz in my last blog?

  • Client A (20 year mortgage at 4.803%)?
  • Client B? (4 year consumer loan at 4.734%)?
  • 80% A, 20% B a mixed portfolio?
  • 20% A, 80% B, a mixed portfolio?

And the answer is… Well it is not an easy straight forward one. First let’s check if:

  • We have all the information needed to make an informed decision?
  • We are sure that we know and understand, the performance criterias used by the bank?
  • We know and understand the financial models used to calculate all the decision variables, the risk and relationship value drivers?

To make a good decision, we must:

  1. Focus on the value drivers of the different opportunities. But how to define and measure value?
  2. Analyse the risk adjusted financial performance of each opportunities. But which risk and how to measure them?
  3. Analyse the value of the relationships we will gain and the value of the one we will lose! But what is customer value and how should we measure it?
  4. Plus, plus, plus…

A very simple question, but a complex problem to model and a tougher management decision than it looks! The data used in the calculations of this simple example are simple indication of the real world conditions. The models use standard, simplified formulas. I will not go into the detail of the calculations (if you need to understand the methodologies proposed you will need to contact me on
The financial performance analysis.
To start the analysis let’s decompose the total interest rate revenue for the four portfolios. The results of this decomposition is summarised in the following table.


Interest Rate Revenues

Gross Interest Margin

Interest Margin less   Liquidity premium

Risk adjusted Margin

Net Operating Margin

Client A






Client B






C = 80% A +   20% B






D = 20% A +   80% B






Notice the huge differences in the results depending on the level of the analysis and the total reversal of conclusions: Portfolio B starts as the best option with 1.43% gross interest margin, but drops to the worst position if the margin is credit and liquidity risk adjusted (the interest rate risk is hedged in the Gross Interest rate Margin) and adjusted for operating expenses!

Based on the models used, the cost of hedging risks and the allocation of fixed and variable direct operational expenses, the asset portfolio with the highest return is Portfolio A which is a surprise, as it is higher than diversified portfolios C and D. This of course is due to the fact that the diversification benefits are not integrated in the price, in other words they are not handed over to the clients but reserved to the shareholders.

The shareholders need to invest in the bank enough capital to cover the expected risks and unexpected risks (as defined in principles by the Basel Accord). That amount of equity should include the diversifications benefits or deficits. The Economic Equity calculations indicate that the minimum requirements (Basel II without the additional cushions of BIII) as expressed as a % of the total asset (loan portfolio), are of:

Portfolio A:         0.78%

Portfolio B:         1.35%

Portfolio C:         0.80%

Portfolio D:         1.17%

Surprisingly portfolio C requires more capital than portfolio A, it is this more risky than A, although it is a diversified portfolio. This is due to the relative levels of the expected losses (a function of the Probability of Default, Exposure at Default and Loss Given Default), the variance of Probability of Default and the covariance of the portfolio PD’s.

The RORAC (risk adjusted Return on Risk Adjusted Capital) is calculated of the Economic Equity based on expected and unexpected risks, i.e. using the loan loss provision estimations and the diversified value at risk of the portfolios. On that basis the bank should decide on investing in portfolio A as the risk adjusted return is the highest, although Portfolio C is also attractive thanks to the benefits of diversification:

Portfolio A:         25.65%

Portfolio B:         11.12%

Portfolio C:         23.66%

Portfolio D:         13.70%

In theory, and in practice, the bank needs to generate value for its shareholders, hence the risk adjusted return (RAROC) must be greater than the Cost of Equity as this and only this will produce economic added value for the shareholders.

I used some hypothesis to calculate the minimum return to cover the cost of equity or “hurdle rate”. These cover the solvency strategy of the bank (single A), the beta of the shares, the market premium… i.e. all the variables of a classic economic value model as per the Capital Asset Pricing Model (CAPM). The hurdle rate calculated is 18.63% and consequently the Economic Value Added contributions (EVA) of the 4 portfolios are:

Portfolio A:         + 7.02 %

Portfolio B:         –  7.51 %

Portfolio C:         + 5.04 %

Portfolio D:         –  4.93 %

Only two portfolios create shareholder value the other 2 destruct value potentially because loans B is mispriced! Can I improve those conclusions by looking at a Return on Risk as defined in the Sharp Ratio (excess return on the standard deviation of returns)? This show that the diversification benefits of portfolio C would favour that investment rather than portfolio A.

Portfolio A:         1.27

Portfolio B:         0,63

Portfolio C:         1,41

Portfolio D:         0,83

Anything above 1 indicates that expected excess returns exceed the risk associated with that return, and C with a ratio of 1.41 is a clear winner.

The diversification benefits will be influenced by multiple factors and dependant of the valuation models used.

Diversified Portfolio STD   Undiversified Portfolio STD    Diversification benefit

A:  0.15789%                                0.15789%                                      0.00000%

B:  0.23844%                               0.23844%                                     0.00000%

C:  0.13501%                               0.17400%                                      0.03898%

D:  0.19335%                              0.22233%                                     0.02898%

We have not optimised the portfolios on a variance, covariance basis (correlation of 0.60), nor have we optimised pricing en operational efficiency. These management strategies would be defined in a pricing strategy and model.

Is the financial analysis complete? There is a last aspect that should be analysed.

If we calculate the Present value of the future Net Operating Profit contribution of each portfolio, we will also integrate another important aspect of annual profitability, which is the fact that each contract will produce annual returns over its whole life. In other words RORAC is an annual profitability measure not a measure of value of the whole stream of revenues! The equity values of contract with a return of 1% per year maturing in one year, is different to one producing 1% every year for the next 10 years.

We can estimate the value of the contract profits flows as the Present Value of those cash flows discounted at the appropriate risk adjusted discount factor. Again note I’m not calculating the total value of the contracts but only of the value of the excess returns after cost of risks and operational costs allocations.

Taking some calculation shortcuts, the values are as indicated in the table below. We can now calculate the “Fair Value” of the excess net returns generated. Without surprise Portfolio C remains the best choice if you look at the relative excess value to per value of risk unit, between ( ).

Portfolio A:         € 2,549 (462%)

Portfolio B:         € 529      (  63%)

Portfolio C:         € 2,117  (449%)

Portfolio D:         € 899      (133%)

This indicated that the sustainable long term excess value of portfolio A outweighs the reduced risk of portfolio C.

Relationship Adjusted Value decomposition

The last missing factors to be integrated are the relationship variables: the value of the expected behavioural attitudes of clients with the existing product holdings (attritions, prepayments, drawdown…) but also probability/ propensity that these clients will “buy” other products because of the relationship built on the back of the initial contract A and/ or B (cross sale, up-sale…).

There are many approaches to estimate the value of this potential activity growth (positive or negative growth). The most logic being to estimate the “fair Value” of the expected contracts sold, adjusted for their sales propensities, attrition risks and financial risks.

Combining both values will give us the true Life Time Value of the client or Client Fair Value.

From a financial perspective we are calculating the financial value of the bank’s goodwill created by the growth generated by using its business capacity (distribution network, operational back offices…). Hence we can try to reconcile the market capitalisation value of the bank by adding the fair value of the goodwill with the accounting fair net asset value.

Is this important? I believe that if you don’t measure something you will not manage it. By making the effort of measuring the drivers of value contribution you will define client relationship variables to be managed and priced. Examples of value drivers and business risks that can be quantified and managed include: cost of attrition risk, return on marketing campaigns, and contribution of next best product… plus of course “price the relationship value”!

It is not uncommon to see (even large and advanced banks) budget marketing strategies based on incomplete and sometimes misleading information. One was planning campaigns to reduce attrition of the least profitable clients will doing nothing to retain the more profitable ones, only because they were using average profitability data to segment their client base. Using Life Time Value over 85 % of the client would have been assigned a different profitability segment!


The consequence of mispricing and of approximate profit and value contribution are not trivial.

The mathematics does not need to be rocket science, but a robust analytical model adapted to the business model of the bank and its sales and marketing strategy should be implemented.

In the following blogs I will review the core principles of good pricing strategies.

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April 6, 2013 · 4:56 pm

Risk & Relationship based Pricing Part 3.1 – A simple quiz.

Before we dig into our pricing principles, I’d like to propose a very simple pricing exercise.Imagine you are the bank’s new business officer. You have to recommend one and only one loan. Which one will it be? The bank is short of equity following Basel III, so cannot take both but would be ok with a certain portion of both, say 80% A and 20% B or vice versa.

Client A
Loan type Annual fixed instalment
Credit Rating 2
Loan Amount € 150,000
Maturity(years) 20
All-in Rate 4.79%

Client B
Loan type Annual equal reimbursement
Credit Rating 3
Loan Amount € 150,000
Maturity(years) 4
All-in Rate 4.78%

Other elements you are given before you can make any decision are:
1. The prospect borrowers have been scored and rated as 2 and 3 (on a rating scale of 1 to 10, with 1 being the best).
2. The current Yield Curve for risk free interest rates, from 1 year to 20 years is as follows:

YC pa in %
1 year 3.35%
2 years 3.45%
3 years 3.75%
4 years 3.85%
5 years 4.00%
7 years 3.95%
10 years 3.90%
15 years 3.75%
20 years 3.50%

3. The bank is under huge stress to maximise profits because it needs to attract new capital and compensate the huge costs it has been faced with following the latest large compliance investments and liquidity crisis.
So, which one will you recommend for financing by the bank, Client A, Client B or a mix of both?
Send me a word ( or give your opinion through the poll!

I’ll give you the answer in a few days.


April 3, 2013 · 9:25 am

Retail Bank Strategy & Performance Training

Retail Bank Strategy and Risk Based Performance Management Masterclass, with BankStrat computer based simulation game, by BC&T Ltd

A framework to provide bank managers with the essential competencies to develop Value Based, Risk Adjusted, Compliant bank Management Strategy and the opportunity of testing those skills in a quasi-real life bank management simulation.

A Masterclass Program:

The aim of the programme is to develop retail bank global and operational strategies to: create value for all stakeholders, within risk constraints and in compliance to regulatory constraints. As all bankers know this is complex and technical. Managers must have a good understanding of these financial and quantitative models to structure their business strategies. Relationship based management implies selling the right product to the right customer at the right price and risk based management implies that the underwritten risks are managed within board and regulatory policies and limits.

It is not sufficient to “hear about” the underlying financial concepts; managers must experience the outcome of strategic management decisions to fully understand what is required to generate a winning strategy. We have developed a program that includes the main strategic management domains that the managers must master, and linked the review of these with a hands-on pragmatic, near real-life computer aided bank management simulation.

The training is not intended to create technical specialists in any of the management domains, but to help the participants become truly bankers that can think globally and generate winning strategies that maximize the bank’s risk rewards.

The content and case studies are proprietary and cannot be copied without the explicit approval of Clive Wykes of BC&T Ltd.

Targeted audience and Course Duration

This is a 3 to 10 day training. Ten days may appear to be a very long break from work. To review all the concepts and apply then in the simulation game is a major effort and 10 days will be required for staff without general or departmental management experience. Shorter versions of 3 or 5 day are also available either because we concentrate on only one or two management domains or because the participants already have a strong knowledge and understanding of bank management models (senior managers), in which case they are interested in looking for the integration and dependencies of management domains and the art of strategy development under constraints.

The training is organized for approximately 10 to maximum 24 Managers. They should all have a good understanding of finance and banking.

The programme is focused on a strategy development and implementation to optimise all the drivers of bank value (growth, risk and profitability). Theoretical concepts are supported by a bank management simulation programme, where participants define their bank’s policies, strategies and tactical implementation plans by managing:

  1. Sales and marketing strategies,
  2. Treasury strategies,
  3. Enterprise Risk Management (focused/ limited to Interest Rate Risk, Liquidity Risk, Credit Risk)
  4. Risk appetite and economic equity budgeting and allocation,
  5. Solvency (the bank’s credit rating) management,
  6. The equity compliance (Basel 3).

This course has been very successfully delivered at Board level, senior management level, and specialised business units, down to entry level management teams. Specialised business units have found it very useful including:

  • Risk (credit, ALM, compliance) Management Business Unit (BU),
  • Retail Sales & Marketing BUs and retail distribution units,
  • Private Banking BUs,
  • Corporate Relationship Managers,
  • Management Accounting and Financial Control units
  • Strategy and planning BUs,
  • Audit teams,
  • As well as IT and solution vendors.

Course Material

All the course material is delivered in electronic format. This will include presentation slides, descriptions of the main financial concepts, the simulation information of which the participants guide and initial simulated bank financial package.

Course objectives

Provide bank managers with the essential skills to build a framework for enhanced performance. The programme will help to:

  • Define the bank value metrics and risk adjusted value drivers (RAROC, EVA,      Economic Equity, VaR, EaR…)
  • Develop value based operational strategies based on the bank’s mission and      shareholders’ vision, and integrate them in the global strategic planning      process;
  • Develop of risk optimisation strategies including risk quantification, risk      budgeting and pricing as well as risk management (Including: credit risk, market risk, interest rate  and liquidity risks (ALM), operational risks, business risks, solvency risks…)
  • Analyse competitive positioning and differentiation, including product development      and management (piecing etc), marketing and Client Relationship Management      as well as Event Based Marketing
  • Define, measure and manage Client Profitability and Value (Customer Value      Management)

This is an intensive, high value programme with a steep learning curve.

Content and Methodology

Content description:  Bank Performance Management

Bank strategic management requires quantitative and qualitative analytical competencies. They are confronted to new regulatory constraints and enhanced competition in a global financial market! A rigorous management framework is of vital importance to ensure leadership and management success.

All management domains need to be integrated into a global strategy, in order to ensure the balance between growth (commercial strategies), risk (Enterprise-wide Risk Management strategies) and value (sustained profitability strategies). Without sound and robust risk based management the financial industry will continue to be submitted to regular and very severe financial crisis!

We will also analyse the consequences of the great Banking crisis of 2008 and learn from these events to improve the quality of the management responses to extreme volatility. We will also discuss the new capital constraints (BIII) and ICAAP requirements.

Case Study description: management of a simulated bank under risk constraints and in a competitive environment!

The course is based on the principal that the learning experience is enhanced by hands on exercises that replicate real management situations, where participants can test the concepts learned and analyse the result of their analysis and management decisions. Hence we have created this course with a high level of integration between theoretical concepts, valuation models and risk management methodology descriptions and computer aided Bank Management simulation.

In the simulation and all class room discussions and workshops the participants are divided into a number of management teams (maximum 4). These are typical management team of a small bank. The size of the group will vary on the basis of the specific training objectives and characteristic. Teams can be constituted by a single individual to a maximum of 4 to 5 participants.

Each team will make management decisions in different management domains:

  1. Strategy definition including markets, risk policies & limits, performance criterions…
  2. Marketing & Sales i.e. client and product  management (pricing, sales volume budgeting, marketing campaign investments)
  3. Risk management (credit risk, interest rate risk, liquidity risk and solvency risk)

Decisions made by the management teams are input into the computer simulation programme, which calculates the effects of all the decisions and prints a Management Information Report with the results. All the information required to develop and justify the management decisions are in this Management Report including:

  1. General Market information (economy, interest rates…);
  2. The Bank’s Balance Sheet and Income Statement;
  3. Profitability report;
  4. Risk reports;
  5. Compliance reports;
  6. Marketing reports.

The simulation is organised in such a way that each management domain is isolated to improve the analysis of causalities of results with participants’ decisions. In the final decisions participants are required to manage all the variables together and report on their strategy and the outcome of the decisions..

The objective of the simulation is to develop a strong understanding of the key factors that contribute to the optimisation of a Bank performance. Strategic Value Based Performance requires a sound understanding of many management variables sometimes complex and very quantitative. We have simplified some of these domains to make them accessible to non-specialists. For the participants it is important to understand the dynamic of all the management domains and their impact. To illustrate this point the Bank must manage its risks (credit risks as well as Interest Rate Risk, Liquidity risks and Solvency risks). The way to do this is to assume risk (“buy or sell risk”) for an optimised amount, under risk constraints (equity compliance) under profitability constraints (revenues and cost efficiencies) and under value constraints (Economic Value Added performance metric and share price).

For further details please refer to our information brochure “Bank Management Simulation to enhance the results of training”.


The participants will gain useful understanding of bank performance dynamics and more importantly will have a real experience of managing the bank and responding to the challenges of the environment in a near life experience. They will have a good (but general) understanding of three major management domains in Retail, which will be of immediate application on their day-to-day responsibilities.

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April 1, 2013 · 12:44 pm

Bank Management Training and Education

BC&T is focused on Bank Management Consulting and Bank Management Training. We have added two new categories of subjects to this blog to discuss related subjects and offers of services. To receive detailed information financial conditions please send an email to Clive Wykes at

In the Bank Management Training & Education category we will describe our approach and some of the courses available.

General comments

We prefer to organise in-house courses not only because this is a cost efficient option for the client versus public courses, but also because it allows us to tailor-make the course to the clients’ specifications. That offers direct and important benefits to the client, of which:

  • Customised content and training objectives,
  • Customized training duration,
  • Convenient date & training location,
  • Cost efficiency,
  • Confidentiality.

In-house training is desirable if:

  • you have large numbers of staff to train,
  • if you need specific content and teaching approaches,
  • if you want to use internal information and discuss specific internal methodologies and issues,
  • if the trainees are senior officers of the bank or board members.

We underline that our courses are management courses aimed principally at middle and senior management. But we also have introduction level courses directed to entry-level or junior staff. As we adapt the programme to the specific requirement of the client each programme can have different levels of complexity, focus and detail; consequently the programme duration can be from 1 day to 10 days.

Training methodology

Each programme is a mix of classroom sessions and hands-on management sessions.

  • Classroom sessions: we review core concepts from a theoretical perspective, show real life examples and explain, if needed, the technical model required.
  • Hands-on management sessions: the participants apply these concepts and skills in bank management simulation games, role-play case studies and/ or qualitative exercises and case studies.

This dual approach allows an optimisation of the learning experience and facilitates the implementation of the new skills in the day-to-day management responsibilities of the learners.

A deep body of theoretical literature asserts the power of simulations to change behaviour by giving learners and practicing managers the opportunity to apply concepts immediately, experiment and test their assumptions, and learn from their mistakes in a risk-free environment.

Simulations will reinforce business concepts and accelerate learning because they are highly involving, realistic and give immediate feedback about the trainee’s judgment and choices. After the simulation, participants can easily reflect on their outcomes, good and bad, and form memorable conclusions about what they should do when faced with a similar business problem in their organizations. Finally simulations are competitive and fun.

Rather than rewrite a blog on the advantages and use of simulation games in training (also referred to gaming), I suggest you check out what was written on Wikipedia:

A question often asked is: How do we keep our programmes up-to-date? After all, the world of banking is evolving at a rapid pace, especially since the big banking crisis that started in 2008.

The answer is simple. We are primarily bank management consultants working on solving day-to-day management problems of banks in many countries. To achieve the expected results we must have a hands-on approach, and propose solutions for implemented that integrate the current best practices as applicable for each bank. We can then transfer those best practices into our training programmes.

Indicative programme list

The table below indicates some of the available (off-the-shelf) courses that can be organised as they are or adapted to client specifications. The level of depth and the target audience can also be adapted to the requirements.

As we focus on tailor-made in-house programmes pricing is specific to each assignment.



Training methodology




computer simulation

role play

case studies

Retail   Bank Strategy and Performance Management introduction   to advanced






from 1 to 10 days

Wholesale   Corporate Relationship Management advanced






from 3 to 5 days

Corporate   Finance for Bank Managers introduction   to advanced






from 3 to 5 days

Credit   Portfolio Management mid   level to advanced






from 3 to 5 days

ALM   and Compliance of the banking book mid   level to advanced






from 3 to 5 days

Operational   Risk Management and compliance introduction   to mid-level






from 1 to 3 days

Basel   II and III introduction   to mid-level






from 3 to 5 days

Introduction   to Asset Management introduction   to advanced






from 1 to 5 days

Risk   and Relationship based pricing introduction   to advanced






from 1 to 3 days

Retail   Client Relationship Management introduction   to advanced






from 1 to 5 days

 Retail Branch Management introduction   to advanced






from 3 to 5 days

We will describe these programmes in further posted blogs. Meanwhile do not hesitate to contact at

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April 1, 2013 · 11:02 am

Risk & Relationship based Pricing Part 2

Bank Pricing Strategy 2

The opportunities and issues to organise a pricing strategy and develop pricing models that can enhance value based management.

I mention value based management as the ultimate objective of good banking strategy. This needs a short explanation. Value based management refers to the management of future bank profitability, not on the budgeted profits of the year. What we want to maximise is the value of the firm calculated as the present value of projected profits streams resulting from existing financial contracts on the books of the bank (assets, liabilities and off balance sheet) plus the present value of profits derived from future sales of financial contracts. The later good be described as the goodwill of the bank i.e. the premium over net book value that shareholders are willing to pay to acquire the shares of the firm.

By itself value based management is important for all companies, but it takes even more importance for financial institutions because the profits of all the financial contracts sold to the customers are dependent on future volatility, as we discussed in the first blog of this series. In this case management will need to discover and manage the value driver.

To achieve a value based management capability all activities must align to that concept.

  • Financial accounting does so partially through the accounting fair value model (it is only a partial alignment as the banking book is still value on an accrual basis).
  • Risk management is the most sensitive to this approach and good risk management principles all focus on future cash flows and their sensitivity to market volatility. This includes the management of economic capital through capital budgeting and allocation as per the Basel recommendations.
  • Sales and Marketing has developed a set of statistical and probabilistic tools to predict future client behaviours, but that capability is often in an independent silo and not integrated into other management domains.
  • Management accounting has evolved rapidly, but is still mainly focused on current profitability. Product and client profitability is in nearly all cases still a simple calculation that does not integrate future risk sensitivities.

It is evident that moving towards integrated value based management requires substantial reengineering of current processes and management information, with substantial organisational and IT consequences. The appropriate solution will depend on the banks strategic vision and strategies; hence the organisational and technical solution is not a standard “one size fits all” solution. In regards to the pricing aspects of this note that:

  • Different pricing strategies and models will apply to different business models, hence the problem and the solution are different by bank, but the approach is strategic and must be designed and managed top down.
  • There are no “off-the-shelf” technical solution/ application for a quick fix, because pricing is integrated in many other process and business support systems. Best of breed pricing will rely on the existence of robust risk analytics, risk transfer pricing capabilities, appropriate cost allocation systems, capital management capabilities…
  • Many of the management skills and capabilities required to implement a value based pricing strategy were developed post crisis and within the new regulatory environment (think liquidity risk…).
  • The project will imply revisiting Policies and Procedures, Process Flows, Competencies and skills, Organisational structures.
  • The technical solution to improve these business capabilities is data centric and rule based. It also requires systems integration between all the management domains of the bank.
  • Managing enterprise culture and change is essential as the new banking model that emerges from these approaches will require adaptations of skills and competencies and changes operational and management process.

Pricing is only one element of a global sales strategy.

We can summarise the main areas of competition in banking as being function of pricing, convenience and confidence:

  • The Price Function: The cornerstone of competitive positioning, but is all a question of price? And what is price? Does collateral requirements constitute a pricing variable and how?
  • The Convenience Function: Convenience has multiple facets. It can include: distribution channels and reach, the number & quality of products offered, the quality of documentation etc… Some of these issues are becoming increasingly more important, think of mobile banking versus internet and branch banking.
  • The Confidence Function: More than ever this is important, trust in the banking industry is at its lowest ever. Reputational risk is high. Bank solvency management is a priority. The European banking crisis is a constant reminder that this must be managed in anticipation of the risk not when it is basically too late.

One or the other way all these factors will influence product pricing, through cost allocations, solvency premium etc. This of course takes us to a fundamental question: if the theoretically correct price as calculated by the banks’ pricing model exceeds the competitors price, should the bank adapt its price to that of the market, or should they decline to do the sale? It sounds like a trivial question with an obvious answer, while in fact there is not a single answer and to make the correct decision we need to understand all the variables included in the contract price. This can only be done with the appropriate drill down and drill through capability of the price components, which is a technical problem requiring high data granularity and good analytical capabilities.

Strategic importance of Pricing

Many banks will say that they are not market leaders so can’t influence prices and they must follow market prices because they are supposed to be efficient. This position is of course un-defendable as pricing differences are often due to

  • internal inefficiencies which the bank must recognise and correct,
  • differences of marketing strategies,
  • differences in the behaviour characteristics of each bank’s client/ prospect base.

Another way of looking at this problem is to analyse the consequences of pricing. Pricing will influence many crucial and strategic management domains:

  • Client acquisition and retention;
  • Product innovation and management;
  • Product risk adjusted profitability and value contribution;
  • Client profitability and value contribution;
  • Risk Adjusted Return on Capital (RAROC) and Economic Value Added (EVA);
  • Operational efficiency (cost to income management);

The question I ask banks is simple: How do you measure the impact of your pricing decisions on all these variables? This capability is essential if you want to manage efficiently each of the domains.

Principles of Good Pricing for Financial Contracts

With all this in mind I have developed a list of 13 pricing principles that I believe are important in a pricing strategy and thus should be integrated in the pricing model of the bank.

  • Principle 1: Price the volatility (risks) of projected future Cash Flows;
  • Principle 2: Individualise all risks then price and manage them to optimise their variance and integrate whenever possible their covariance;
  • Principle 3: Integrate price elasticity to client solvency (their risk rating), not only to client segments characteristics;
  • Principle 4: Define, quantify and manage business risk;
  • Principle 5: Define cost allocation strategy and models;
  • Principle 6: Define, quantify and manage current and future client profit and value contribution (Life Time Value or Customer Fair Value);
  • Principle 7: Adapt the pricing strategy to the banks market strategy and the value proposition the client is seeking from your bank;
  • Principle 8: Manage competitive pricing;
  • Principle 9: Manage the complexity of management models;
  • Principle 10: Adapt the organisation to the requirement of risk and relationship based pricing;
  • Principle 11: Integrate pricing process with an efficient process flow from the origination of the client request to its fulfilment;
  • Principle 12: Integrate risk underwriting and pricing in a seamless strategy;
  • Principle 13: Optimise risk appetite, risk budgeting and allocation within the pricing model and define related clear and precise performance criterias.


Pricing strategy and pricing models are important developments; they are strategic and touch most management domains of the bank. The solution must be adapted to the vision, strategy and organisation of each bank but is based on a robust, flexible, data and rule centric technical architecture.

The implementation of such a capability will allow management to substantially enhance its control of the bank’s value based performance.

In the following weeks we will review the core principles of efficient pricing models.

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Risk & Relationship based Pricing Part 1

Bank Pricing Strategy

A forward looking complex management challenge for most big or small banks on all continents.

Jonathan Witter, Capital One’s (COF) president of retail and direct banking, predicts that over time, “we will see the advent of different pricing models, and we will see the advent of different feature models” (extracts from an article in AmericanBanker of March 18, 2013). McKinsey reported that less than 5% of the Fortune 500 companies have a dedicated pricing function.

If you agree with these statements, and I cannot find any reason to disagree, you have to ask yourself:

  • What do the other 95% of the Fortune 500 do?
  • What is the state of business for smaller companies?
  • Are banks better off or not?
  • Is this important and why?

My experience on all continents is that banks are probably worst of because of the nature of the banking products and services. Think of the differences in pricing a commercial good, a widget, sold to the sale of a financial contract.

Industrial/ commercial goods

The widgets are priced on the basis of known historical Cost of Goods Sold (COGS) and Sales Costs and margins adapted to the sales strategy and lifecycle of the product. The sales margins and profitability are easy to calculate and manage. Sales & price strategies focuses on marketing efficiency

Financial contracts

Financial contracts are sold on the basis of future operational costs and risks. Even if these future costs and risks can be estimated, they are uncertain because they are projected. Bankers must manage these uncertainties. The sale is completed only when the product cash flow cycle is completed, that can be in 1 month, 12 months… or 30 years! Throughout the cycle margins will vary. How do you integrate that uncertainty in the bank’s sales strategy and pricing strategy and models, and how do you manage that uncertainty?

To start answering the implied management questions, you should define and quantify these uncertainties and measure their volatility.

Operational cost uncertainties. In financial contracts the margins are contractually fixed (even if some products refer to reference rates or indices to fix the all-in rate as for variable or floating rate products). But the costs related to that product will vary through inflation, operational efficiency etc.

Financial and business risks, uncertainties. We can commonly agree that all financial products contain (1) Credit Risk or solvency Risk, (2) Interest Rate Risk, (3) Liquidity Risk, (4) Foreign Exchange Risks, (5) Business Risks, (6) Operational Risks, (7) Regulatory (Compliance) Risk, plus possibly some more!

All these operational and risk need to be defined, quantified and managed. The cost of managing the uncertainties, hedging the risks must in theory be expensed to the client, and the residual margin will constitute the “sustainable risk and relationship adjusted profit” of that transaction. Note that a measure of the sustainability would be the Life Time Value of the product

The introduction of value management by opposition to profit management is essential, because it is a forward looking measure of profit contribution defined around the all the future volatilities of the product related cash flows. Understanding these value drivers/ destructors and integrating them in the bank’s pricing model is the only way to take control of the commercial and sales strategy of the bank.


Pricing products is not trivial and it is complex.

All banks measure product and client profitability. But what model is used? With what data: average financial data or granular, historical financial data or projected data? Are customer projected behaviour integrated?

All banks price products, by definition. But how efficient, precise, flexible, useful are they?  Are they related to profit or value targets?

These are just a few of the issues possible.

I have prepared a brief slide presentation (available on in which I mention 13 good management principles to integrate in a pricing strategy and model. I want to expand a little on the solutions available and the strategic importance of this subject before I review the 13 principles over the following weeks/ months.

With some luck you will give me your comments, criticisms, suggestions as we go. I can then integrate all the ideas into a set of final recommendations.

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Hello and welcome to this blog

The banking industry is changing at an exponential rate! Some of these changes are good others are not, but in any case they constitute a challenge for the suppliers of banking services and their users.

BC&T or BankStrat consulting and training operates principally in Africa but also maintains activities in Europe and Asia. We believe that changes in the industry and access to affordable technology are a game changer for the small and mid-sized banks. We also believe that ideas and visions of possible solutions should be shared and enriched by communication. Consequently a blog seems like a must have for a firm like ours.

We will try to keep this blog as active as possible for a very small team, without promises of daily, weekly or even monthly updates. But we will do are best to present interesting ideas and solutions.

We will apply the idea put forward by Oscar Wilde:

 Just let the words fly from your lips and your pen”

But have adapted it a little:

“Let your mind direct your pen, not style or grammar”

As principal consultant I will try to keep you interested and connected. I hope we can build strong exchanges for the benefits of all.

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