Business — Banking — Management — Marketing & Sales


Category: Strategy Implementation

Importance of the issue

The issue raised is that is not linked to the physical safety, for instance of a building. The purpose is to address the question of the financial safety of the operations managed by the branch network. Gaining new clients, extending the business and market shares in some strategic sectors are fine targets as long as the branches are not to dependent from certain economic sectors, big customers and actually receive the money generated by their activities.

Concentration of activities by sector, product, customer and employee

Risks lie in two specific areas: a too high dependency on some clients, sectors or even salespeople being big producers; clients defaulting on the due payments.

These risks have to be measured and, if possible, mitigated. Thus, it can be of the head-office responsibility to define limits by economic sector, product and clients, and to monitor these limits. The idea is that diversification of the portfolio of operations allows a mitigation of the risks, with a lower probability that the bank will strongly suffer from one problem in one area. Then, once such limits are implemented, a precise follow-up has to be done, with the adequate reporting to the branches’ management and to the head-office.

While managing its credit exposure, the bank can also take profit of this type of reporting by using it to improve its commercial strategy. A high concentration of the business, in one branch, on one salesperson can show that this person is a very dynamic one or has a big portfolio of clients. The risk for the branch is, however, to suffer from a significant decrease in its revenue if this person leaves the branch. It means that either the other commercial people, with the same portfolio potential, are doing less, which is to be addressed with these salespeople, or the person has a too big clients’ portfolio and a better balance has to be find between all the salespeople. It could also mean that the person with a very high level of activity compared to the others has special relationships with a few clients, and this has to be investigated in order to avoid ethical issues.

Accounts receivable

Once an operation is done but not yet paid, the amounts due by the clients enter into the account receivable. Each branch should have a synthetic table showing: the total due, then the amounts by age block.

The table could be, for instance (in RUR):

Total due <1month 1-3 m. 3-6 m. >6 months
Product 1 35,000 20,000 7,000 6,000 2,000
Product 2 25,000 8,000 5,000 4,000 8,000
Product 3 7,000 7,000 0 0 0
Total 67,000 35,000 12,000 10,000 10,000

Payments not yet received after a few months could be a problem. In the case above, product 2 shows a relatively high level of payments due for more than 6 months. This has to be investigated by the branch, because these amounts could become bad debts.

This indicator will be followed also at the head-office level. Benchmarks can be defined by the head-office, wit several key ratios: total due / total revenue (%), repartition by age of the accounts receivable (% of each age block compared to the total. For instance, payments due for more than 6 months should not represent more than 5% of the total), with warning signal when ratios for the whole bank, or for a specific branch are not respected.


Technical incidents, for instance with systems, problems with clients can affect the profitability of the bank, or of one branch. An information should be given to the branch manager and to the head-office regarding these specific issues. They can reflect a structural fundamental problem (a system unable to deal with a product requirement), and the reporting could help to find the adequate solution.

Penalties, financial impact of claims

The size of the financial impact of incidents and claims has to be precisely followed. As explained before, it is a way to highlight specific issues, with products, systems or clients, and to push to find solutions. Furthermore, such a reporting allows comparing the size of the penalties or financial claims to the total revenue earned with a client or on a product. A high ratio is obviously a strong signal that something has to be done, first by trying to solve the issue and, if there is something more structural in the problem, to question the viability of the system, product, or relationship with a client.


Finally, and depending on the analysis of all the potential financial issues (such as too old accounts receivable or high penalties expected during the next six months), the bank could have to made provisions. The amount of provisions, for the whole bank, with a split by branch, is an indicator to monitor. It will also be taken into account in the profitability analysis, with the branches being at the source of the provisions being penalised.

Exercises 3 and 4

Purpose of the two exercises

The purpose is to have the participants thinking by themselves about the few performance indicators that could be essential in their activities. They are in three different situations:

Manager of a diversified branch

Manager of a specialised branch

General manager of the bank

The idea is not to have a very exhaustive list of indicator, but to find the most strategic ones, reflecting the activity, its profitability and productivity, quality and risks.

End the discussion by making a synopsis of a few core indicators especially consistent by type of bank business.


Use a paperboard to classify what the participants will say. The classification will be for the three situations listed above and within each of them by type of indicators.

The participants could give practical examples, with figures or ratios to analyse. It would be useful to have the participants using their own activity environment and experience to do the exercise.

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