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1st Quarter 2023: CEOs Must Avoid Performance Surprises

NEWSLETTER| Tue Feb 14 2023

Financial institutions are faced with several common challenges. Many of these challenges are preventable or controllable, but often result in a lasting value impact. Profit warning is a key challenge that often results in CEOs losing Board and shareholder confidence and their jobs, ultimately causing devastating harm to their company’s valuation. BankingBook Analytics’ research shows that it takes over 24 months for banks to recover from a significant share price shock.

The root cause of this challenge is reactive performance management of the loan book, often the result of lagged reporting, which is a function of data processing in silos. Performance reporting processes at banks can at best be described as iterative and, at times, even archaic, with a plethora of spreadsheet management. This is due to the organizational corporate structure dominated, even inadvertently, by functional silos. Each of these functions own a different set of data and processing mandate. Data processing is often done in a sequential order, therefore, changes in numbers identified at one silo triggers reprocessing at another - inefficient, ineffective and hazardous to overall performance.

Collecting and reporting data at granular levels for each discrete transaction is time consuming with time lags often in excess of 1 month. This delay in performance reporting and issue identification can be a significant source of surprise for stakeholders with missed opportunities to minimize losses and maximize profits.

(BBA) addresses these challenges by creating an internal financial data and analytics ecosystem powered by a combination of three models combined in its proprietary application, :

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BBA’s Profitability KPI is an unrivalled, first of its kind software application, designed to avoid surprises, and better evaluation of strategic opportunities, without risking the franchise. This strategic application is designed to remove severity skew - proven to be extremely beneficial for mid-sized banks as it allows them to create a smooth loan distribution, limiting the impact of significant increase in credit risk due to the inherent flaws in rating system which can lead to higher Expected Credit Loss.

In order to determine the Lifetime Income of credit portfolios, CEOs need to piece together reports from the functional silos to arrive at a meaningful performance estimate of their loan book. BBA’s Profitability KPI removes reporting lags and addresses “unexplained” gaps in performance while also harmonizing stakeholders’ visibility and expectations by integrating performance targets with business and functional accountability. Profitability KPI acts as a key lever to improve returns through real-time visibility of new deals, their impact on overall portfolio return, enabling shrewd strategic decision making.

With the combined power and intelligence of BBA’s ALM, IFRS 9/CECL and data intensive multifactor analysis for cost of capital, relationship, treasury and credit teams effectively perform risk-reward analysis of individual deals to determine lifetime income and other core economic profitability metrics. Using the elasticity of demand fine-tunes pricing to consolidate and amplify your strategic advantage, your share of wallet and your bottom line. Profitability KPI dashboard provides a snapshot at 10,000 feet and drill down capability of discrete loan performance within the portfolio, allowing CEOs and applicable functions to quickly identify and execute on tactics that enhance loan book performance while removing silos and promoting performance across verticals to achieve the shared purpose and goals.

Volatility and uncertainty in financial markets implies banks must examine their on-going performance on an immediate and ongoing basis. with us at BBA to achieve increased profitability, benchmark performance parameters and optimize your returns.