retail risk fheili.mohammad
TRANSCRIPT
Mohammad Fheili – [email protected]
Mohammad Fheili “Over 30 years of Experience in Banking. [email protected] (961) 3 337175
Risk & Capacity Building Specialist. Trainer in Risk & Compliance University Lecturer: Economics, Risk, and Banking
Operations Currently serves in the capacity of an Executive (AGM) at
JTB Bank in Lebanon. Served as:
• An Economist at ABL,• Senior Manager at BankMed• Senior Manager & Chief Risk Officer at Group
Fransabank Mohammad received his college education
(undergraduate & graduate) at Louisiana State University(LSU), and has been teaching Economics and Finance forover 25 continuous years at reputable universities in theUSA (LSU) and Lebanon (LAU).
Finally, Mohammad published over 25 articles, of thosemany are in refereed Journals (e.g., Journal of MoneyLaundering & Control; Journal of Operational Risk;Journal of Law & Economics; etc.) and Bulletins.”
Mohammad Fheili – [email protected]
The TruthAbout Retail Banking
• The Customer is at theHeart of Retail Banking
• Knowing the Customer andDriving Profitability ThroughThis knowledge is theLifeblood of Retail Banking.
Mohammad Fheili – [email protected]
However,• Increased Competition• Advent of Technology• Proliferation of Channels to service the Customerhave led to:• Increased Usage of Impersonal Electronic Services: Low Cost Electronic Services;Widespread and Diffused Customer Base. This, in turn led to: Lower Customer Intimacy (How much intimacy can one get out of e‐Banking!).Reduced Switching Costs Between Different Banks (Customers these days are constantly
shopping for the better deal). Increased Chances of Fraud and Credit Risk (Law 318 on Fraud & BDL Basic Circulars 83 –
Regulator’s Version of Law 318, and BDL Intermediate Circular 371 – Compliance Officer at POS, and BDLBasic Circular 81 on Credit Risk – Compared to BDL Basic Circular 58)
Increased the Demand for Transparency (BDL Basic Circular 134; and BCCL Circular 281)• Less Time to Know and Influence Customers.
Research shows that Customer Interest peaks and falls rapidly especially inresponse to a Promotional Event.
This makes it absolutely necessary for banks to optimally leverage all availablecustomer touch points so as to be able to influence the customer (e.g., You find ads andoffers on ATM receipts).
TheTruthA
boutRetail Banking
Mohammad Fheili – [email protected]
Information Technology.
Price/Value Propositions.
Customer Expectations.
Digital Competitors.
What Has Changed?
Retail Banking OrganizationNeeds To Adapt.
Changes
Mohammad Fheili – [email protected]
Information Technology at the forefront of Operational Risk:But ….!
The Introduction of any form of technology in a given production process or the meremodification of an existing IT environment necessitates a number of changes whichspillover on Branch Performance: Staff Skills, Workflows, Policies & Procedures, and ahost of other changes.
In today’s technologically intense productionprocesses, information technology (IT) risks cannot beconsidered independently of other types of risks sinceit reflects on our ability to serve and satisfy our clients. Recognizing these challenges and acknowledging thatthe Branch has a role to play in managing this risk willput management one step ahead. Because processes areTechnology dependent, data collection has changed from being mostly qualitative tooverwhelmingly quantitative; Types/Nature of Mistakes committed by BranchEmployees are Different; etc.
Head of Retail Banking is a Member of the IT Steering Committee,… Or Not!
Information Technology
Mohammad Fheili – [email protected]
SIMPLE! Bricks & Mortals
People Come First
Data Come First
The Risk of Not taking account of that in the Transformation Process. Interfacing with
Clients Delivery Channels Product Features Customer Needs &
Wants Service Proliferation Staff Skill Level
Requirements Agility Etc…
Mohammad Fheili – [email protected]
Changing Customer Expectations and the Power toPunish: Power has shifted to the customer as they become more connected, more demanding and lessloyal.
Instilling the vision and values needed to rebuild trust.
Harnessing big data analytics, social mediamonitoring and other new forms of insight toanticipate and respond proactively to changingcustomer demands. If you don’t Duly respond, some other Banks will;and the Cost of ‘Switching’ is negligent.
How to gain clearer line of sight to customers, speed up decision making andovercome institutional resistance to change.
Shift from product‐push to customer solutions.
Accent on product specialization (‘depth’) gives way to broader engagement,analytical and change management skills (‘Breadth’).
Retail Banking Unit must Anticipate and Respond to Changing Customer Demands!
Customer Expectations
Mohammad Fheili – [email protected]
Digital Competitors and the Age of Innovation:As thepace of innovation accelerates, developments that would have taken years to impact on the market can nowbecome consumer expectations in a matter of days or months.
New competitors have head start on trust. Operational barriers to entry are disappearing as tech‐enabled entrants use digital distribution
and advanced customer profiling to break into the market.
How to create a Business Model that is Flexible enough toreinvent itself when better technologies or potentialpartners come along.
How to lead innovation – even fast following could leave your business marginalized.
How to create an adaptable workforce, unbound by hierarchy, organizationalsiloes or restrictive practices.
The Culture & Practice of Retail Banking is the Backbone of Workforce Agility!
Agility in the Digital Age
It is about the ability to makechoices, decide and act swiftly.
Mohammad Fheili – [email protected]
Equipped to Compete: The most successful businesses are going much further by
re‐engineering their organizations towards new ways of meeting customer demands and opening up new marketopportunities. So is your business up to speed?
Is your thinking radical enough? … Your Customer decides; NOT YOU!
Does your mission embrace the values of the post‐crisisworld?
Does your organizational capability reflect your customers’ changingexpectations?
Do your organizational capabilities reflect the new economicsof your business?
Is your organization ready for change?
Since Branches are the Life‐Line of the Bank, Retail Banking Unit ought to be Responsible for securing Branch Staff Readiness!
Staff Readiness
Mohammad Fheili – [email protected]
Your Life Begins At the End OfYour Comfort Zone
Coping With a Rapidly Changing Banking Environment
Your Life Begins At the End OfYour Comfort Zone
Mohammad Fheili – [email protected]
R.I.S.K.
A Boat in the Harbor is Safe, But That is Not What Boats Were Made For
Mohammad Fheili – [email protected]
Credit Risk
Market Risk
Operational RiskReputational Risk
Business RiskStrategic Risk
. . . Other Risks
Let’s Explore Risk
Stay and Risk
Extinction
Comfort Zon
e
Coping With
Changes
Mohammad Fheili – [email protected]
We’re not advocatingSuicide; You Gear Up andJump.
Risk
Complia
nce
is Straight Forward
YES
NO
Mohammad Fheili – [email protected]
• Most of the Risks Identifiedthroughout the Branch Network areOperational Risks.
• Beware to Look In The RightDirection . . . .
• Operations/Transactions in the HeadOffice are Dramatically Differentfrom Operations in Branches.
• Therefore, the Types and Nature ofRisks Identified in the Head Officeare Significantly different from thosefound in the Branches.
Mohammad Fheili – [email protected]
Retail Banking Division is/has: The Biggest Employer in a Typical
Banking Organization The Most Active Processor of
Transactions (i.e., Traffic) in a TypicalBanking Organization
The Highest Utilization Rate of ITSystems in a Typical BankingOrganization
… there is more
Mohammad Fheili – [email protected]
Operational Risk& BCBS
PRIMARY SECONDARY
PEOPLE
Employee Fraud / Malice (Criminal)
PROCESSES
Payment / settlement / delivery risk
SYSTEMS
Technology investment risk
EXTERNAL
Legal / Regulatory Risk / Public Liability
Unauthorized activity / Employee misdeed (Willful) Employment LawWorkforce disruption Loss or lack of key personnel
Documentation or contract riskValuation / Pricing Internal / External reporting and complianceProject risk / Change management Selling Risks
System development and implementationSystems failuresSystems security breachSystems capacity
Criminal Activities Out‐sourcing / Supplier RiskIn‐sourcing RisksDisaster and Infrastructural utilities FailuresPolitical and Government Risks
There are no right/wronganswers here; only “Acceptable”ones. What is acceptable is verymuch driven by:• People’s risk attitudes and• The Organization’s culture.!
Mohammad Fheili – [email protected]
Operational Risk
& BCBS
Internalfraud
Externalfraud
Employment Practices &Workplace Safety
Clients, Products & Business Practices
Damage to Physical Assets
Business Disruption and systems failures
Execution, Delivery & Process
Management
Corporate Finance
Trading & Sales
Retail Banking
Commercial Banking
Payment & Settlements
Agency ServicesAsset
Management
Retail Brokerage
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Loss Data
Advanced Measurement Approach
Mohammad Fheili – [email protected]
Flying From “Beirut” To “Paris” Is a ‘Service’; Just Like Opening a Saving/Checking Account.Descent Below Safe Altitude is an Incident (With Zero Losses this time). …. BUT . . .
Minimum Safe Altitude (MSA)
IncidentAccident
Operational Risk
Loss Events YOU MUST Report ALL Incidents irrespective of Current Consequences/Impact
Mohammad Fheili – [email protected]
Operational Risk
Decision vs. O
utcomes
Brilliant Surgery!
Well Done!Shame the
patient died.
Do Outcomes Matter?
Mohammad Fheili – [email protected]
Acquisition/ Credit Specific Customer Service
Collect And Review Data
CreditReview
Assess Collateral And Risk
DocumentApproval
& Pricing
Sales: Bank-Client Interface Financial & Risk Analysis: Understanding Risks Processing
Establishing Contact
Evaluate first customer info
Customer Meetings
Debriefing
Request documents
Obtain data & information
Completeness/ plausibility review
Follow up
Review document
Follow up with Loan Officer / Account Manager
Standardized Credit Rating
Document on other credit related factors
Inspect Object
Determine Loan-to-value
Evaluate Exposure
Data is Sufficient
Complete Loan Application
Prepare Credit rate
Handover Credit File
Follow Up
Data is Complete
Approval by Decision Makers
Check Compliance with Authority Structure
Prepare Contracts
Get Signatures
Provide Security
Disbursement Review
Disbursement
Monitor & Report
Resolution
Loan/Asset Life Cycle
Credit Approval Process
Implement On the Credit
Decision
Real-Time Management of LoanPortfolio begins here by buildingknowledge about Clients.
Credit Risk
Branch
Branch
Mohammad Fheili – [email protected]
Consequences: Losses
Causes:
Risk Event: Loan
Default
• Loan Workout and Recovery
• Recovery is a Function of theQuality of the Credit File and theLegality of AccompanyingDocuments
• Losses (Total or Partial) ofPrincipal and Interests
Dried up Cash Flow Sources: Client’sbusiness received a bad hit.
Collaboration between the Branch Employeeand the Client in the provision of inflatedfigures (Sales, Revenues, Cash Flows, …)leading to a false‐favorable credit decision.
Over‐worked, and Under‐Staffed Branchesleading to overlooking some critical changesin business circumstances of the Client.
Incompetent Branch Manager Gave FalseRecommendation which led to a False‐favorable Credit Decision.
Poor/Inadequate Follow‐up at the Branch,absence of Loan monitoring and Reviewsrendering the process weak in capturing“Warning Signals”
Etc.
How Implicated is Branch Management in Credit Risk?
Now, Do You Think Branch Management
ought to be involved?
Credit Risk
Mohammad Fheili – [email protected]
Banking Model & RiskMAXIMIZE PROFIT subject to:
RISK , REGULATORY, Compliance, Reporting, Etc. Constraints
RISK . . . Default Liquidity Maturity Others . . . REGULATORY . . . Basel I Basel II Basel III Basel IV (In the making)
Sanctions Rules USA_FATCA Requirements
AML, Etc. . . .
Uses of Funds Sources of Funds
Reserves Loans Securities Other
Investments . . .
All Types of Deposits
Borrowings Other
Sources Equity . . .
Off-Balance Sheet
With every Dollar in Service a Typical Bank
Solicits, it MUST satisfy all these Regulatory
Constraints first!VERY COSTLY!
Legal Issues . . .
Who can best help the Bank recover some of the cost of Compliance?Yes, YOU – Branches. You can Increase Traffic:
• More Clients• More Transactions
which can be achieved Through cross‐selling
Follow up Diligently on the settlements of Loans (and ‘Bien Trouvé’, Updated Financials, Site Visits, etc….)
Reduce Loss‐Events. Promote the Bank
through your Social Networks.
Mohammad Fheili – [email protected]
Non‐Com
pliance By Mistake
… Due to lack of
understanding …
Simply Comply
Comply By Fear
AML [Operational] Risk
Mohammad Fheili – [email protected]
Client is Engaged
Compliance Cycle
Service Cycle
st1Client Interface
Interface
End
CIP, KYC
AML Compliance (Regulator Decides)Client Engagement is Constrained by: The Bank isDeemed AML‐Compliance Responsible & Accountable
Customer Satisfaction (Customer Decides)Client Engagement is Driven by: The Potential forRevenue: Interest Income, Commissions & Charges;and a Word‐of‐Mouth Free Marketing
Both Cycles Are Ongoing Processes; None is a Destination
by itself
The Most CriticalCustomer Interface;Manage With Care: YouEither Collect all theneeded information (CIP& KYC), or you haveplanted the seeds ofTroubles to Come . . .
AML [
Operational] Risk
Branch
Mohammad Fheili – [email protected]
CIP, KYCBranch
AML [
Operational] Risk
On Going Monitoring & Compliance
Client is Engaged
Compliance Cycle
Service Cycle
Interface
End
DD, EDD
On Going Follow up & Service
Handling Complaints Cross‐Selling Updating Customer
Profile (CIP), Etc….
Possible RISK: IF “Satisfaction” Ends Up Competing with “Compliance”
End
Customer Risk ScoringCustomer Due Diligence RiskAutomated Transaction Monitoring SystemsCash Aggregation and Reporting Systems,Etc…..
Mohammad Fheili – [email protected]
EmployeeIs Responsible For
Development and career
Supervising OfficerSupports and Challenges To Secure the Attainment
of Organizational Objectives
HR SpecialistProvides Advice, Processes,
Tools, Products
Staff Satisfaction
CustomerSatisfaction
BusinessPerformance
Service Excellence Growth
Feedback Process!
A Matter of Perception!
A Matter of Taste & Preferences!
A Matter of Commitment!
Risk‐Based PerformanceHow Is That
Related To Risk?
Mohammad Fheili – [email protected]
CALCULATIONof Bonus for each Branch
ALLOCATION of Bonus to All functions in the Branch
PAYMENT of Bonus toDeserving staff
Key Performance Areas_Reduction in Costof Fund_Volume in Interest-based Products_Traffic: More Clients,More Transactions_Work Environment inthe Branch_Identification od KeyRisk Indicators_Risk Reporting_Effective Risk Control_AML Compliance
Based on each function’sContribution to businessDevelopment in theBranch_Branch Manager_Deputy BM_Head of Commercial Unit_CSR_Teller_Head of Operation_Clearing_Office Boy_Etc.
Based on each staff’sPerformance Appraisal Review System_“A” Performers_“B” Performers_“C” Performers_”D” and “E” do notreceive any bonus irrespective of how thebranch performs
PILLAR 1: Reflects theBank’s Strategy, and KeyPerformance Areas
PILLAR 2: Reflects thecontribution of every functionto the branch’s Bottom Line
PILLAR 3: Reflects theperformance of every staff in theBranch
30
Risk‐Based Performance
Mohammad Fheili – [email protected]
Employees
Equitable
Sustainable
Bearable
Customers Viable Bank
Risk‐Based Performance
Mohammad Fheili – [email protected]
In Desperate Search for Data to Identify, and Assess Risks
(Intentional & Unintentional) which May Be Encountered By
Employees of the Various Business Units including Branches and . . .
Non‐Identifiable Risk
Non‐Identifiable Risk
Financial Institution’s Risk Population
What is Normally Used in Risk Identification: • CIP• KYC• DD• EDD• Complete Credit File,
EAD, LGD, PD, UL, EL, etc. and Proper Follow Up
• Comprehensive & Consistent Data about the Market
• Etc.
Identified & Identifiable
Risks
Importance of DataInvolve ALL Staff
Mohammad Fheili – [email protected]
Collect them all!
Data
Data
DataData
Data
Data
Data
Data
Data
A Data warehouse is a goodidea, but a warehouse onlyworks when Staff bother tomake deliveries into it –and that’s where BranchStaff need some sharp Inter‐Personal communicationskills, to persuade clients toshare their data. Withoutthe Right/Complete/TimelyData, Risk Decisions areAmbiguous, Ignorant, orUncertain!
Any Piece of Information Will Have Implications On
Success.
Importance of D
ata
All Data is IMPORTANT
Mohammad Fheili – [email protected]
Risk Management Is Everybody’s Business
StaffBranch Staff
Business Unit Branch Mgmt
Senior MgmtBranch Network Division
Assessment & Follow Up
Acceptance or Mitigation of Identified Risks
Follow Up on Decided Actions
Oversight & Control
Reports to Enable Senior Management Appraisal
IdentificationReporting
Registration of Incidents and Monitoring of the
Internal Control Environment
Importance of D
ata
Everybody’s Business
Mohammad Fheili – [email protected]
Increasing Our Understanding of Potential Outcomes
Increa
sing
Evide
nce on
Proba
bility of
occurren
ce
RiskManagement Ambiguity
Unc
erta
inty
Data‐Rich, Information‐Driven Decision‐Making Process: KYC, CIP, DD, EDD, RBA, Etc.. EL, UL, PD, EAD, LGD, Etc… DEaR, VaR, Etc…
Ignorance
A Bank is expected tocollect ALL neededdata to move closer toRisk Management andAway from: Ambiguity, Ignorance, and Uncertainty.
Importance of D
ata
Perception Vs. Reality!
Mohammad Fheili – [email protected]
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Your Assignment is to PickOne Animal to take care of,• for One day,• Inside a 25m2 room; and• Alone?You May Ask Any QuestionTo Help You PrepareAdequately For ThisAssignment.
Importance of D
ata
Mohammad Fheili – [email protected]