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CLIENT CASE STUDY


Large Italian bank: Credit risk portfolio management solution

Helping to significantly reduce risk cost and improve operational efficiency through a credit risk portfolio management solution.

Overview

This Italian bank is one of the largest European banking groups in the country. The bank serves nearly three million customers and employs more than 10,000 people.

The bank needed to devise a better way to manage risk and credit recovery in order to maintain its market position in the wake of the economic downturn. Accenture helped the bank significantly reduce risk cost and improve operational efficiency through the cost synergies of process simplification.

Opportunity

Italy was crippled by the four-year economic downturn from 2007 to 2011, following on the heels of the global subprime and sovereign debt crisis. Italy's GDP dropped 7 percent below its 2007 pre-crisis level. For the bank, the economic downturn resulted in:

  • A greater-than 15 basis point rise in risk costs, weakening profitability

  • A decrease in direct credit gathering and indirect credit gathering from 2009 to 2010

Drawing on the group’s still-enviable market position, the bank’s executives took aim at three goals:

  • Significantly reduce risk costs

  • Improve operational efficiency through cost synergies obtained by process simplification and a review of the organizational model

  • Address audit findings related to operational and credit risks

The bank asked Accenture for assistance, having confidence in the two companies’ existing relationship and historical collaborations around several improvement projects. Accenture offered strong credit skills and a deep understanding of the group’s operational environment.

Solution

Accenture helped the bank adopt a new credit risk management vision and culture based on three traits:

  1. Predictability, to detect potential default early

  2. Selectivity, to focus on customers with a high cost of risk

  3. Speed, to accelerate the credit risk process

To achieve the vision, Accenture and the bank developed a new end-to-end credit risk surveillance model with simplified processes—from the first anomaly, to the management and monitoring of irregular customers. Accenture provided project and change-management capabilities across related projects, bringing structure and a pragmatic approach to engage the bank’s people and achieve expected benefits.

Accenture also:

  • Identified 60 credit anomaly indicators that define the synthetic risk ratio and comprise a color-coded early-warning system for each customer segment

  • Conducted periodic back-testing analysis for synthetic credit risk ratio, fine-tuning and enhancing the early warning engine

  • Documented 50 corrective management actions for addressing and reducing exposure from risky customers

  • Defined new organizational structures and skills for credit monitoring roles

  • Benchmarked credit account overdrafts and credit risk monitoring models and processes, capturing relevant risk insights for the new risk operating model

  • Created monitoring tools and reports to more effectively facilitate credit authorizations

  • Helped roll-out the new credit model and process through a structured change-management plan with pilot and “Big Bang” phases

  • Helped the bank develop training modules and sessions customized for each role involved in the process, including two e-learning modules for the bank’s intranet

Results

Working in close collaboration, Accenture and the bank devised a better way to manage risk and credit recovery. With the new approach, the bank:

  • Is positioned to save some $16 million in credit costs and gain $20 million in operational efficiency, despite the tough economy

  • Accelerated handling of approximately 90 percent of its risky positions to within five days

  • Improved the operational management control framework, with the addition of 11 controls on the credit risk process

  • Closed 23 regulatory and operational gaps identified in its recent internal audit

  • Enabled their leaders to make lending and overdraft management decisions quickly, based on the credit risk synthetic ratio

  • Sharpened their focus on relevant current account overdrafts at the relationship manager level, leaving low-risk transactions to be evaluated automatically, facilitating a 45 percent reduction of current account overdrafts per year and commercial time savings for the relationship manager

  • Shifted their view from “vertical” (on each single anomaly) to “horizontal” (on the customer overall)

The bank will be able to intercept potential defaults early, focus on the relevant clients in both lending and credit management activities and speed-up high-risk position management. This will help the group better handle challenging economic conditions in the future.

With a "right time for right risk" philosophy enabled by a stronger credit risk portfolio management process, the bank is now better positioned to remain a European leader.

Industry & topics highlighted

Banking Financial Services