A bank based in a developing country in Southeast Asia has hired us to determine how it can grow in the local market, specifically in retail banking. What are the factors you would look at to assess the situation? What is your recommendation for our client?
Interview Guidance (general information to be given if asked):
- Market Share by bank and product
- Client is one of the top three market share leader. Show Exhibit 1 & 2. Observation: Client maintained market share in deposits but lost market share in credit cards. Client lost share in auto loans but is doing very well in home loans.
- Product and pricing competitiveness
- All products are priced competitively at market level
- Brand name and reputation or customer awareness
- Client has good brand name reputation and recognition
- Branch and ATM prevalence or distribution of branch network
- Client has wide distribution of branch and ATM network
- Employment rate or population growth
- Number of people coming into employment age is at an all time high in the coming 5 years
- Foreign investments are projected for healthy growth with increase investments in Business Process Outsourcing
- Interest rate trend
- Interest rate has declined dramatically in the last 5 years from over 10% to the current level of 4%
- Disposable income or GDP trend
- 40% of the population lives at or below poverty line. Another 40% makes less than $500 per month. Top 15% makes less than $2,000 per month. Remaining top 5% is the richest population in the country whose lifestyle resembles those of upper-middle class in developed countries.
- Disposable income and GDP is projected to continue growing at about 11% per annum
- Home/car ownership and real estate development growth
- Home/car ownership and real estate development is expected to increase in the coming 5 years
- Rural to urban migration
- Migration rate is stable
- Types of products
- Products include savings, checking, time deposit, credit cards and loans
- Profitability or revenue by product, including consideration of price and volume
- Most profitable products are credit cards and loans
- Product penetration in population
- 30% of population has deposit accounts. 6% of population has credit cards. 1.5% of population has bank loans.
- Sales and marketing
- Sales efforts are traditional and conservative. Client does not conduct direct marketing activities to sell credit cards. Sales force is stretched and training is lacking.
- Information technology
- Information on customers is often out-dated
- Research and development/innovation
- R&D is competitive and client is a market leader in product innovation for a few products
- Customer mix by number of bank products purchased/Customer mix by value of customer – measured in terms of average daily balance of deposit account
- Refer to Exhibit 3. Observation: Majority of customers only purchase one bank product. Large majority of customers also have <100K in average daily balance in their deposit accounts
- Retention or attrition rate
- Attrition rate is in line with market average
Possible growth drivers: 1. Steal share from competition; 2. Increase retention of current customers; 3. Cross sell current products to current customers; 4. Up sell current products to current customers; 5. Develop new generation of customers
1. Growth efforts should be concentrated in cross selling more profitable products to current customers since average number of products held by customers is low. 2. Client should adopt more aggressive sales and marketing techniques to gain more market share in credit cards. 3. Client should partner with or market to employers to capture a new generation of bank customers fueled by employment growth, and partner with real estate developers, as well as car dealers, to finance future home and car purchase.
Candidate should spend most of his time brainstorming all the factors that should be considered to understand the situation. He will locate problems and potential solutions by probing interviewer for information. After all, or most of the information is given, candidate should make his best guess on what the potential recommendations should be for the client. Any logical recommendations supported by information given or any assumption he may make will be accepted. A good candidate should be able to summarize his understanding and make a logical hypothesis on potential recommendations.