Banking Case Study (Industrialization)

Client
ABC Bank is a global private bank headquartered in Frankfurt and has a strong presence in Asia Pacific, specifically in SG and
HK. Although the bank has a high AUM base, the bank’s margins have been under constant pressure due to rising staff
expenses, high costs of compliance due to increasing regulatory oversight, challenging macro-economic conditions and
manual processes (refer to Table 1). Most of the bank’s IT systems are legacy systems which do not support STP (straight
through processing), require high maintenance costs and are not well integrated with modern requirements.

To deal with the internal and external challenges that are impacting the operating model of the bank, the bank has decided to
embark on an industrialization journey. Knowing your track record with previous successful industrialization projects, the
project sponsor has hired you as an external consultant to lead the project.

Your Objective
Please prepare a 10-minute presentation which should cover the following objectives:

o Benefits of industrialization.
o Key justification for the bank to adopt industrialization based on the bank’s financial data.
o Bank’s industrialization strategy.
o Prepare a project plan outlining the different project phases with rough estimates for duration of each phase. Identify
the key stakeholders and deliverables for each of the project phases.
o Identify the key risks, challenges and dependencies that you foresee in the successful completion of the project.
o Highlight the tradeoff between innovation and industrialization and how bank can achieve the optimum mix.

Please make reasonable assumptions where necessary.

Background Information
o The bank’s technology spending in 2016 was SGD $3 million and only 50% of this was on digital transformation
projects. Historically, most of the technology spending for the bank has been on maintenance of legacy systems,
rather than on transformation projects.
o The day to day documentation is handled manually by the front office staff.
o Due to a lack of effective internal controls, the bank has spent close to 5 billion dollars over the last 5 years in
regulatory fines.

Table 1: Last 5 years financial data for ABC Bank

Potential Questions and Answers (not to be shared with the candidate):

Q1: Comment on the current profitability of the bank . Do you think the bank requires industrialization based on
the current cost to income ratio?

A1: A 95% C/I ratio means the bank has a very high operating cost relative to its operating income. Possible reasons that
candidate can sugggest: High staff cost, general & administrative expenses.

Yes, industrialization would be beneficial as it would help to lower the operating costs for the bank.

Q2: What are the key drivers that are contributing to the drive for industrialization in banks?

A2: Possible answers include: Strong competition, high IT costs, human errors due to manual processes, high regulatory costs,
competition from fintech, macro-economic uncertainty, etc.

Q3: What are the potential benefits of industrialization for ABC bank?

A3: Possible answers include: Cost savings (leading to better profit margins), eliminate redundancies, speed up innovation,
increase transparency, potentially lower regulatory fines, reduce manual errors, achieve STP, reduce IT maintenance costs etc.

Q4: What are the possible ways the bank can adopt industrialization?

A4: Possible answers include: Process excellence, product rationalization, organizational efficiency, IT optimization, value
chain re-engineering, location optimization etc.

Q5: How can industrialization help to improve the profitability of the bank and how will it affect the cost income
ratio?

A5: Industrialization can help to automate the BO processes which will reduce staff costs. Lesser human involvement will also
reduce human errors (avoiding regulatory fines). Reduce IT costs. The reduction in cost will lead to higher profits for the bank
and thus, lower cost income ratio.