PATERE 772 AGH COMMERCIAL BANK OF ETHIOPIA ‘SWIET: CBETETAA. E-mail: cbe_ec@combanketh.com air HESELSS 06 O11 Sl 98 oe hh 251-11-551 45 22 cbe_operation@combanketh.com an FAX Website: www.combanketh.com ACRE. evi. 255 ADDIS ABABA PO Pes ETHIOPIA P/AS/050/2022 June 28, 2022 To: EVP - Branch & Retail Banking All- VPs Chief of Staff Board Secretariat Addis Ababa Subject: - Issuance of Customer Seamentation Guideline The EMC of the Bank has deliberated on May 11, 2022 and approved the Bank's C si ion Guideline. This is, therefore, to formally communicate the issuance of the Guideline which shall come into effect as at the date hereof for your proper notation and/or implementation and /or compliance. Please make sure that all the concerned Departments, Districts, units and employees under your jurisdiction have received, confirmed receipt and become aware of this Guideline; and put in to practice without fail to protect the interest of the Bank while discharging their responsibilities. ~ List of Wholesale, Retail and IFB customers (softcopy) oPrMooo29COMMERCIAL BANK OF ETHIOPIA Customer Segmentation Guideline | May 2022 Castomer Segnentation Guideline Page i of 29Commercial Bank of Ethiopia Document Control Details DOCUMENT NAME Customer Segmentation Guideline DOCUMENT INDEX NUMBER ‘STO/GU/01/1.0/22 Document Review and Approval Name Role Signature Date Author 1 | Strategy Planning Transformation Office and ve wid 2-106 (2092. Reviewers and Validators 1 | emMc Approver Q\ 1 | Ato Abie Sano The President hela Document Version History Version Date Author ‘Change V.1.0 June, 2022 SPTO Ast Final Version Castomer Segmentation Guideline Page ii of 29Commercial Bank of Ethiopia Table of Contents Pages Chapter One: Introduction 11, Preamble... 1.2. Short Title... 1.3. Definition of Terms.... rnin 1 1.4. Objectives of the Guideline, 1.5. Scope of the Guideline... 1.6. Governing Rules Chapter Two: Authority and Responsibility 2.1. The President... 2.2. Executive Vice-President Retail & Branch Banking... 2.3. Vice-President Wholesale Banking... 2.4. Vice-President CBE Noor... 2.5. Vice-President Customer Experience.. 2.6. Vice-President Information System. 2.7. Vice-President Finance. Chapter Three: Customer Segmentation Criteria. BLL. General neste 10 meee 3.2. Wholesale Customers Segmentation: Conventional and CBE Noor..... 3.2.1. Existing wholesale customers’ segmentation criteria, weights and metrics... 3.2.2. Potential Wholesale Customers’ Segmentation Criteria, Weights and Metrics .... 3.3. Retail Customer Segmentation: Conventional and CBE Noor... 3.3.1. Existing retail customers’ segmentation criteria, weights and metrics... 3.3.2. Potential Retail Customers’ Segmentation Criteria, Weights and Metrics. Chapter Four: CBE’s Customer Segment. 4,1, Wholesale Customer Sub-segments: Conventional and CBE Noor....... 4.1.1, Public sect Gastuner Seggentation Guide®Commercial Bank of Ethiopia 4.1.2. Large Corporate Customers... 4.1.3. Medium Corporate Customers..... 4.1.4, Small Corporate Customers. 4.1.5. SME Customers. 4.1.6. Micro Business. .. 4.2, Retail Customer Sub-segment: Conventional and CBE Noor... 4.2.1. Affluent Retail Customers... 4.2.2. Middle Retail customers 4.2.3. Mass Retail customers......... Chapter Five: Miscellaneous Provisions.. 5.2. Revision... 5.3. Effective Date. Annex Customer Seguentation Guideline Page iv of 29 2 23)Chapter One: Introduction 1.1, Preamble Whereas, Commercial Bank of Ethiopia (CBE) aspires to become a world-class commercial bank financially driving Ethiopia's future and it Is working to provide banking services tailored to the needs of its esteemed customers; Whereas, it is found crucial for the Bank to segment and propose differentiated value to its customers in order to improve service quality, customer loyalty, profitability and realize the Bank's strategic objectives; Whereas, CBE's existing customer segmentation practice is very fragmented and done at business unit level that does not allow full circle view of customers’ needs and alignment of value propositions accordingly; Whereas, CBE has conducted full-scale diagnostic assessment of its operations and business models and crafted several transformation initiatives that demanded comprehensive customer segmentation as precursor for its customer orientation; Now, therefore, it becomes essential to revise the existing customer segmentation guideline of the Bank and introduce holistic customer segmentation guideline, 1.2. Short Title This guideline can be cited as “Customer Segmentation Guideline” of the Commercial Bank of Ethiopia. 1.3. Definition of Terms In this guideline, unless the context requires otherwise; “Affluent retail customers” means individual customers having better investable assets or income but do not partake in formal trading activities. They represent the upper class of the retail banking customer segments of the bank. “Associations” mean a group of individuals formed based on common interest, connection or relation of ideas, feelings, sensations, and correlation of perception, reasoning, or the like. This includes-cooperatives, societies and association lik Equb, edir, professional assaciatidnesété. 7? \. Castomer Segmentation Guideline Page 1 of 29,Commercial Bank of Ethiopia “Bank “means the Commercial Bank of Ethiopia (CBE) “Business entities” means natural persons or organizations that are engaged in business or trading activities. “Corporate customers” means customers having better investable assets, trading transaction and return from business and high contribution for the bank’s profit. They are the upper class of wholesale banking customer segments of the bank. “Customer segmentation” means the approach of classifying a large and diverse customer of the Bank to smaller groups based on related traits in order to identify and choose the most profitable customer groups to focus on, “Customer value proposition” means the value that the Bank promises to deliver to its customers when they do business with the Bank. “In idual customer “means a natural person who will interact with the Bank as a customer. “Institutional customers” means government and non-government organs which purchase the Bank's products and services for office use. “Length of relationship" means the duration of time that the customer has established banking relation with CBE. “Mass retail customers” means individual customers having low earning and do not partake in trading activities. They represent the lower class of the retail banking customer segments of the Bank. “Micro business customers” means customers having less investable asset, trading transaction and return from business. They represent the lower class of wholesale banking customer segments of the Bank. “Middle retail customers” means individual customers having average investable assets and income but not partake in formal trading activities. They represent the middle class of the retail banking customer segments of the Bank. \ “Non-Governmental Organs (NGOs)" mean organizations that operate independently from any government..and are typically a voluntary group of ‘tution wit Pe PS institution with a social missj et BED Costamer Segmentation Guideline Page 2 of 29,Commercial Bank of Ethiopia “Publi or publicly funded agencies, enterprises, and other entities that deliver public sector” means sector that consists governments and all publicly controlled programs, goods, or services to the society. This represents all government organs and state-owned enterprises. “Reputable employer or reputable customer” means well-known, well-paying or prestigious organization; or customer with high net-worth, high income, who are prominent public figure, celebrity, ete. “Retail banking” means banking that provides financial services to non-trading individual customers of the Bank. “Retai financial needs and those who shall be addressed through retail banking services. customers” means customers who are taking care of their personal “Small and Medium Enterprises (SME) customers” means customers having average investable asset, trading transaction and return from business. They represent the middle class of wholesale banking customer segments of the Bank. “State Owned Enterprises (SOE)” means a legal entity that are created by the government to partake in commercial activities on its behalf. “Wholesale banking” means banking service availed to individual and non- individual business customers, public & institutional customers. “Wholesale customers” means business and institutional customers of the Bank, such as business entities, government organs, and state-owned enterprises, non- government organs, associations, regional and international institutions. 1.4. Objectives of the G The primary objectives of this guideline are to: i, Establish customer segmentation criteria for the Bank; li, Ensure standardization on the application of customer segmentation across the Bank's customers; Provide single source of reference for performers; and iv, Determine the authority and responsibilities of involved organs of the Bank. 1.5. Scope of the Guideline Page 3 of 29,Commercial Bank of Ethiopia Bank, specifically the customer facing business units: Retail & Branch Banking, Wholesale Banking, and CBE Noor; 1.6. Governing Rules This guideline shall be governed by; i. The Bank's compliance policy; ii. Retail and Branch Banking, Wholesale Banking and CBE Noor Policies of the bank; iii, Trade Competition and Consumers’ Protection Proclamation No. 813/2013; iv. Financial Consumer Protection Directive No. FCP/Q1/2020; and v. All relevant laws and regulations of the country; Castomer Segnentation Gai Page 4 of 29,Commercial Bank of Ethiopia 2A. Chapter Two: Authority and Responsi The President The President shall: 2.2. Review and approve the guideline; Oversee the proper implementation of this guideline; Oversee coordination and integration among business units for effective implementation of the guideline; Executive Vice-President Retail & Branch Banking The Executive Vice President Retail & Branch Banking shall: vi. vil. vill. Castomer Segmentation Ensure retail customers are at least annually evaluated for their performance and properly reclassified as per this guideline or as amended; Ensure existing retail customers information are periodically updated; Establish control mechanisms and shall be responsible for successful implementation of this guideline; Ensure setting-up and continuously updating value proposition for each sub- segment of retail customers; Work with Finance & IS divisions to produce financial statements as per the segmented customers; Work with Information Systems and Customer Experience divisions for timely configuration and creation of fields that are relevant for customer segmentation and reporting; Work with other business units [Wholesale and CBE Noor] to ensure integration and standardization; Periodically give confirmation to Customer Experience division on customer data quality; Communicate segmentation related issues to Customer Experience division for timely revision/amendment of this guideline if need be; Shall be responsible for successful inlementation of this guideline under Retail and Branch Banking Business; Page 5 of 29Commercial Bank of Ethiopia xi. xii. 2.3. Ensure that existing customers that have potential to transfer/transform/ from one sub-segment to another sub-segment/segment are properly classified or formally handed over; Participate in the revision of this guideline. Vice-President Wholesale Banking ‘The Vice President Wholesale Banking shall: vie vil. xi xii, Customer Segpentation Guidelie Ensure that wholesale customers are at least annually evaluated for their performance and properly reclassified as per this guideline or as amended; Ensure existing wholesale customer: jormation are periodically updated; Establish control mechanisms and shall be responsible for successful implementation of this guideline; Ensure setting-up and continuously updating value proposition for each sub-segment of wholesale customers; Work with Finance & IS divisions to produce financial statements as per the segmented customers; Work with Information Systems and Customer Experience divisions for timely configuration and creation of fields that are relevant for customer segmentation, reporting; Work with other business units [Retail & Branch Banking and CBE Noor] to ensure integration and standardization; Periodically give confirmation to Customer Experience division on customer data quality; Communicate segmentation related issues to Customer Experience division for timely revision/amendment of this guideline if need be; Shall be responsible for successful implementation of this guideline under Wholesale Banking Business; Ensure that existing customers that have potential to transfer/transform/ from one sub-segment to another sub-segment/segment are properly classified or formally handed over; Participate in the revision of this guideline. Page 6 of 29,Commercial Bank of Ethiopia 2.4. e-President CBE Noor The Vice-President CBE Noor shall: vi. vii. viii. xi. xii, 2.5. Ensure that CBE Noor customers are at least annually evaluated for their performance and properly reclassified as per this guideline or as amended; Ensure existing CBE Noor retail and wholesale customers information are periodically updated; Establish control mechanisms and shall be responsible for successful implementation of this guideline; Ensure setting-up and continuously updating value proposition for each sub-segment of CBE Noor retail and wholesale customers; Work with IS divisions to produce financial statements as per the segmented customers; Work with Information Systems and Customer Experience divisions for timely configuration and creation of fields that are relevant for customer segmentation, reporting; Work with other business units [Retail & Branch Banking and Wholesale Banking] to ensure integration and standardization; Periodically give confirmation to Customer Experience division on customer data quality; Communicate segmentation related issues to Customer Experience division for timely revision/amendment of this guideline if need be; Shall be responsible for successful implementation of this guideline under CBE Noor Business; Ensure that existing customers that have potential to transfer/transform/ from one sub-segment to another sub-segment/segment are properly classified or formally handed over; Participate in the revision of this guideline. Vice-President Customer Experience The Vice President Customer Experience shall: Ensure designing and c segment/sub-segmerit ‘efecustomers of the Bank by business units; ~ > tinuously updating of value propositions for fea Page 7Commercial Bank of Ethiopia vie vil. viii, xiv. xv, 2.6. The Vice President-Information System shall: Customer Conduct periodic assessment on effectiveness of each segment/sub- segment value propositions on overali strategic objectives of the Bank; Ensure standardized implementation of this segmentation guideline in collaboration with information Systems, Risk and Compliance Management and Internal Audit; Develop a system to collect customer feedback on customer segmentation and the attached values; Responsible for overall effectiveness of the guideline in consultation with business units; Guide business units to further segment customers based on additional criteria like economic sector, geographical, psychometric, dimensions, tt; Periodically report to the Executive Management Committee (EMC) on status of implementation and effectiveness of this guideline towards achieving the Bank’s strategic objectives; Prepare action plan for implementation of this guideline and monitor its progress against objective; Approve classification. of potential customers under Large and Medium Corporate segment; Propose corrective measures if business units implement this guideline contrary to its initial objective; Lead the customer segmentation change management practice; Work with Information Systems division to ensure digitalization of customer information gathering processes; Work with Information Systems team to create fields on relevant system(s) necessary for segmentation/sub-segment; Ensure integrated implementation of the guideline across business units; In collaboration with the pertinent divisions, develop/revisé the eustginer segmentation guideline; on ” Vice-President Information System Seyentation Guideline Page 8 of 29,Commercial Bank of Ethiopia vi. 2.7. Maintain up-to-date customer segmentation data/information and avail such data as recorded to customer facing business units of the Bank on continuous basis; Customize/configure the relevant system(s) to allow/enable recording/ updating/ reporting complete customer profile and retrieve financial or transactional data from eligible system(s) to perform segmentation without human intervention; Customize/configure all_— relevant — system(s) to_allow/enable mapping/reporting different financial information at customer level: resources mobilized, resources allocated, revenues gained and costs incurred per customer, etc.; Provide the required technical advice and support to customer facing business units; In consultation with Customer Experience division, update customer short messages to reflect classification of Large & Medium corporate customers from wholesale and Affluent customers from retail; Ensure that applicable customer value propositions are integrated with the core banking system and other relevant systems. Vice-President Finance The Vice President Finance shall: it Customer Sexnentation Guideline Revise the Bank’s chart of account In a manner that permits value accounting and reporting per customer, segment, business units, etc.; Prepare business requirements and customize new requirements at all relevant system(s) of the Bank in collaboration with Information System division. Produce segment and busiess unit-based reports in addition to ownership- based reports periodically. \'\ \ Page 9 of 29,Commercial Bank of Ethiopia Chapter Three: Customer Segmenta' 3.1. General No. Castomer Segpentation Guideline a) All individual customers that do not partake in formal/licensed trading activities shall be classified as retail customers whereas trading individuals and non-individuals shall be classified as wholesale customers; b) Customers shall be further classified under different sub-segments within the two main customer segments (retail & wholesale) based on their existing or potential value generating capacity. Accordingly, retail customers are sub- segmented into Affluent, Middle and Mass; wholesale customers are broadly sub-segmented into Corporate, SME, Micro and Public & institutional customers; ) Public & institutional customers shall automatically be classified without ‘scoring process. d) As much as required information is available, the customers performance evaluation is done at group company level than at individual sister companies. €) This segmentation guideline considered customer financial records over the last twelve months between January 1, 2021 - December 31, 2021. Table 1: Sub-Segmentation criteria for existing retail and wholesale customers Retail Customer ney ieee kate ‘Average deposit positions 1 Average deposit positions Total credit transaction amount 2 Total credit transaction amount to to deposit accounts per annum deposit accounts per annum Length of relationship with the 3 Length of relationship with the Bank Bank Total number of credit 4 Total number of credit transactions to transactions to deposit deposit accounts per annum accounts per annum eR 25% “ a Page 10 of 29,Commercial Bank of Ethiopia 5 FCY earning through CBE FCY* earning through CBE Total Loan Approved Principal amount evan Cross Selling: No of Credit Products per customer 9 NPL-Status as a negative criterion 3.2. Wholesale Customers Segmentation: Conventional and CBE Noor 3.2.1. Existing wholesale customers’ segmentation criteria, weights and metrics a) Wholesale Banking customer segment will have four broad sub-segments: Public and institutional, Corporate, Small and Medium Enterprises (SMEs), and Micro-businesses. b) The number of wholesale customer under each sub-segment is determined by taking In to con: n the amount of resources required to service the segment. ) Existing customers as per this guideline are customers having deposit account with CBE before 31-Dec-2021. d) Each customer is evaluated against stated criteria (table 1) under three product groups: deposit performance, foreign currency earning and credit utilization. e) Assigned weight and operational definition of the adopted segmentation criteria are stated as follows: Deposit Customers i. Average monthly deposit position per annum [70%]: it measures deposit retaining potential of wholesale customers over the last twelve months. It is calculated by taking sum of monthly closing balance of all deposit accoynts of a customer ov last twelve months and divide it by twelve’; *ECY ~Foreign Currency * The last twelve months shall be determined from a cut-off, Customer Segrentation Guideline Page 11 of 29Commercial Bank of Ethiopia ii, Total amount of credit transaction to deposit account(s) per annum [15%]: it measures the annual sales turnover/income of a customer over the last twelve months. It is calculated by taking sums of credit transactions value in all deposit accounts of a customer over the last twelve months; iii, Banking relationship with CBE [10%]: longevity of a customer's transaction with CBE is taken as proxy for customer loyalty. When a customer has more than one account, the earliest account opening date will be taken iv. Total number of Credit Transactions to deposit account(s) per annum [5%]: the total number of transactions credited to a customer deposit account(s) over the last twelve months. This gives insight into the strength/engagement of a customer's relationship with the Bank Foreign Currency Inflow Customers Amount of FCY earned per year [100%]: The total amount of FCY generated by a customer from various sources over the last twelve months. This guideline considered FCY earning from export transactions and swift transfers but does not include FCY earning through MTOs due to absence of comprehensive information in this regard. Credit Customers i, Total Amount of Credit Approved [50%]: The total amount of approved credit to a customer by the Bank as per 31-Dec-2021 loan book. ii. Total Principal Outstanding Amount [40%]: is the total principal amount outstanding as at 31-Dec-21 excluding interest; Cross Selling [10%]: is the number of credit products sold for a customer; iv. NPL Status: the status of the customer's loan account as at 31-Dec- 2021. L.e., for LOSS status - [-30%], for DOUBTFUL status - [- 25%], for SUB-STANDARD status - [-20%],,for SPECIAL MENTION status - [= O°}. foF FASS status - [0%] oo Customer Segwontation Gi Page 12 of 29Commercial Bank of Ethiopia Table 2: Existing wholesale customers ~ weights assigned to each product categorie: No. ae Weight Detail Criteria Weight Threshold Average monthly deposit position ar enna eee cece 70% '88,000,000.00 Total amount of credit transaction 1 | Deposit 55% | to deposit account(s) per annum 5%. 200,000; 000.00 Fe tornenes Banking relationship with CBE | 10%. 25 years Total number of Credit Transactions | per annum. 5% 8,000.00 FCY Inflow 2 | performance | 30% | Amount of FCY earned per year USD 3,200,000 Total Amount of Credit Approved _ ~83,000,000.00 | Total Principal Outstandin : a 10.00 Creare Cross Selling 2 Products edi : = 15% LOSS - [-30%] iaueeedbinte|| DOUBTFUL - [-25%] NPL Status: -30% SUB-STANDARD - [-20%] SPECIAL MENTION - [-10%] PASS - [0% Total [100% | | | f) Score of a wholesale customer whose performance does not add up to the threshold of criteria defined in table 2 shall be determined as indicated by the formula below. Then the scores in each criterion shall be summed up to arrive at the ov g) Based on the criteria stated in Table-2, number of wh erall score. Criterion#1 Score Performance ( threshold ) x weighe sale customers under each sub-segment has been determined as follows: Customer Segnentation Guideline Page 13 of 29Commercial Bank of Ethiopia Table 3: Ratio of number of customers under each sub-segment against total number of conventional wholesale customers Number of Ratio of each sub- a Wholesale Customers segment against Segment Total Wholesale Customers 1 | Large Corporate 20 1:1,000 2 Medium Corporate 1,000 5:1,000 3| Small Corporate 10,000 55:1,000 4| SME 38,800 220:1,000 5 | Micro-Businesses Thea Rest The Rest h) Conventional and CBE Noor wholesale should further segment customers into economic sectors to create enabling environment for value proposition, RM coverage model design, account planning, reporting, etc. When customers business operations fall under different economic sectors, the customer shall be categorized under a sector where its financial position is highly dependent on. The sectoral sub-segment may consider the following economic sectors in line with the Bank's Industrial classification guideline: 1. Agriculture, hunting, forestry and fishing 2. Manufacturing a. Manufacturing for export b. Non-export manufacturing 3. Financial Institution a. Financial intermediation and insurance 4. Building and Construction a. Construction b. Real estate activities 5. Domestic trade and service a. Electricity, gas and water supply b. Transportation and storage ¢. Information communication service d. Domestic Trade e. Hotel and tourisfa te f. Adminis Br Port services activities Bang Casta Segmentation Gal Page 14 of 29Commercial Bank of Ethiopia g. Professional, scientific and technical activities h, Education i. Health services and social work activities j. Other community, social and personal services k. Activities of household, undifferentiated goods and services producing activities of households for own use 6. International trade a. Export b. Import 7. Mortgage and personal loan (consumer loan) Activities of extraterritorial organizations and bodies 8. Mining and Quarrying 9. Public administration and defense compulsory social security 3.2.2. Potential? Wholesale Customers’ Segmentation Criteria, Weights and Metrics a) While recruiting and segmenting potential wholesale customers, the » Potential customer means new customers opening deposit account after 31-Dec-2021 Customer Scamentation Guideline parameters to be considered shall be; i. Paid-up Capital [20%]: is the amount of capital raised by a company/customer at the time of account opening. ii, Sales turnover/income [30%]: the amount of recent fiscal year annual sales/income of a customer. li, Number of employees [5%]: the total number of permanent employees hired and or to be hired by a company at the time of account opening. iv. Credit exposure from other banks [15%]: the total amount of approved credit to a customer by other banks that are not fully settled. v. Foreign currency inflow [30%]: the total amount of FCY receipts of a customer through other banks from various sources per year or the total FCY inflow projected for the coming one year.Commercial Bank of Ethiopia Table 4: Potential wholesale customers - minimum threshold for maximum score of each criterion S.N.| Criteria Weight; Minimum | Threshold 1 Paid-up capital 20% | 2100Million 2 Sales turnover/income per annum “| 30%/2900Million 3 Number of employees 5% 3500 /4 Credit exposure from other banks 15% | =83Million 5 Foreign currency inflow 30% | = 3.2 million Total Weighted Score [100% | b) All new Wholesale customers shall be automatically classified under Micro segment unless compelling evidence is provided for otherwise. However, the Director Corporate Segment shall evaluate information provided by the Relationship Manager about potential high value customers and forward to Customer Experience division for upper customer segment considerations. This proposal shall be reviewed and endorsed by the VP CX. 3.3. Retail Customer Segmentation: Conventional and CBE Noor 3.3.1, Existing retail customers’ segmentation criteria, weights and metrics a) Retail customers shall be classified into three customer sub-segments: mass, middle and affluent. The criteria used to segment existing retail customers shall be; i. Average monthly deposit position of a customer per annum [55%]; ii, Total amount of Credit transactions to deposit accounts per annum [20%]; ill. The total amount of FCY receipts of a customer per annum [10%]. iv. Length of customer's relationship with the Bank [10%]; v. Total number of Credit transactions to deposit accounts of a customer per annum [5%]; Custarver Segmentation GuidelineCommercial Bank of Ethiopia b) Existing retail customers whose annual FCY earning through CBE exceeding USD 20,000 shall automatically be classified under Affluent segment. Similarly, retail customers whose FCY earning exceeding USD 1,000 but less than USD 20,000 shall be classified under Middle segment. Table 5: Existing retail customer - minimum threshold for maximum score in each criterion Criteria FCY earning verage monthly deposit po: Total amount of cre customer per annum transaction: deposit accounts per annum 4 | Length of customer's relationship 5. | Total number of Credit transactions Weight Threshold 55% 21.5 million 20% >5Million 20,000 210 years 2 200 Total 100% i) Score of a retail customer whose performance does not add up to the threshold of criteria defined in table 5 shall be determined as follows. Then the scores in each criterion shall be summed up to arrive at the overall score. criterions seore = ( Performance threshold ) ght J) Based on the criteria stated in Table-5, retail customers are further sub- segmented by applying the underlisted proportion of targeted customers. Table 6; The Bank’s target number of conventional retail customers Number of Ratio of each sub- No Retail Segment Customers ‘segment against total retail customers 1| affluent 25,000 8:10,000 2 | Middle 71,500 24:10,000 3| Mass The test The rest Customer Seguentation Guideline Page 17 of 29,Commercial Bank of Ethiopia 3.3.2. Potential Retail Customers’ Segmentation Criteria, Weights and Metrics a) The potential (new) customer's classification shall be conducted based on the following parameters; i, Deposit position at close of month of the account opening date [55%]. ii, Total amount of credit transactions to deposit accounts per month [20%]. lil, Annual FCY earning potential [20%]. iv. Total number of credit transactions to deposit accounts per month [5%], and v. Executives of reputable employers or reputable customers as explained in (c) below. b) Potential retail customers whose historical annual FCY earning exceeding USD 20,000 shall be classified under Affluent segment. Sit customers whose FCY earning exceeding USD 1,000 but less than USD 20,000 shall be classified under Middle segment. ©) In addition, existing or potential high-valued customers who are public ilarly, retail figures, executives of institutions, social media influencers, and other member of the society who are believed to enhance reputation of the Bank shall be categorically classified as Affluent ret customers. d) All new retail customers shall be classified under mass segment unless evidence is provided for otherwise. The system shall classify potential affluent of mass customers when such information/evidence is provided by the RM or relevant customer representative. Casta Seguenttin Guideline Page 18 of 29Commercial Bank of Ethiopia Table 7: Potential retail customer - miniraum threshold for maximum score of each criterion Minimum S.N. Criteria Weight Threshold 1 Deposit position of the customer 55% 21.5 million Total amount of credit transactions 2 20% 2ETB 400,000 to deposit accounts per month 3. Annual FCY earning potential 20% = 20,000 USD Total number of Credit transactions 4 5% 217 per month | Total A 100% Bee Chapter Four: CBE’s Customer Segment 4.1. Wholesale Customer Sub-segments: Conventional and CBE Noor CBE wholesale customers shall be grouped into six detail sub-segments based on their ownership status, and weighted average score of Deposit (55%), Foreign Currency Inflow (30%) and Cre (15%) performance. 4.1.1. Public sector and institutional customers i, Public sector and institutional sub-segment involve customers that fall under one of the following categories: Coustomer Segmentation Guideline a Entities that are fully owned by the Federal Government, Regional States, City Administration like public enterprises, government organizations and government agencies; Government offices like federal, regional and city administration offices; Public service institutions like schools, hospitals, health centers, ete. Churches, mosques, and other religious institutions International institutions like UN entities, AU, regional inter- governmental organizations, etc. Embassies; 2 “> Rage 19 of 29 > 94 3iCommercial Bank of Ethiopia g. Non-government organizations (NGOs); h, Cooperatives, and cooperative unions i. Associations ii. These customers are further sub-segmented into three groups by taking their nature of ownership and business structure, there are three sub-segments of Public and Institutional Customers: i, State Owned Enterprises: profit making corporations and enterprises owned and operated by the government (like companies responsible to Ethiopian Investment Holdings such as ethio-telecom, Ethiopian Airlines Group, Ethiopian Insurance Corporation, etc., microfinance institutions, etc.). ii. International & regional organizations, unions, associations, NGOs and Embassies: includes consular offices, savings & credit associations, not-for-profit organizations, cooperatives unions, inter- governmental organizations, equb, edir, etc., associations whose primary mandate is to engage in common causes or for self-help motives, etc. iil. Government Offices and Public Agencies: all other federal and regional public body customers of the Bank (like woreda, zonal, regional budgetary offices, hospitals, schools, universities, etc.) shall be included in this sub-segment. 4.1.2. Large Corporate Customers Individuals and non-individual existing customers and potential customers licensed to undertake trading business, that fulfill any one of the following criteria shall be segmented as Large Corporate. The Bank targeted two-hundred (200) Large Corporate customers under this exercise. eta Pros BU con cet Eric ort ards >=83.77% 100% 100% >=45.97% Pee Rear Customer Segmentation Guideline Page 20 of 29Commercial Bank of Ethiopia -3, Medium Corporate Customers a. All individual and non-individual existing customers and potential customers licensed to undertake trading business that fulfill one of the following criteria shall be segmented as Medium Corporate, The Bank targeted one thousand (1,000) Medium Corporate customers under this exercise. Sr Deposit score FCY score Credit score Weighted Average Perey >=43.29% 9.27% - 18.35% MMC Icw 23.82% - 83.77% >=32,57% b. All fintech companies working with the Bank as strategic business partners shall at least be segmented under Medium Corporate regardless of their score; 4.1.4. Small Corporate Customers All individual and non-individual existing customers and potential customers licensed to undertake trading business that fulfill one of the following criteria shall be segmented as Small Corporate: rey peers ae mo a erie wel Erde Rode Crary oor 3.66% - 4.53% Cerra 23.82% 32.57% 43.29% 4.1.5, SME Customers All individual and non-individual existing customers and potential customers licensed to undertake trading business that fulfill one of the following criteria shall be segmented as SME. All borrowers (credit customers) that do not meet the criteria for Large, Medium and Smi segment. rate shall be classified under SME sub: Customer Seuentation Guideline Page 21 of 29Commercial Bank of Ethiopia ae a oe ET ear ce eat) Ec 333% 67% 0.63%-3.13% <6.21% 1.83%-1.99% er Ty 4.1.6. Micro Business. All existing or potential individual and non-individual customers licensed to undertake trading business with score less than threshold specified for SME as per the criteria laid out in chapter three shall be classified under micro business segment, 4.2. Reti CBE retail customers shall be grouped into three sub-segments based on their total Customer Sub-segment: Conventional and CBE Noor score and/or FCY earning performance. 4.2.1. Affluent Ret: The Bank targeted twenty-five thousand (25,000) Affluent customers under this il Customers, exercise. Retail customers shall fulfill either of the following criteria to be classified under Affluent segment: i, Existing or potential customers with total score more than 50% as per the criteria laid out in chapter three, or li, Existing or potential customers who can generate FCY more than USD 20,000 per annum. 4.2.2. Middle Retail customers The Bank targeted seventy-one thousand five hundred (71,500) Middle customers under this exercise. Retail customer shall fulfill either of the following criteria to be cla: ied under Middle segment: i, Existing or potential customers with total score between 30% and 50% as per the criteria laid out in chapter three, or ii. Existing or potential customers who can generate FCY between USD 1,000 and USD 20,000 per annum. 4.2.3. Mass Retail customers Middle segment shall be classified under Mass, Customer Segrentation GuidelineCommercial Bank of Ethiopia Chapter Five: Miscellaneous Provisions 5.2. Revision This customer segmentation guideline and corresponding customer segments shall be reviewed on annual basi 5.3. Effective Date by the Bank’s President. (2 fi Ides Lf (te My 7 Commercial Bank-of Ethiopia Customer Segmentation Guideline Page 23 of 29Commercial Bank of Ethiopia Annex ~ 1 (Resulting Number of Customers per sub-segment) 1. Wholesale Customers (Conventional) Number of | %age SN. Segmentation ee Public Sector & Institutional 4 | customers c | 235,000 State-Owned Enterprises sie __Int. Organizations, z i Government Offices and Public Institutions Corporates ae iy Large Corporate Customer Medium Corporate Customer all Corporate Customer SME Micro Bu 2000.10 1,000 0.50 2. Retail Customers (Conventional) su] Seamentation | Sama [ae 1__ Affluent Retail Customer 25,200 | 0.08 2 Middle Retail Customer | 71,500 | 0.22 3___ Mass Retail Customer |___the Rest 99.7 7 i >33Mn_ 3. Wholesale Customers (CBE Noor) sat. Segmentation Number of | scase 1 Corporates ee 1.1 Large Corporate Customer eee 2a} 1.2 "Medium Corporate Customer 55 1.3___| Small io 2 2. —s - 4. Retail Customers (CBE Noor) S.N. Segmentation Number of | %age = Customer 1 Affluent Retail Customer 3,900 2 _| Middle Retail customer 23,4000 3__| Mass Retail customer The rest eee 539,464 Customer Segnentaion Guideline Pdge 24 of 29Annex - 2 (Implementation Action Plan) No. Activities ae, End Date | Responsible Organ Remark ‘Communicate the approved guideline to business nie jun22 | Customer Experience 1 units for Implementation 20duneee | 23-dun 22 Division Plan and lead customer data cleaning activity, All business units 2| collect data and ensure customers do not maintain | 20-Jun-22 | 30-Nov-22 | (Wholesale, Retail duplicate customer ID; __and CBE Noor) Make sure customers are classified under proper All business units | sub-segments. If not, properly figure out why and ie anne 5 3 discuss with CX to put them under the right sub- | 20-J4N-22 | 30-Nov-22 Cuinatesale Reta segment; Classify group customers per their segmentation by | 5) 9). ule Information System 4 creating relevant fiélds in the core system; eosuneaz, | Biaub ez and CX Design all relevant reporting templates or revisions | 55. yun. suiza | Customer Experience 5 | and communicate 1S team for development; 20-Jun-22 | 15-Jul-22 | and business units 9 | Create fields and reporting templates in the system; | 20-Jun-22 31-Jul-22 IS and business units 10 | Digitalize customer information collection system; | 18-Jun-22 | 31-Jul-22 _| All Business units and "| Update account opening forms (paper-based and i 11 | digital) to capture additional information about 3un-2022 | 31-Jul-22 | Retail, CBE Noor customers for segmentation: : : Fee Do necessary changes to the chart of accounts and 12 | prepare baseline balance sheet and income jun-2022 | 31-Jul-22 | Finance, al BUS ond statement for each BU. 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