RETAIL BANKING. Improvement of competitive position in Small Business

Slide 1:

Paseo de la Habana, 152 28036-MADRID- Spain PRAGMATICA Management Consulting Improvement of competitive position in Small Business and Trade segments January 2011 Retail Banking page 1 PRAGMATICA Management Consulting

Slide 2:

Index Introduction, focus, and objectives of the work Proposed methodology page 2 PRAGMATICA Management Consulting

Slide 3:

Introduction, focus, and objectives of the work Proposed methodology page 3 PRAGMATICA Management Consulting

Slide 4:

A substantial change in the environment of financial entities has been occurring in recent years Price war, that has affected "very comfortable" traditional segments for the entities in a very significant way Drop in profitability & risk of the mortgage portfolio Growing facility to change entity ("the client does move to other bank") Increase in the clients' financial understanding, "culture" “Global environment": Disappearance of some actions, narrowing of margins... e-access: electronic access & operations available For this reason, financial entities should adapt their strategies to guarantee future competitiveness Orienting themselves toward market segments that can still provide them growth and profitability The small business and trade segments, traditionally "reserved" for entities of a national scope, represent a good opportunity They are the main drivers of economic growth They are much more profitable than big corps They need to adapt themselves to a more competitive environment They provide more business volume per captured than for individuals The possibilities of profitability are broader than individuals: Wider range of and more sophisticated products Induced business attractiveness Introduction page 4 PRAGMATICA Management Consulting

Slide 5:

Focus We define the competitive position/market share of an entity as the combination of 3 factors Competitive position/market share Penetration Product share Share of wallet X X Number of clients of the entity over the total number of potential clients in the area Degree of loyalty/entailment of the entities' current clients over the base of a (minimally) previously defined profile called "basic range" What part of the business of each client is for the entity?: 1st., 2nd., 3rd relationship... Competitive position/market share page 5 PRAGMATICA Management Consulting

Slide 6:

Focus The commercial activity is the basic axis over which the improvement of the competitive position turns Commercial activity Recruitment (Sale) Loyalty (Crosselling) Relationship (Balances ) Penetration increase Better product share Relationship level increase Commercial activity relationship page 6 PRAGMATICA Management Consulting Ilustrative

Slide 7:

Barcelona · Bologna · Bruxelles · Lisboa · Madrid Centro Luxor · Rua da Misericórdia, 76 · 1200 Lisboa Tel: (3511) 321 02 90 · Fax: (3511) 321 02 99 Paseo de la Castellana 50, Planta 3 · 28046 Madrid Tel: (34) 915 647 209 · Fax: (34) 915 629 869 Focus As an initial step, it is important to bring the entity's strengths closer to the success factors of the objective segments % of importance in client selection Success factors Secondary criteria Marginal criteria Bank rate Worse than the leader Better than the leader Commiss ions Deposit rate Physical proximity Small business specialization Network width Greater or lesser need of improvement page 7 PRAGMATICA Management Consulting Ilustrative

Slide 8:

Both cases lack commercial activity. However, the commercial strategy to be followed has to be different in each entity: Entity A: Taking advantage of its positive image, it should first and foremost stress on the recidivist commercial visit Entity B : Should stress on the adaptation of its offer to the market needs Focus As well as to adequately plan the commercial activity Lack commercial activity working one time relationship "Adoption cycle" page 8 PRAGMATICA Management Consulting Ilustrative

Slide 9:

Focus All of this will allow the adaptation of the entity's offer to the market needs % of product use with the leading entity and % that work with the analyzed entity Checking account Trade allowance Direct debiting payments Tax management Company credit cards Overseas operating Credit line Social insurance management Direct debiting receipts Leasing Interest earning checking account Payroll management Time/term deposits Insurance Personal secured loan Secured mortgage loan Investment fund Liquid asset points Overdraft Factoring Credit card machine. Liability products Asset products Compensation transfers page 9 PRAGMATICA Management Consulting Ilustrative

Slide 10:

Focus ... to increase the client's level of entailment Client type Number of clients % of clients Only a contract in view Low loyalty - Contract in view plus 1 or 2 services or - 2 contracts plus 0 or 1 service "Basic range" - Contract in view, plus - 1 asset contract (credit policy, discount...) plus - 2 services (card and payments by direct debit) Medium loyalty - 1 contact in view plus 3 services or - 2 contracts plus 3 services or - 3 contracts plus 0, 1 or 2 services High loyalty - As a minimum, 3 or more contracts or 3 or more services Total 100% Minimum profile demanded Medium/high entailment level Minimum profile demanded page 10 PRAGMATICA Management Consulting

Slide 11:

Focus ... and their relationship with the entity Position of the entity (with its clients) by business volume 23 % 20 % 57 % page 11 PRAGMATICA Management Consulting

Slide 12:

Objectives of the work Design a combined Action Plan that allows the obtaining of a significant improvement of the position in the two client segments Action plan Analysis Identify the main characteristics of the environment in that which the entity operates Analyze the recent evolution and current situation of the entity Carry out a commercial investigation in the Small Business and Trade segments, as much with clients as with non-clients Diagnose the entity's competitive position in the Small Business and Trade segments Diagnosis Action plan Analysis Diagnosis page 12 PRAGMATICA Management Consulting

Slide 13:

Introduction, focus, and objectives of the work Proposed methodology page 13 PRAGMATICA Management Consulting

Slide 14:

Proposed methodology Analysis of the entity's client portfolio and sales process Work launch Diagnosis and main courses of action Commercial investigation (clients and non-clients) Environmental analysis Design and implementation of the Action Plan page 14 PRAGMATICA Management Consulting

Slide 15:

Work launch Objective Resources To increase the efficiency of the work by the collaboration of the entity with Consulting team - Preparatory meetings - Mixed work groups Expected results Clear understanding of the work to be carried out by part of first level management Obtaining of the necessary collaboration of key personnel (area managers, regional managers, office managers...) Improved efficiency in all the collaboration phases "Complicity" with the results to be obtained and the activities needed to be carried out by part of entity management; from the first moment page 15 PRAGMATICA Management Consulting

Slide 16:

Environmental analysis Objective Resources To identify the fundamental characteristics of the environment in that which the entity operates and the habits and financial needs of the Small Businesses and Trades - Interviews with key managers - Analysis of macroeconomic information - Analysis of the main competitor's information - Analysis of information about Small Businesses and Trades Evolution of the relevant macroeconomic magnitudes and the situation by economic sub-sectors Fundamental characteristics of the banking environment Apparent strategy of the main competitors and the differentiating aspects of their strategy towards the analyzed segments Recent evolution and current situation of the entity and its vision of the "business" with Small Businesses and Trades Drawing up of a numerical census of Small Businesses and Trades: Type, location, and main importance Importance that Small Business and Trade has in general economy and in particular, the banking business Expected results page 16 PRAGMATICA Management Consulting

Slide 17:

Analysis of the entity's portfolio and sales process Objective Resources To determine the entity's current situation regarding its clients and degree of penetration and coverage in each analyzed segment - Analysis of the evolution of the client portfolio - Analysis of a client sample - Analysis of the information from Banking regulator, Banking associations in the area, etc. - Interviews with key managers Expected results Number of clients by type, recent year evolution, average age, new client capturing and loss of clients Identification of client habits (for a sample): Types of products used and their level of use Penetration and coverage of the entity in each segment (credits and deposits) Possible differences by areas and offices Revision of the entity's current sales process with Small Business and Trade Participants, roles, and organization Assigned time and resources Activities to capture new clients and product sale to clients Available systems and commercial information page 17 PRAGMATICA Management Consulting

Slide 18:

Commercial investigation Objective Resources To identify the habits and financial needs of Small Business and Trade in the area of analysis - Interview the entity's Small Business clients and non-clients - Survey the entity's Trade clients and non-clients - Questionnaires adapted to Small Business and Trade - Available census' and statistic bases Expected results Financial products and suppliers used by Small Business and Trade in the analyzed areas Criteria to purchase Small Businesses and Trades Small Businesses and Trades' main financial needs Entailment level of Small Business and Trade with the entity "Wallet share" of the entity in Small Business and Trade Aspects highlighted by Small Businesses and Trades in their relationship with the entity Relationship quality (with the area manager, officer manager...) Degree of satisfaction with the attention received Commercial visits received Adaptation of the entity's offer to their needs page 18 PRAGMATICA Management Consulting

Slide 19:

Competitive diagnosis of the entity in the analyzed segments and main courses of action Objective Resources To determine the current competitive position of the entity in the Small Business and Trade segments and to establish the first courses of action to improve it - Macroeconomics and banking environment - Current situation of the entity in the Small Business and Trade segments: Sales process, offer, client portfolio - Carried out commercial investigation Adaptation of the entity to the market Regarding product offer Regarding commercial action Regarding internal operating Competitive situation of the entity and quantification of the improvement potential in Small Business and Trade Strong points and weak points in the Small Business and Trade segments Comparison with their main competitors Degree of response to the financial needs of Small Business and Trade First courses of action to improve the competitive position in the analyzed segments Possible need of changes in the products, marketing mix actions and/or offer Possible need of modifications in the sales process Potential omissions in the territorial implementation Need of organizational changes... Expected results page 19 PRAGMATICA Management Consulting

Slide 20:

Design and implementation of the Action Plan Objective Resources To establish an Action Plan that gathers the entity's short and mid-term objectives in the Small Business and Trade segments - Interview the entity's Small Business clients and non-clients - Survey the entity's Trade clients and non-trade clients - Questionnaires adapted to Small Business and Trade - Available census' and statistic bases Expected results Short and mid-term objectives of the entity in the Small Business and Trade segments in the analyzed areas By segment and, if applicable, clientele sub-sector Area and office implications Action Plan for the securing of said objectives Actions needed by department Designation of management Economic calendar Material and human resources and needed investment Economic-financial quantification of the Action Plan Projection of main importance Sensitivity definition and analysis page 20 PRAGMATICA Management Consulting