Interview with Djordje Stojanovski, Chief Risk Officer, Banca Intesa Beograd, Serbia
A successful project to spread the risk management culture
Data quality and portfolio diversification, faster automated decisions and a shorter underwriting process are only a few benefits of the new credit management strategy implemented in the bank.
Isolation from the real business and being considered as a necessary regulatory cost is one of the main trap for risk management functions in a bank. Djordje Stojanovski, Chief Risk Officer at Banca Intesa Beograd, Serbia, shows how the successful implementation of a rating model in the credit processes is the best way to overcome this state of mind and build a risk management culture, gaining trust and commitment from the board.
Chief Risk Officer, Banca Intesa Beograd, Serbia
What are the challenges and who are the new competitors from the risk management perspective?
In the last couple of years, the financial industry has been impacted by many extreme regulation changes, mainly coming from EBA (European Banking Authority), but also from the International Accounting Standards Board (IASB) and the Basel Committee. There are tons and tons of new regulations and it’s really hard for risk managers to comply with all the new changing requirements. Compliance is probably the toughest challenge; however, banks are facing other problems such as a significant decrease in margins and unfair competition from non-banking financial institutions, such as Fin-Techs, startups, new payment operation systems or new lending platforms that are not affected at all by the financial regulatory system.
How to spread out the risk management culture across the organization, engaging both management and users?
Typically, people, teams and departments work separately to measure, report and prevent risks, but I do believe that risk management must be integrated in every activity of the bank. Everybody in the bank is a risk manager. Any decision made in a bank involves risks and everybody in the institution must believe in risk measures, risk methodology, KPIs to drive business decisions. We need to show the board the real business benefits of risk management, and the most effective language business people understand is volume and profitability. In order to get their commitment, we have to provide them some reasons to consider risk management as something competitive, not just a must for compliance or even worse, a constraint to growth.
What are the goals of the Small Business rating model?
In 2014, Banca Intesa implemented a new three-year credit strategy whose main goals were diversification and better quality of credit portfolio.
In order to accelerate and simplify the loan approval process for the Small Business segment, the Risk Management Department developed the SB rating model. SAS solutions allowed us to have a properly structured database, dig deeper into it and develop models, measure performances and implement efficient reporting process.
And what are the results in brief?
In less than two years, we disbursed 40,000 loans totaling 215 million euros, achieved small business portfolio growth of more than 35% and doubled our market share, from 15% to 30%, by speeding up the process and attracting new customers with lower prices. We automated 65% to 70% of all decisions and plan to increase the ratio even further. The time to yes was reduced from six to two days and the underwriting process shortened from 15 to few days, increasing the efficiency of the whole credit process.
Anyone in a bank is a risk manager. Can you better explain?
When we showed the successful results of the project, based on business parameters such as volumes and profits, top management and business lines executives have become interested in risk models and have significantly improved their risk awareness. Risk models are now finally perceived as advantage and not a burden to the business or a pure regulatory cost. Business divisions have started to raise initiatives for the further use of the rating model as a managerial tool for other aspects of the credit management process, such as pricing policy. Such mind shifts, of course, do not happen overnight, but when you succeed to brought communication and trust between “risk takers” and risk managers to a higher level, where all employees of the bank understand their risk management roles, good individuals turn into an excellent team.
Banca Intesa Beograd in numbers
The leading bank in Serbia by all key performance indicators (assets, capital, loans, deposits). More than 1.4 million clients, around 170 branches, EUR 4.3 billion in assets, about 3,000 employees, a member of ISP since 2005 and among most mportant foreign subsidiaries of ISP Group.
- Compliance with frequent regulation changes by regulatory system
- Ensure competitiveness and profitability on the fierce banking market
SAS Risk Management
- Top management and business people have improved their risk awareness
- Risk models are now perceived as business advantage
- Risk parameters (rating, PD, expected loss) have become common language of top and senior management, as well as of all decision makers/risk takers
- Risk measures are accepted as reliable parameters for measuring business performance
- Business divisions have started to raise initiatives for further applications of rating model
- Risk managers and “risk takers” finally play as a team