Why retail lending origination excellence is important in Asia

Across Asia in recent years, consumer demand for credit cards, unsecured loans and mortgages has increased substantially. With positive demographic changes and favourable economic conditions, it is expected this growth will continue at pace.

The need for banks to focus on retail lending origination excellence is not simply an option, but a necessity, if they are to close the gap between growth aspiration and execution readiness. To achieve this, banks need to develop and refine a number of capabilities across the retail lending value chain, thereby fostering revenue growth, cost reduction, higher credit quality and ultimately, profitability.

However, one size does not fit all. Due to differences in the maturity levels of the various Asian banking markets, each country faces unique challenges. Accenture believes the capabilities created or recalibrated by banks will vary depending on the maturity of markets they operate in, or plan to enter in the future.

Based on our analysis of market maturity, we have segmented Asia into three groups. These include:

1. Advanced Asia (Australia, Hong Kong, Japan, Singapore)
2. Maturing Asia (Malaysia, South Korea, Taiwan, Thailand)
3. Emerging Asia (China, India, Indonesia, Philippines)

Through categorising the Asian banking landscape, we are able to more clearly discuss the various opportunities and challenges faced within the region.

Strong prospects for growth in Asia Pacific lending
Confidence in retail lending growth is particularly evident in Emerging Asia. This confidence is driven by strong domestic demand, a growing middle class and government policy designed to boost credit availability. Most notably, demand for retail lending is growing faster in comparison with other types of lending in Asia.

In Advanced Asia, increasing consumer sophistication (demonstrated by the rise in foreign purchases and investment in the property market) is driving growth in retail lending, with both unsecured debt and mortgage debt growing at an exceptional rate in 2010.

In contrast, banks in Maturing Asia tend to have a more balanced retail lending portfolio, with greater emphasis on non-mortgage products (for example; personal loans, auto loans).

Headwinds in the Asian retail lending market
While there is very strong demand for retail lending products in Asia, three market forces will continue to challenge the momentum of growth for banks in Asia. These include:

1. Rising customer expectations and growing appetite for risk;
2. Increasing regulatory pressure; and
3. Intense market competition and restrained profitability.

Challenges to retail lending growth
To secure rapid and profitable growth in retail lending origination, Asian banks need to address a number of challenges, such as differentiation, pace, scale and regulation.
That is, a lack of differentiation in customer acquisition and product and service innovation is making it increasingly difficult for banks to meet evolving customer demands and grow revenue per customer. The origination processes also tend to be slow and painful for the customer, which in turn reduces the ability for the sales force to secure swift sales.

Banks in the region also lack scalable platforms to achieve growth. Inadequate technology platforms mean banks cannot achieve significant cost efficiencies and realise optimum economies of scale. Finally, banks often do not have infrastructure that is compliant with the new and emerging regulatory requirements, inhibiting the ability to capture optimum revenue share.

Capabilities required to achieve retail lending origination excellence

Given the challenges outlined above, Asian banks need to use the following strategies to achieve excellence.
1. Empower people
Banks need to improve the way they target and attract profitable customers. The key condition is a clear separation of customer origination from product origination. This can be achieved by creating a ‘customer-origination’ mindset, and building an accountable and skilled sales and servicing workforce.

2. Establishing lean and automated processes
Improving the efficiency of the end-to-end origination process is achieved by simplifying business rules and parameters, automating end to end processes and re-engineering business processes and creating operations ‘factories’.

3. Build in flexible technologies
To achieve and maintain the levels of process automation implied above, banks need to invest in enterprise technology platforms that are scalable and component-driven.

Overall, it is clear that the extent to which banks are able to achieve excellence in retail lending origination will hinge on their ability to master a number of key capabilities. Mastering these will contribute to sustaining rapid and profitable growth in their respective markets.

So, from a geographic perspective we believe:
In Advanced Asia it will be critical to focus on end-to-end process automation using integrated technology platforms, standardisation of processes via cross product regional factories, investment in advanced segmentation, and analytics to support greater sales force effectiveness.

In Maturing Asia it will be critical to develop a ‘customer origination’ mindset and empower a skilled sales workforce. They must simplify legacy business processes, introduce automated credit decision-making, and improve credit monitoring to enhance end-to-end profitability.

In Emerging Asia it will be critical to focus on process control, the development of simple sales tools, sales force product education and pricing. They must also improve credit risk management in order to achieve rapid and scalable growth.