SME Capacity Building Initiative

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CAPACITY BUILDING INITIATIVE-SME LENDING May14,2008

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CAPACITY BUILDING

INITIATIVE-SME

LENDING

May14,2008

PROPOSAL - Exposure

Draft

[email protected]




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[Intentionally left blank]




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In line with ABL’s strategic focus to optimize its SME asset portfolio, this is a modest effort to highlight the

underlying challenges of “Skill Deficit”, which our bank is facing to achieve the target levels of SME portfolio.

By conducting a root cause analysis, one could safely conclude that “Capacity Building at the grass root level,

i.e. our field staff”, is the dire need of the time.

During my past 3 years experience of managing commercial and SME accounts of the CRBG portfolio at ABL, I

have developed a comprehensive understanding of all the aspects of SME credits at ABL. I got an aggressive

exposure as a Relationship Manager, registering approx. 100% YoY growth in my existing fund based portfolio

and the honor of getting more than Rs. 1000 Mn approved in one year.

The challenges and potential obstructions faced with the growth of SME assets in ABL, motivated me to

compile a comprehensive and purpose-built Capacity Building Plan (CBP) to be rolled out across Pakistan

which includes:

· Simulation of the overall credit disbursement and management cycle.

· Understanding all the 6 phases and 8 stakeholders of credits in ABL.

· Understanding the credit risk architecture of ABL.

· Recent international developments in the perspective of Credit Risk.

· Credit risk in the context of BASELII Accord.

The above mentioned areas of CBP would be covered through the following modes:

· Contextual Lectures covering

· Case base learning.

· Role based learning.

The business outcome of the overall project is to:

“Enable our field staff, i.e. 1500 field Staff [750 Branch Managers + approx 750 Credit Officers] to Initiate,

Disburse, Manage and Monitor SME credits.”




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1.1 Problem Statement

The following table describes the challenges faced by ABL, towards the optimization of SME credits asset books.

Challenge Action Opportunity

The new credit architecture and

risk framework was introduced in

2005, but to date no

comprehensive capacity building/

training program has been

conducted by the bank, to match

the skill and knowledge

requirements.

· Facilitation through

training to grab the

modern credit

framework.

· Staff Renewal needed.

-Decreased

Supervision.

-Improved credit management.

-TAT reduced.

Our BMs, and experienced field

staff, though very learned and

seasoned bankers, are unaware of

the modern credit

culture/philosophy of the bank.

They are not aware of the

Protocol/Semantics/Syntax of the

modern centralized credit

framework that has been laid down

by RMG.

-----------------Do-------------

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Around 9 formats [CA, CM, Spreads,

Projections, Stress testing, ESRA,

APR, PR checklist] have beenintroduced by RMG for credit

reviews and initiations, which are

too sophisticated for our field staff,

specially mid-age and senior branch

manager to learn. Lack of training

actually developed an alienation,

perhaps a reluctance to initiate

credit in our field staff.

· Comprehensive hands-

on simulation based

learning to enable themto initiate credit reviews

and fresh credit

proposals using all these

formats in greater details.

· Training to include the

implications and

significance of these

formats.

-High turnover of credit proposal.

-High efficiency of human resource.

-Branches enabled to raise creditproposal independently




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It is important to quote the fact

that “On average, proposals are

atleast returned twice by the RMG,

just due inappropriate filling of a

simple SBP specified format called

‘Borrowers Basic Fact Sheet’

[BBFS]”

· Effective

communication of the

credit requests.

This alienation is a big loss to the

bank as it is only the field staff that

can generate good quality asset

leads to the bank. No matter how

much pressed they are for targets,

they are helpless, unless they are

equipped with the tools of the

trade.

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· Better tapping of the market, in

the present competitive

environment.

· Improved service level of theclient.

If a random sample of 50 branches

is drawn across Pakistan, each BM

would have at least 2 quality SME

Assets lead, who is reluctant to

market those accounts, due to the

his inability to initiate credit at

branch level.

At present, credit officers in Region

Offices prepare the credit proposals

on behalf of branches and get them

signed by BMs. These teams can

hardly manage to process the

annual reviews. This is a case ofunderutilization of the human

resources placed at the Branches

due to skill deficit.

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· Efficient utilization of human

resource.

· Exponential growth in asset book

size and no. of account.

· No dependencies for credit

initiation at branch level.

Low preparedness levels also cause

field staff to become reactive

rather than proactive, leading to an

increased turnaround time causing

irritation or loss of the client.

Wrong presentation once done

Facilitating learning:

· Presenting quality

proposals.

· Financial Analysis and

Assessment.

· Better Service levels.

· High Retention of the existing

clients.

· Low Turn down rate.




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cannot be undone, altered or even

rephrased, resulting in either a

decline or an increased turnaround

time.

· Business Analysis

· Collateral Assessment.

· Security Perfection.

· Safeguarding Banks

Interest.

· Rational queries

Responses.

· Inherent Risks.

Approximately 20 to 25% fresh

credit proposals are declined due to

poor presentation, mis-

communication by the initiating

units, again due to skill deficit.

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At least 20 to 30% the sanctioned

goes un-disbursed, due to lack of the

required skill set and the pro-activity

required at the approval stage.

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High Disbursement to sanction ratio.

There is a gap that exists between

the intellectual levels of the

Approving/Risk authorities of our

field staff, which deteriorates the

annual reviews, fresh proposals.

Grooming our staff for:

-Soft Skills to interact.

International context and

standards.

-Enabling to make

Rational Responses to

queries.

Employee Empowerment.

Given the banks special focus on

increasing the SME portfolio, few

designated and Relationship

Managers/ Credit Officers in

controlling offices won’t suffice. It has

to have the field offices, made fully

capable of initiating credit.

Foundation level capacity

building program.

During the last three years,

approximately 800 MTOs have

been hired by the bank. Even if

one third of them are employed as

credit officers in branches, this

works out to be a Sales force of

250 qualified and enabled bankers

to initiate credit across Pakistanthrough more than 750 Branches.




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11 Due to the low preparedness level of

the field staffs, every recommending

body has to maintain its own back-

office/processing time, so as to

assure the quality of his signature,

which again adds to the overheads.

-----------------Do--------------

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Productivity of Human resource

achieved.

BOTTOM LINE

Challenge

Aggressive Growth in SME assets.

Action

Absolute capacity

building of our 750 BMs

and allied field staff, to

enable them to Initiate,

Disburse, Manage &

Monitor SME credits.

Opportunity

Achievement of the goals by

empowering and enabling the

available resources.

A credit initiator needs to deal with at least 8 altogether different bodies. Getting these bodies aligned

obviously requires a basic skill set. The absence of this skill set impedes the asset growth to optimum

levels.




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· The credit disbursements employ the above flow map in our bank.

Each of the phases requires certain protocol to be followed by the initiator. There are certain “Dos and




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Don'ts” and “How to's” in accordance with the Credit Culture and psychology of the approving

authorities. Unawareness of these is an impediment to our goals.

Though we have a management development function operative for the bank, but that doesn’t

suffice the requirement of a target oriented and purpose-built capacity building program for SME book

building.

1.2 Approaches towards the Problem Statement

Most of our target audience would be in phase one that is [I know- phase]. Our capacity building plan

would aim at bringing them to the ultimate phase, i.e. [I will- phase] by empowering, unleashing their

capabilities to meet ABL’s strategic goals.

Target Audience

The target audience of the program includes BMs, Credit Incharges and credit officers placed in the

Branches. A conservative estimate of the

Head count for our training program is as follows:

Roles Head Count [Approx]

Branch Managers 750

Credit Incharges 750

Credit Officers 250




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1.3 Project Goals and Objectives

1. Optimize the skills and capacity of our field staff/BMs to reach our SME and commercial asset book

building targets.

2. Development of the workforce for SME assets by enabling around 750 Branch Managers and

around equal number of associated credit staff.

3. During the last three years, approximately 800 MTOs have been hired by the bank. Even if one

third of them are employed as credit officers in branches, this works out to be a Sales force of 250

bankers who can be converted in to SME Credits officers to initiate credit across Pakistan through

more than 750 Branches. The transformation could only be achieved through a capacity building

initiative program.

4. Assure that our field staff are enabled independently initiate a credit proposal, without any

dependency of RM/Credit Officer in the controlling offices.

5. Eliminate the alienation and reluctance of our branches to engage in credit initiation, by taking

them to the required preparedness levels.

6. Reduce the turn-around-time of annual reviews of the existing accounts, as well as fresh advances.

7. Appraise our field staff with the new credit culture of the bank, and to direct their energies to

attain the target levels of advances, within the credit risk framework of the bank.

8. Mold our fresh Management trainees posted in the field, into credit professionals, in much lesser

time.

9. Match the knowledge and skill levels of our field staff to that of approving authorities.




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1.4 Project Scope

Project Includes

1. A comprehensive and purpose-build capacity building plan to be rolled out across Pakistan

which includes:

Contextual Lectures.

Case base learning.

Role based learning.

Simulation of the overall credit disbursement and management cycle.

Understanding all the 6 phases and 8 stakeholders of credits in ABL.

Understanding the credit risk architecture of ABL.

Recent international developments in the perspective of Credit Risk. Credit risk in the context of BASELII Accord.

2. Lectures from Subject matter Experts [if required].

3. Assessment of the attendants at the end of the program.

4. Assessment of the training program by the attendants.

5. Other training requirement of the CRBG e.g. SME Products, Bancassurance etc.

1.5 Critical Success Factor

Top Management Support and Commitment.

Close monitoring and flexibly managed implementation.

Strategic focus.

1.6 Assumptions

This capacity building initiative would be an ongoing and continuous process to align with the

change management process.

Environmental resistance is an inherent factor to every change management process, and is

assumed to be surfaced with the launch of our Capacity Building initiative as well.

1.7 Other Benefits

An organization wide survey and feedback mechanism for continuous improvement.

A unit permanently dedicated and responsible for continual professional development and

change management.

A sustainable model of achieving our targets.

Employee motivation and accountability.




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1.8 Project Manager’s Profile

Arsalan Aqeeq is an qualified resource having around three years experience of managing

commercial and SME accounts of CRBG portfolio, with comprehensive understanding of almost all

the aspects of SME credits. As a Relationship manager, he has marked an YoY 100% increase in

existing fund based portfolio. Further to that, he has the honor of getting more than Rs 1100 Mn

approved in one year.

His experience is bolstered by an MBA-Finance from IBA, Karachi and an Engineering Degree from

NED University, Karachi. He have experience of conducting workshops and speaker sessions,

seminars and other professional development activities. He has served as a visiting faculty and a

corporate trainer for Business, Finance and Corporate Finance courses in premier business schools

and training institutions.

SME Capacity Building Initiative

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