The SME Challenge - PowerPoint PPT Presentation

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The SME Challenge


Emerging Markets Banking Revenue Estimated At Over $40Billion ... Incentives To Encourage Earnings Retention & Balance Sheet Growth. Flat tax ? Conclusions ... – PowerPoint PPT presentation

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Title: The SME Challenge

The SME Challenge
  • May 10th 2005 (Pakistan)

  • Why SME
  • Why Now
  • Business Model
  • Citigroup SME
  • Role of Government
  • Conclusion

  • Why SME?
  • For The Banking System SME Represents
  • A Large Growing Opportunity
  • Emerging Markets Banking Revenue Estimated At
    Over 40Billion
  • For Policy Makers It Is A Means To Achieve
  • High Employment
  • Employs Over 50 Of Labour Force Even In The
    Developed World
  • High Economic Growth
  • 50-60 Share of GDP Engine Of Economic Growth
  • Culture Of Entrepreneurship
  • Wider Tax Base
  • Alleviation Of Poverty

  • Why Now?
  • Economic Liberalization (Last 15 Years)
  • Declining Public Sector Role
  • Privatization Of Power Sector, Oil Gas,
    Telecommunications Other Industries
  • Emergence Of Private Enterprise As The Engine Of
  • Central Eastern Europe, China, India, Pakistan
  • Increasing Regional Economic Cooperation
  • A Freer Trade Environment
  • Reducing Trade Barriers (Tariffs)
  • Privatization Of Banks
  • Entrepreneurial Performance Driven Management
  • Increasing Product Sophistication Better Risk
  • Improving Cost Management Operating Efficiency
  • Banking Reforms
  • Improvements In Legislation Legal
    Infrastructure To Protect Rights Of The Lenders

  • What Is SME?
  • Various Definitions
  • Defined By Size Of Sales Or Number Of Employees
  • Depends On Size Of Companies Relative To Economy
  • EU Less Than 250 Employees Sales Of Eur
    50Million Or Balance Sheet Of Eur 43Million
  • Citigroup 2-50 Million In Sales Up To250MM In
    Some Countries
  • Differentiating Features
  • Owner/Family Managed
  • Proprietorships, Partnerships Or Small Private Or
    Public Limited Companies
  • Generally Suppliers To Larger Local Or
    Multinational Companies
  • Low Capitalization Limited Financial Strength
  • Needs A Mix Of Consumer Corporate Banking

  • SME - A Hybrid?
  • Large sophisticated relationship managed
    multi-product customers (need investment
    banking/corporate finance, derivatives and other
    high value added products along with traditional
    banking products).

  • Upper tiers need relatively wider product set
    similar to the larger corporate entities.
  • Lower tier, clients needs cut across boundaries
    of traditional consumer and corporate banking

SME - Segment Needs
Business ModelThe Challenge Of Managing Scale
Elements of the Business Model
  • A Full Service Relationship Bank
  • A Customer Relationship Organization
  • Not A Product Organization
  • Serving All Our Customer Needs
  • We Manage Our Credit Risk Through
  • Differentiated Processes Based On Size Of
  • Our Transaction Processing Aims To Lower Unit
    Cost Through
  • Use Of Technology
  • Specialization Centralization Of Functions

The Business Model
  • Target Market Definition
  • Key To Long-Term Success
  • Should Be Able To Weather Economic Downturns
  • Business Drivers
  • Customer Acquisition Attrition
  • Product Cross Sell
  • Low cost Funding Of Portfolio
  • Management Metrics
  • Expense Management
  • Low Cost Processing
  • Electronic Banking Platforms
  • Risk Management
  • Separation Of Customer Acquisition
  • Management
  • Key To Managing Large Volumes
  • Improving Returns Through Cross Sell
  • Differentiated Risk Process
  • Exposure Based
  • Low Cost Processing
  • Of Small Ticket Large Volumes

Managing Scale - Credit Risk Management
  • Tailored Approach
  • Some Product Tailoring To Meet Specific Customer
  • Secured Unsecured Cash Flow Based Lending
  • Obligor Risk Rating Models - To Differentiate
    Credit Risk

Single Obligor Approach
Large Exposures
  • Credit Program Approach
  • Broader Product Range (Trade, Generally Short
    Term loans, FX)
  • Mostly Secured Lending
  • Rating Or Scoring Models
  • Some exceptions allowed based on grading of

Exposure Based Risk Architecture
Medium Sized Exposure
Credit Program Framework
  • Credit Factory Approach
  • Highly Standardized Approach
  • Standard Products (Trade, Generally Short Term
    loans, FX)
  • No Exceptions Limited Product Range
  • Delinquency Managed
  • Scoring

Small Exposure
Citigroup Commercial Banking
Citigroup Commercial Business
66 Bn Assets
56 Bn Assets
Global but Selective Presence
Role Of Government
As the EU sees it
  • Governments As Information Provider - Statistics
    in Focus
  • Statistical Databases
  • Default History
  • Ownership Details
  • Detailed Annual Financials
  • Financial History Of All Registered Companies
  • Number Of Employees
  • Industry
  • Available In Most Of CE Countries
  • Poland, Hungary, Czech, Slovakia
  • Largely Available In Turkey

  • Governments As Facilitators
  • Help With Cheaper Faster Start-Ups
  • One Stop Shop
  • Simplified Application Procedures
  • Online Registration Of Businesses
  • Access To Markets
  • Domestic
  • Reduced Requirements For Participation In
    Government Tenders
  • Targets For SME Participation In Government
    Procurement Of Goods Services
  • International
  • Information On International Opportunities
  • Education On Key Success Factors In The
    International Market
  • Help Participation In Trade Fares
  • Education Training Resources To Develop
  • Entrepreneurs
  • Adequate Supply Of Skilled Human Resources

  • Governments As Funding Support Providers
  • Grants
  • EU Grants Under Various Programs
  • Availability Based On Screening Criteria
  • Subsidies To Financial Institutions
  • SME Credit Risk Remains With The Banks
  • European Investment Bank (EIB) Provides
    Subsidized Balance Sheet Funding To SME Banks
  • EU Monetary Incentives To Banks Up To Euro
    5000 Per Deal Booked For Qualifying Transactions
    (Eur 40K To Eur 500K)
  • Credit Support/Guarantees
  • Partial Credit Risk Sharing - Up To 80 Of First
    Loss - Generally Through Portfolio Risk Insurance
  • Insurance Cover For Receivables.
  • Venture Capital Funds

  • Governments As Business Enablers
  • Taxation
  • Simplification Reduction Of Tax Compliance
  • Incentives To Encourage Earnings Retention
    Balance Sheet Growth
  • Flat tax ?

  • Some Take Aways For Lenders
  • Strong Target Market Definition
  • Key To Building A Balanced Portfolio Reducing
    Credit Losses
  • Separation Of Marketing, Sales For Managing Scale
  • Focus On New Customer Acquisition
  • Maintaining Existing Customers
  • X-Selling
  • Management By Metrics
  • Well Defined Well Communicated Parameters
  • Differentiated Credit Process
  • An Efficient System Demands Differentiation In
    Credit Maintenance Process Based On Exposure/Risk
    Being Taken
  • Low Cost Transaction Processing
  • Small Ticket Size Large Number Of Transactions
  • Technology Based Centralized Transactions

  • And Points For The Government To Consider
  • Bridge The Information Gap
  • Help With Cheaper Faster Start-Ups
  • Help Increase Supply Of Financing For SME
  • Facilitate Access To Markets
  • Enhance Education Training Resources
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