Sia Partners Benchmark Survey of CIB Loan Operations
The Loans industry is an area in which there has been recent significant investment in technology and very few inter-bank initiatives. In the last decade, banks have largely industrialised their processes by embedding state-of-the-art loan management systems while pressure has been exerted on them to ensure that their operations (back office and middle office) are as efficient as possible. Vendor solutions have evolved to service this need and the industry has seen international best-of-breed systems such as ACBS and Loan IQ dominate the market in Back Office systems while Debtdomain and Intralinks are seen as the preferred solutions for Front Office systems.
The challenge now facing many banks is ensuring optimum levels of productivity and return on investment. Having invested in the implementation of high-end loan management systems and understanding the value that fully utilised loan management systems can have on their operations, the banks are faced with the challenge of developing the necessary expertise to derive full value from their platforms.
Introducing the Sia Partners Benchmarking survey
Sia Partners is working closely with several global banks on projects relating to Lending platforms (implementing loan management systems, defining Front to Back Target Operating Models, and optimising loan processes amongst others) and has in-depth knowledge of the Loans business. Clients face a variety of challenges and there is a burgeoning need to compare and contrast current experiences with industry competitors to identify possible weaknesses and define the optimal operating model.
In the summer of 2014, Sia Partners met with several tier 1 investments banks and proposed conducting a Loan Operations Benchmark survey. Benchmarking is considered a highly valuable tool to gain impartial statistical evidence of how well internal processes and technology are performing compared to the rest of the industry. Sia Partners, a leading management consulting firm in this area, is independent from IT companies and has deep knowledge in the loans business, giving the company the dual benefits of objectivity and expertise. There was a strong response with three of the top 6 in European Lending signing up for the survey.
Survey Planning and Participation
In late 2014, Sia Partners pioneered the first industry survey of loans support functions, resulting in the introduction of the ‘CIB Loan Operations Benchmark’ in July 2015. Throughout the survey, Sia Partners liaised with participating banks to ensure that all participants agreed on objectives, scope, terminology and methodology of the exercise.
Activities of participating banks:
- participation in project workshops to agree on objectives and scope
- collection of required data extracts and performance measurements
Sia Partners activities:
- assistance in data collection and measurements
- observation and measurement of individual operations
- analysis of data and collection of full spectrum of results
- coordination and reporting of qualitative and quantitative results to participants
Insights into the survey methodology
The approach to the benchmark exercise combined analysis from both the quantitative and qualitative perspectives. In order to secure a successful turn-around for the first edition of the survey, it was agreed that the key objective was to measure and compare the performance of comparative Back Office teams (and Middle Office teams where applicable). The overall long-term objective was to gain a comparison of efficiency, front to back.
The first survey focussed on the following parameters:
- the ratio of FTE required in the Back Office to manage a comparable portfolio of Loans
- time measurements of the execution of 4 specific trade events
- the comparison of KPI and qualitative data on organisational structure and global activity
- calculation of an average cost per trade (average FTE per contractual tranche)
A number of perimeters were set within the survey, including a geographical perimeter of deal portfolios booked and managed in Europe; a perimeter on business (all business lines were included except for loan trading); and all roles the bank played in the trade (agent, participation only or bilateral deals). With respect to the specific functional perimeter of trade events that were measured for time taken to perform each task, four back office tasks were selected including management of a loan drawing; renewals of loans; repayment of principal and related Interest, and the closing of the loan. As described above, the cost per contractual tranche was calculated by dividing the number of facilities by the FTE count. Each bank then calculated its cost per trade based on its own internal cost of Back Office FTE.
Adjustments to the Survey
The results of the 2015 survey found that the statistics were highly useful when comparing efficiency per FTE and average timings for loan drawing, renewal and principal repayment events. On closing a loan, it was observed that operating models varied significantly and therefore further qualitative analysis was required. Sia Partners compared the various operating models of each bank for loan closing which enabled the banks to identify specific weaknesses within their organisational set-up. Following this analysis, two banks launched a review of their loan closing operating model.
To ensure the privacy of data submitted by each participant to Sia Partners, a bilateral non-disclosure agreement was signed prior to project inception. Results, average KPIs and time measurements remained anonymous when data was shared across banks during workshops. The final benchmark results provided anonymous rankings: each bank was given an identifier that remained confidential to them.
Benefits of the Benchmark Survey
The benchmark enabled banks to compare the efficiency of their current loan management infrastructure against the performance of their direct competitors. The results allowed some participants who had provided branch-level data to compare productivity levels across their own subsidiaries. Furthermore, promoting regular workshops across the participants allowed banks to compare and contrast different ideas and to establish industry best practice. Sia Partners provided all of the participants with an anonymous comparative analysis of bank loan portfolios including measurements of the ratio of roles the bank had played across the deal scope; a breakdown of the types of tranches (structured versus vanilla); the numbers of tranches per deal and the average number of events per tranche. Sia Partners derived a comparative KPI ranking so banks could compare their own performance in relation to their competitors. Sia Partners leveraged its wealth of knowledge in the loans area. This expertise has helped Sia Partners to succeed where previous competitor surveys had failed by depending on more generic Capital Markets benchmarking models. It also enabled Sia Partners to offer the Benchmark survey analysis at a highly competitive rate compared to industry benchmark offerings.
Next steps for the 2016 Survey
Throughout the 2015 Survey workshops, Sia Partners was able to collate feedback on a range of areas where future editions of the Benchmark Survey could be improved including extending the scope and the depth of process analysis. For the 2016 Survey, all participants have agreed to include all Middle Office and IT teams in the analysis. Future editions will also include Front Office teams. The Benchmark Survey for 2015 included a selection of Tier 1 banks and it is the ambition for 2016 and beyond to widen participation within the Loan Industry. The benefits of comparing a greater range of European banks and those from further geographical locations can only serve to increase the operational efficiencies within the industry.