Strategy for growth and sustainability in a rapidly changing environment

The client
Our client on this assignment was a leading microfinance bank regulated by the Central Bank, and positioned to serve the unique banking and related financial services requirements for women, 80% of who reside in rural and underprivileged areas.  
For over three decades now, the client maintained a social enterprise objective focused on the reduction of gender-based inequalities, promotion of equal opportunities and financial inclusion, alleviation of poverty and the general improvement of living standards for underprivileged women.
At the time, the client held 39.2% of the microfinance banking market, was capitalised at USD 2.76M, with USD 216M in gross assets.  The client also had USD 120M in deposits from one million deposit accounts, and a USD 137.5M loan book from 260,000 active loan accounts.  It employed 2,800 employees and was serving just under one million customers through 250 branches, as well as through a combination of alternative banking channels.
Client requirements
Over and above the negative impact of COVID-19 on global financial services, the client had been recording declining profitability and needed to urgently review its strategy.  The client specifically needed a comprehensive review and analysis of factors variously impacting the business and a detailed plan to put the business back on course in the shortest time possible.
Our approach
We undertook comprehensive review of the bank's operating model, which entailed the following:
1.    examination of the bank’s capacity to meet its long-term obligations to depositors and other stakeholders, as well as its ability to withstand losses or otherwise supressed profits that may be realised in certain financial cycles
2.   examination of the bank’s ability to balance the potential of its capital earnings with various risk factors accruing from investments the bank may go into, paying particular attention to the bank’s ability to absorb potential losses from nonperforming loans (NPL), its ability to realise anticipated earnings from both short-term and long-term investment instruments and the net effect of the bank’s consolidated investment portfolio.
3.   evaluation of the bank’s current and future ability to appropriately respond to key strategic concerns; specifically the the bank's ability to implement the bank’s strategic plan, the bank’s management of employee performance, enforcement of internal controls, evaluation of, and response to various operating risks, legal, regulatory and statutory compliance, among other considerations.
4.  evaluation of what the bank was able to earn from the capital it deployed in its operations to give pointers to the bank’s pricing of loans, cost of funds, volume of income, operating expenses and various policies within the bank impacting outgoings in both cash and non-cash items.
5.   examination of the bank’s balance of assets and liabilities, specifically as pointed to by the net effect of the respective volumes of the bank’s current and long-term assets, current and long-term liabilities, investment yields and the effect of various external factors on all these.
6.  evaluation of the sensitivity of the bank’s planning and risk management models to determine the bank's exposure to various risk factors, that directly impact key performance areas.
Significant outcomes
Outputs from the business review we did were used to obtain a detailed business turnaround strategy that realigned the bank's mix of short and long-term lending, short and long-term deposits, and structured various product targets through which the bank was going to achieve the projected cashflows.
We also restructured the bank's balance sheet, specifically with respect to retiring a considerable portion of the bank's NPL, reviewed the bank's investment mix, and the laid out a detailed plan for the injection of additional shareholder capital, both to enhance the bank's capital adequacy, as well as to close anticipated liquidity gaps.
We further undertook comprehensive review of loan officers' case load to ensure that the targets set were backed by the necessary staffing capacity.  The bank continues to consolidate its market leadership despite the highly competitive environment, unfavourable regulatory environment and suppressed economic activity.

ARTEMIS Transition Partners

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