Mike Killeen
, September 19, 2023
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Could you have guessed that the Fed would raise interest rates by 5.5% in less than a year?

Did you model the impact of increased labor and expenses?

Perhaps no business is more affected by local and macroeconomic variables than a retail bank!

Future interest rate levels, economic activity, and inflation each have significant influence over loan and deposit growth, portfolio re-pricing and bank expenses. These variables drive a retail bank’s balance sheet projections. Adjusting these drivers across C-suite, finance, and branches makes it possible to instantly propose and stress-test economic circumstances and turn these what-ifs into actionable business plans.  

Retail banks need to understand the impact of essential factors, including changes in prepayment speeds, runoff or businesses sold, existing or new deposits, and anticipated loans.

Margin planning for banks: start with the balance sheet

Banks must carefully forecast the balance sheet first and derive profit and loss by adjusting micro and macro adjustments.

Alithya’s approach to retail bank planning:

  1. Leverage your existing book of business: loans and deposits by product and branch by sourcing the baseline business from your banking systems.
  2. Model the runoff of your existing book of business.
  3. Incorporate macroeconomic assumptions around interest rates for each product.
  4. Allow branch managers to layer in how they expect to grow their loans & deposits to replace runoff and grow their branches, including incorporating promotions.
  5. Automatically calculate net interest revenue and net interest expense
  6. With an understanding of the bank’s operating margin, begin layering in hiring and capital investments.
  7. Complete the rest of the P&L with various machine learning and detailed planning processes.
  8. Sensitize the business plan with additional best, worst, and expected outcomes.
  9. Push the actionable business plan down to branches and up to C-Suite so everyone is playing from the same playbook.

Creating a repeatable, automated, consistent margin planning process will help your organization set and hit earning targets with the added benefit that all stakeholders are involved in the process and accountable for the results.

Margin planning for banks: key drivers

Interest on deposits and loans is the primary driver of a bank’s earnings, making balance sheet and margin planning a critical step for providing insight to understand balances of deposits and loans to calculate net interest margin and non-interest expense and income.

Today, it’s challenging for banks to stay on top of margin planning because:

  • Net interest margin is not forecasted accurately
  • Banks focus on volumes rather than profits
  • Disconnected spreadsheets make the planning process unreliable and inefficient
  • Multiple, often disconnected planning tools for different aspects of the business create inconsistencies and are costly to maintain
  • Takes too long to accurately forecast with too much detail

To improve the accuracy of financial plans, banks need the ability to forecast deposits and loans on the balance sheet to effectively calculate net interest margin, non-interest expense, and income. There needs to be one tool for the balance sheet, expense, human resources, and capital expenditure planning.

Margin planning for banks:  Alithya’s Bank Margin Planning accelerator

Alithya has taken the lessons learned from multiple retail banking consulting projects to develop a prescriptive business process to accelerate projects, reduce risks, and improve outcomes. Alithya’s accelerator reflects thousands of hours of best-practice consulting across multiple retail banks and is provided to clients at no additional charge, saving them time and money.

Alithya’s Bank Margin Planning is a prescriptive business process and accelerator that uses out-of-the-box Oracle Enterprise Performance Management (EPM) Cloud Planning functionality: forms, reports, dashboards, and calculations.

Alithya’s Bank Margin Planning facilitates a single, connected tool for budgeting, forecasting, and reporting. Alithya’s Bank Margin Planning eliminates spreadsheets and manual processes to improve plan accuracy, predictability, and accountability. Our process establishes a comprehensive view of the future to understand performance drivers and how they interrelate. It moves away from siloed business approaches to optimize opportunities across different business areas. We often say that if you have to go to the IT department for information for Excel spreadsheets, something is wrong—there’s an opportunity to be much more efficient.

Alithya’s Bank Margin Planning gives greater transparency into the impact of drivers on net interest margin.

  • Alithya’s solution facilitates scenario modeling to explore drivers and assumptions.
  • An integrated solution provides insight into the levers that drive the balance sheet and P&L.
  • Alithya’s solution allows you to estimate costs and net interest margin based on forward-looking changes to operational drivers and assumptions and understand true profitability.

Alithya's Bank Margin Planning is scalable, flexible and built upon Oracle Cloud EPM planning. Our accelerator provides:

  • Top-down planning and forecasting
  • Value-added analytics
  • Sophisticated modeling
  • Reliable data

For comments, questions, or suggestions for future topics, please reach out to us at infosolutions@alithya.com. Visit our blog regularly for new posts about Cloud updates and other Oracle Cloud Services such as Planning and Budgeting, Financial Consolidation, Account Reconciliation, and Enterprise Data Management.  Follow Alithya on social media for the latest information about EPM, ERP, HCM, and Analytics solutions to meet your business needs.

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