Introducing Savings

1

• Introducing Savings
• Challenges and Pitfalls
• Sylvia Wisniwski
• IV Annual Conference of Microlending Institutions
• in Central and Eastern Europe and NIS
• Bratislava, Slovakia
• 18-19 May 2001

2
Contents

• 1. BancoSol - Institutional Profile
• 2. BancoSol - Key Financial Figures
• 3. How BancoSol started into the Deposit Business
• 4. Deposit Product Design
• 5. Cost Structure and Management
• 6. Management Implications
• 7. Lessons Learned - The Do's Dont's

3

• 1. BancoSol - Institutional Profile -

4
BancoSol - Institutional Profile

• Commercial bank license in December 1991
• Off-spring of credit-only-NGO PRODEM (1985)
• Support through ACCION, Calmeadow
• Solidarity group-lending approach
• Focus on urban lending, particularly commercial
  sector
• Deposit-taking since inception

5

• 2. BancoSol
• - Key Financial Figures -

6
BancoSol - Key Financial Figures (1)
7
BancoSol - Key Financial Figures (2)
8
3. How BancoSol startedinto the Deposit Business
9
How BancoSol started into the Deposit Buiness (1)

• Started with forced savings (5 of the loan
  amount)
• Interest on forced savings could be used for
  emergency and one loan payment
• In practice, forced savings were managed by loan
  officer
• Forced savings were abandoned in 08/1993
• Voluntary savings promoted by Board of Directors
  and General Manager

10
How BancoSol started into the Deposit Buiness (2)

• Gradual approach in introducing voluntary
  deposits
• First, mobilizing micro-deposits from
  micro-borrowers, later from other sectors
• Pilot test, adjustment, consolidation, expansion
• Kick-off with external support
• Very comprehensive approach multidisciplinary
  team, market research
• 2 branches first, 12 branches in 1995, all
  branches at the end of 1996

11
4. Deposit Product Design
12
Deposit Products - First Generation

• 1. Savings account
• No minimum opening balance
• Unrestricted number of withdrawals or deposits
• Interest for balances beyond 100 US
• 2. Semi-liquid Savings account
• No minimum opening balance
• Max. 2 withdrawals per month
• Higher interest rate for balances beyond 100 US
  than 1.
• 3. Time deposit
• Minimum opening balance 200 US
• 30, 60, 90, 180, 360 days
• More interest than 1. und 2.
• Interest capitalized on a monthly basis

13
Deposit Products - Second Generation

• 1. Savings account
• Minimum opening balance 20 US
• Unrestricted number of withdrawals or deposits
• Higher interest rate than in the past and higher
  than the commercial banking sector
• Interest capitalized on a monthly basis
• Inactive accounts service charges of 5 US per
  month
• Active accounts with outstanding balances below
  10 US, service charge of 1 US per month
• 2. Time deposit
• Minimum opening balance 200 US
• 30, 60, 90, 180, 360, gt 360 days
• Higher interest rate than in the past and higher
  than the commercial banking sector
• Interest capitalized on a monthly basis

14
Distribution Channels relatedto Deposit Products

• Branches located close to clients
• At least one cashier in each branch
• Cashier transactions are simple and little red
  tape
• All branches are connected on-line
• Depositors can send representatives
• Complementary services gas, water, electricity
  payments

15
5. Cost Structure and Management
16
Costs of Deposit-Taking
17
Consequences forCost Management

• Deposit product re-engineering
• Introduction and increase of access barriers
  (minimum opening balances)
• Introduction of service charges for accounts with
  low balances
• Reduction of marketing efforts lotteries
• Improving operational efficiency through
  improvement of IT systems

18
6. Management Implications
19
Liquidity Management

• Daily liquidity projections at branch level and
  headquarters
• Liquidity management is considered to be easier
  because majority are corporate deposits gt 360
  days
• Liquidity transfer price Corporate interest
  rate for time deposits 1
• 15 liquidity reserve ( cash plus short-term
  financial investments)

20
Risk Management

• High concentration of loan portfolio in retail
  and wholesale commercial activities (gt 80)
• Introduction of individual loan appraisal for
  major amounts
• Overall repayment crisis in Bolivia since 1999
• Market segmentation and risk classification
• Additional loan loss reserves (2.5 above the
  legal requirements)

21
Human Resource Development

• Specialized staff in deposit mobilization
• Deposit-mobilization only second priority in
  training
• Branch performance bonus system where
  deposit-taking only represents 20 of total score
• Individual incentive system for loan officers
  only since 1999

22
7. Lessons Learned - The Do's and Dont's -
23
Lessons Learned - The Do's and Dont's

• 1. Be clear with regards to your deposit-taking
  philosophy! Do not mix or combine forced with
  voluntary deposits!
• 2. Be clear with regards to the target clients!
• 3. Work on a positive image as safe and
  trustworthy depository!
• 4. Determine appropriate incentives mechanisms
  for depositors!
• 5. Use simple and lean deposit products!

24
Lessons Learned - The Do's and Dont's

• 6. Cost reduction is not always the best way to
  improve profitability of deposit-taking!
• 7. Work primarily on strengthening the savings
  accounts!
• 8. Determine liquidity transfer price
  appropriately!
• 9. Implement a cautious risk management policy!
• 10. Determine appropriate incentive mechanisms
  for staff!