A SYSTEMIC VIEW OF NBSS NON PERFORMING LOANS

Greg Zuccarini - Systems Theories & Practice

MOMS 2001

Telling The Story

CONTENTS

Empirical Behavior over time Graphs Intuitive Behavior over time Graphs

A Focusing Statement:

Identifying The Structure: Adaptation & usage of applicable systemic archetypes:

Shifting the Burden & The Quick Fix

Key Systemic Area Evaluation (Going Deeper): Planning An Intervention:

Telling The Story

Empirical Behavior over time Graphs

Comparison Of Total Book Versus Bad Debts Over Time

R1,600,000,000

Residential Other Development Commercial Dev Bal Other Bal Resid Bal Comm Bal Book Bal R 20,000,000,000 R 18,000,000,000 R 16,000,000,000

Non Performing Loans Total

R1,400,000,000 R1,200,000,000 R1,000,000,000 R800,000,000 R600,000,000 R400,000,000 R200,000,000 R-

R 14,000,000,000 R 12,000,000,000 R 10,000,000,000 R 8,000,000,000 R 6,000,000,000 R 4,000,000,000 R 2,000,000,000 R-

Nov-98

Nov-99

Nov-00

Jan-99

Jan-00

May-99

May-00

Mar-99

Mar-00

Jan-01

Sep-98

Sep-99

Sep-00

Mar-01

Jul-99

Jul-00

Total Book

4% NO ARREARS + <2 MONTHS ARREARS > 2 MONTHS PIPs SERVCON BOOK

6% 0%

R60-R120,000
90%

<R 60,000 R 60-R 120 >R 120,000 N A R R + < 2 M N S R 2,468 O R EA S O TH R 1,846 R 5,888 A R R > 2 M N S R 119 R EA S O TH R 73 R 440 PIPs R 524 R 117 R 641 TO L R 3,112 TA R 2,036 R 6,968 A R R & PIPs - %O TO L 20.68% R EA S F TA 9.34% 15.51% SER C N B O R 30 V O O K R4 R1 SER C N B O - %O TO L 0.99% V O O K F TA 0.22% 0.02% SEG EN %O R M TS F ESID B O 25.68% . O K 16.80% 57.52%
R 000, 000 s

Comparison Of Total NPL: Book Versus Prime Rate

Total NPL:Book %
30.00% 10.00% 8.00% 6.00% 4.00% Prime Rate Total NPL/Book Bal 2.00%

Prime Rate %

25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

Nov-98

Nov-99

Nov-00

0.00%

Jan-99

Jan-00

May-99

May-00

Sep-98

Sep-99

Sep-00

Mar-99

Mar-00

Jan-01

Jul-99

Jul-00

Mar-01

Telling The NPL Story

Intuitive Behaviour over time Graphs

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Higher

Parity

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A Focusing Statement:
Why does increasingly strict asset based lending criteria not reduce the growth in Bad Debt?

Identifying The Structure: Adaptation & usage of applicable systemic archetypes:

Shifting the Burden & The Quick Fix

AY D EL

Symptomatic Solution:

Unintended Consequence:

+ R2 +
Problem Solution:

B1 R1 +
Side Effect:

Problem:

B3

A DEL

B2

+
Fundermental Solution:

AY D EL

+
Unintended Consequence:

Symptomatic Solution:

R2 B3 + -

+ B1 + R1
Side Effect:

Problem Symptom:

+ R3 +
The Actual Problem

Problem Solution:

B2 +
The Fundamental Problem Symptom

+ B4 + + R4 -

B5 -

Fundermental Solution:

+ -

The Fundamental Problem

+
Unintended Consequence: - Reduction In Overall Lending Margin - Hard-core PIP's may remain

Symptomatic Solution: Sell PIP's at Lowest Discount

AY DEL

+ R2 Problem Solution:

B1 R1 +
Side Effect:
-Diminished need to invest/plan in fundamental solution. -Encouragementof linear reductionist thinking.

+ B3 +
Problem: Exponential PIP Associated Cost Lowers NBS Contribution To Group

-First World Credit Appraisal Systems -Focus on Moral Vs Asset Risk -Real Time Risk Assessment @ POS -Risk Based Pricing -Continous staff training & development -Moral of credit staff

B2
AY DEL

+
AY DEL

R3 Investor/Owner Support

Fundermental Solution:
-Re-assessment of an exclusionary dedicated low cost model in a services industry like banking. -Creating a key competency in innovation and learning in the organisation. -Move away from the factory or channel dominance to that of market segment and client loyalty domination. -Creating the right systems and processes that are centralised and provide a basis for a holistic client view accross the BoE Group.

DE LA Y

Use Of Coping Strategies

Stress

+
Expediency Culture

+ +
Focus On Symptomatic Solutions

Single Year/Short-term Financial & Individual Performance Metrics Orientation

B1
+
Attraction & Reward Of Staff With Ability To diagnose & Deal With Fundamental Structural Problems

R1

Risk Aversiveness Through Incremental Optimization

B2
Effectiveness & Efficiency Of Sustainable/Fundamental Solution Programmes

+
Justification Of Resource Allocation To Short-term Solutions

R2
Multiple Perspectives Required For Significant Problem Diagnosis

Competency To Derive & Implement Holistic & Fundamental Solutions

Quick-win's/ Fix's

Investor/Owner Support

DE L

+
Use Of Coping Strategies Stress

C Un on in se ten qu de en d ce :

AY

R
2

Sy m So pto lu m tio ati n: c

Pr ob

le m :

B
3

+ + DEL AY

B
1 Pr ob le m

+
Expediency Culture
Fu nd er m en ta l

So lu tio n

R
1 :

B
2

R3
Si de Ef fe ct :

+ +
Focus On Symptomatic Solutions

Single Year/Short-term Financial & Individual Performance Metrics Orientation

So lu tio n

+ -

R1

Risk Aversiveness Through Incremental Optimization

B2
Effectiveness & Efficiency Of Sustainable/Fundamental Solution Programmes

+
Attraction & Reward Of Staff With Ability To diagnose & Deal With Fundamental Structural Problems

B1

+
Justification Of Resource Allocation To Short-term Solutions
DE LA Y

R2
Multiple Perspectives Required For Significant Problem Diagnosis

Competency To Derive & Implement Holistic & Fundamental Solutions

Quick-win's/ Fix's

Desired State 'Planned' Financials

+-

Gap

+
Adjustment

Actual State

Quality Of Leads Available To NBS

NBS Credit Mngt.Competency Relative To Competitors

Strictness Of NBS Asset Based Credit Criteria

Past

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Now
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Total NBS Non Performing Loans

Number of Available Intermediary Agents To NBS Mortgage

NBS/BoE Short-term Cost Vs Long-term Income Generation Focus

Past

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Now

Now

Now

Future

Future

Future

NBS Mortgage Total Residential Book

NBS Mortgage Client Relationship Interaction Frequency

Past Now Future

NBS NIBIT Contribution To Group

Past Now
NBS Mortgage Client Availability To Other Banks

Past

Past Now Future

Now Future