Practical Business Project – Bank Of Oversea Chinese (BOOC): Consumer Banking Credit Card Business

National Chengchi University

1

Practical Business Project –Practical Business Project –

Bank Of Oversea Chinese (BOOC):Bank Of Oversea Chinese (BOOC): Consumer Banking Credit Card Consumer Banking Credit Card

BusinessBusiness

Professor: Professor: Charles Trappey, Robert SuCharles Trappey, Robert Su

Advisor:Advisor: Professor Mia Twu Professor Mia Twu Prepared by:Prepared by:

Annie Wei 93933008Annie Wei 93933008Jack Pai 93933029Jack Pai 93933029Myra Yuan 93933015Myra Yuan 93933015


2

Team Advisor: Team Advisor:

Professor Mia Twu Professor Mia Twu

Academic Background:Academic Background:

Ph.D. in Business, University of IPh.D. in Business, University of Indiana ,U.S.A.ndiana ,U.S.A.

Experience:Experience:

Associate Professor, Department Associate Professor, Department of Finance, of Finance, National Chengchi University (19National Chengchi University (1991/2~)91/2~)


3

Project IntroductionProject Introduction

Industry BackgroundIndustry Background

BOOC Company Background and Status BOOC Company Background and Status

BOOC Key Issues BOOC Key Issues

BOOC Strategy Suggestions BOOC Strategy Suggestions

Case Summary Case Summary

Teaching objectives Teaching objectives

Presentation outlinePresentation outline


4

Project IntroductionProject Introduction

• Bank of Overseas Chinese (BOOC) was mainly focus on corporate banking but the interest rate spread is shrinking due to more competitors entering this market.

• In order to replace the lost profit, BOOC is eager to extend its operations into some other business lines to replace the current lost profit.

• The senior management team concluded consumer banking sector especially cards would be a great choice.


5

Is it the right time to expand Is it the right time to expand

consumer banking card business?consumer banking card business?

How?How?


6


• Card debt issue

Over-issuance of credit cards and cash cards

The excess fund in banks

Consumer spending / GDP has been growing

Total write off amount generated by cards business is over $80 billion NTD from year 2004


7


• In 2005, Financial Supervisory Committee (FSC) announced regulations to tighten the credit card

issuing policies

• Most banks are reluctant to issue new cards and tend to shift their operating focus on Corporate Banking business

• Impact

• As corporate banking accounts for 80% of BOOC’s revenue stream, the business only achieved 75% annual revenue target.


8

• 1959 preparatory office set up

• Starts business on Mar. 1,1961

• 58 business units with 2,118 employees as of March 2006

• Dec. 21, 1998 Listed on the stock market ; present equity increased to NT$11,944.8 million

• Major shareholder - Polaris Financial Group boosted from 7.38% to 22.12%, in 2004

• Management: The Polaris Financial Group took over management in March.2006

• Major Financial Business-Corporate banking; Personal banking Foreign exchange; Credit cards; Financial products ;Wealth management; Trust business etc.

BOOC BOOC Background


9

BOOC BOOC Background

Balance Sheet for the Past Five YearsBalance Sheet for the Past Five Years Item 2001 2002 2003 2004 2005

Total Assets 263,468 265,914 266,583 258,515 270,162

Total Liabilities 253,879 255,149 257,213 246,542 258,834

Shareholders’ Equity 9,589 10,765 9,370 11,973 11,327

Capital Stock 16,752 11,376 11,376 11,945 11,945

Accumulated Earning (7,388) (809) (2,208) (160) (944)

Net Value 5.72 9.46 8.24 10.02 9.48

BIS 5.05% 5.53% 8.04% 10.54% 8.83%

Unit： NT$ million Source: BOOC


10

BOOC BOOC BackgroundIncome Statement for the Past Five YearsIncome Statement for the Past Five Years

Item 2001 2002 2003 2004 2005

Operating revenue 16,517 11,729 10,318 8,605 9,309

Interest 13,822 10,210 7,566 6,710 7,359

Commissions and handling fees 998 985 1,050 1,338 1,217

Gains on securities transactions 1,282 277 1,372 316 398

Other operating revenue 415 257 330 241 334

Operating costs 10,822 6,254 4,220 5,140 5,848

Gross profit 5,695 5,475 6,098 3,465 3,461

Operating expenses 3,373 3,174 3,045 2,999 3,028

Operating income 2,322 2,301 3,053 466 433

Non-operating income 75 70 131 152 134

Non-operating expenses 118 98 25 36 33

Income before Income tax 2,279 2,273 3,159 582 534

Provision for possible losses 5,344 2,894 4,558 3,085 735

Impairment of assets －－－－ 581

Net loss (3,065) (621) (1,399) (2,502) (783)

Cumulative Effect Of Changes In Accounting Principles －－－－－

Net Loss (3,065) (621) (1,399) (2,502) (783)

Loss per share（ NT$) (1.83) (0.37) (1.23) (2.21) (0.66)

Unit： NT$ million Source: BOOC


11

BOOC Current StatusBOOC Current Status Credit Card Business

• BOOC Credit Card Business Structure Chart Credit card center set up in 1997 Departments: Customer service/Credit/fraud/marketing/Collection etc. 110 employees

• BOOC Credit Card Product Types Normal/Gold/Platinum ; Affiliate /Joint Venture Card

• BOOC Credit Card Business Data Performance:NTD1.3Hundered million CIF: Approximately 800,000; active card:33,000

Cont…

主要卡別大潤發 25% 愛車卡 20% 高球卡 10% 商務卡 10% 紐約10%

次要卡別


12

BOOC Current StatusBOOC Current Status

Credit Card Spending RankingCredit Card Spending Ranking

7 玉山銀行 5,262,267

8 花旗銀行 1,537,701

12

萬泰銀行 362,560

27

台灣中小企銀 472,726

8 永豐信用卡 5,087,901

9 新光銀行 1,292,177

13

兆豐銀行 352,340

28

陽信銀行 421,137

9 荷蘭銀行 3,553,750

10

荷蘭銀行 1,095,014

14

日盛銀行 349,005

29

合作金庫 387,014

10

香港匯豐 2,999,794

11

慶豐銀行 981,18715

慶豐銀行 341,901

30

土地銀行 276,570

11

新光銀行 2,645,992

12

萬泰銀行 927,84216

中華銀行 328,571

31

三信銀行 266,161

12

華僑銀行 2,172,828

13

華僑銀行 793,82417

華僑銀行 327,612

32

華僑銀行 193,258

13

美國運通 2,051,020

14

兆豐銀行 774,75318

遠東銀行 324,852

33

臺灣商銀 176,489

14

兆豐銀行 1,973,913

15

合作金庫 767,11819

華南銀行 307,071

34

臺中銀行 165,310

15

友邦 1,649,761

16

中華銀行 725,92420

新竹銀行 240,133

35

寶華銀行 131,850

16

遠東銀行 1,542,524

17

華南銀行 704,74021

上海銀行 239,227

36

彰化銀行 119,555

17

第一銀行 1,498,339

18

遠東銀行 703,84622

第一銀行 232,061

37

萬泰銀行 106,497

Active Card RankingActive Card RankingCard in Force RankingCard in Force Ranking NPL RankingNPL Ranking

Comparison with peer company Source: FSC Oct.2006)


13


2, 000, 000

2, 300, 000

2, 600, 000

2, 900, 000

1, 500, 000

1, 800, 000

2, 100, 000

2, 400, 000

2005~2006 Business statusRevolving Balance

Credit Card Spending


14

Issuer Card in force Active cards Market share by CIF Ranking

Chinatrust Commercial Bank 6,245,890 3,895,761 15.82% 1

Taishin International Bank 3,702,902 2,140,462 9.38% 2

Cathay United Bank 3,459,072 1,895,546 8.76% 3

Union Bank of Taiwan 2,974,219 1,266,562 7.54% 4

Taipei Fubon Bank 2,294,315 1,518,768 5.81% 5

E. Sun Commercial Bank, Ltd. 2,245,320 1,404,732 5.69% 6

AnShin Card Services Co., Ltd. 1,719,968 893,254 4.36% 7

Citibank N. A. 1,548,719 1,204,390 3.92% 8

Shin Kong Commercial Bank 1,296,127 473,894 3.28% 9

ABN AMRO Bank 1,096,452 482,741 2.78% 10

Chinfon Commercial Bank 995,476 344,889 2.52% 11

Cosmos Bank, Taiwan 947,783 370,887 2.40% 12

Bank Of Overseas Chinese 795,815 328,441 2.02% 13Mega International Commercial Bank(former The International Commercial Bank 794,014 354,707 2.01% 14

Taiwan Cooperative Bank 768,018 189,073 1.95% 15

: : : : :

Total 39,469,984 20,880,296 100.00% 46



15


Credit Card Business

• Credit Card Risk Management - Utilize Credit Score Card Model recently

• Credit Card Policy - no data mining but Risk and Revenue analysis conducted

• Credit Card Marketing Strategy - Focus on special client

• BOOC’s Strengths -Low NPL; High Quality Customer;


16

BOOC Key IssuesBOOC Key Issues The impact of the Cash Card and Credit Card Crisis

-Conservative/cautious of Consumer behavior

- How to stimulate consumption? Acquire new cardholders?

Regulatory Restrictions

-Marketing restriction; NPL Control etc.

Economic Conditions Effects-Spend less

Maintain High Quality Client and Increase Interest and Handling Fee Income

-BOOC does not have much credit card revolving balance in its interest earning. (accounts for 2% of total loan outstanding)

Capital Budget Issues


17

BOOC Strategy ProposalBOOC Strategy Proposal

Business opportunity

- Corporate banking Consumer banking Credit Card

From researching competitor status, a more complete income structure for a bank should have consumer banking to account for around 30% of total income.

Source: China-Trust and Taishin Commercial Bank annual report


18

BOOC Strategy SuggestionBOOC Strategy Suggestion

Marketing related

• Target market selection

Identify customer profile

Generate the revenue and loss information

Analysis and select target market


19


Marketing related

• Attract new customers

New channel Bulk sale to staffs who work in major corporate account’s

New productCobrand card

Linked with target clients


20


Marketing related

• Maintain existing customer - stimulate spending

New events & promotional campaign

Receivables build up programs

Reallocate bank’s resources(budget)


21


Credit loss management

• Skilled and analytical personnel can help to produce losses versus profit information based upon customer segments

• To decide risk preference and risk tolerance level

• Timely adjust current credit acceptance criteria to mature the credit policies

• Sep up tier pricing to get reasonable income


22

Case SummaryCase Summary

1) The bank was not directly impacted by the card debts crisis.

2) Other market players are reluctant in aggressively issuing new cards to new card holders.

3) The risk of issuing new card are much lower than before. (easy to identify those with bad credit since they are mostly disclosed in the crisis)

4) If consumer banking can increase to 20% to 30%, BOOC will be a more robust bank in terms of income structure.


23

Teaching ObjectiveTeaching Objective

• Identify how potential threat or unfavorable events may be identified as possible opportunities

• How to construct new strategic proposal from data analyzing?

Data Collection Data analysisUseful data selection

Strategy Proposal

Strategy Selection

Strategy Decision


24

Thank You~Thank You~

Documents

Practical Business Project – Bank Of Oversea Chinese (BOOC): Consumer Banking Credit Card Business