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

1. Practical Business Project – Bank Of Oversea Chinese (BOOC):Consumer Banking Credit Card Business • Professor: • Charles Trappey, Robert Su • Advisor: • Professor Mia Twu • Prepared by: • Annie Wei 93933008 • Jack Pai 93933029 • Myra Yuan 93933015

2. Team Advisor: Professor Mia Twu Academic Background: Ph.D. in Business, University of Indiana ,U.S.A. Experience: Associate Professor, Department of Finance, National Chengchi University (1991/2~)

3. Presentation outline • Project Introduction • Industry Background • BOOC Company Background and Status • BOOC Key Issues • BOOC Strategy Suggestions • Case Summary • Teaching objectives

4. Project 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 consumer banking card business?How?

6. Industry Background • 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. Industry Background • 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. BOOC Background • 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.

9. BOOC Background Balance Sheet for the Past Five Years Unit：NT$ million Source: BOOC

10. BOOC Background Income Statement for the Past Five Years Unit：NT$ millionSource: BOOC

11. 大潤發25% 愛車卡20% 高球卡10% 商務卡10% 紐約10% 主要卡別 次要卡別 BOOC 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…

12. BOOC Current Status Comparison with peer company Source: FSC Oct.2006) Credit Card Spending Ranking Card in Force Ranking Active Card Ranking NPL Ranking

13. BOOC Current Status 2005~2006 Business status Revolving Balance Credit Card Spending

14. BOOC Current Status

15. BOOC Current Status • 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 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 -BOOCdoes not have much credit card revolving balance in its interest earning. (accounts for 2% of total loan outstanding) • Capital Budget Issues

17. BOOC 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 Suggestion • Marketing related • Target market selection • Identify customer profile • Generate the revenue and loss information • Analysis and select target market

19. BOOC Strategy Suggestion • Marketing related • Attract new customers • New channel • Bulk sale to staffs who work in major corporate account’s • New product • Cobrand card • Linked with target clients

20. BOOC Strategy Suggestion • Marketing related • Maintain existing customer - stimulate spending • New events & promotional campaign • Receivables build up programs • Reallocate bank’s resources(budget)

21. BOOC Strategy Suggestion • 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 Summary • The bank was not directly impacted by the card debts crisis. • Other market players are reluctant in aggressively issuing new cards to new card holders. • 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) • If consumer banking can increase to 20% to 30%, BOOC will be a more robust bank in terms of income structure.

23. Teaching Objective • Identify how potential threat or unfavorable events may be identified as possible opportunities • How to construct new strategic proposal from data analyzing? Useful data selection Data analysis Strategy Proposal Data Collection Strategy Selection Strategy Decision

24. Q & A Thank You~