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Enterprise Performance Management – Redefining Shareholder Value for Banks


Banks have put in conscious efforts to move back toward better capitalization. They continue to struggle with concerns around low profitability and their inability to sustain capital buffer to extend credit– a critical need for many growth-starved economies. As a result, the role of the banking CFO has expanded to include the responsibility for making recommendations for organizational strategy and evaluating post-execution performance.

What Impacts Shareholder Value of Banks

Banks need to strategize for new business models. This can imply a combination of low profitability with new regulatory requirements (for capital adequacy), portfolio sell-offs, re-pricing of existing business lines, non-core business divestments, and reductions in operational costs. In some cases, banks may move away from conventional credit to more fee-based services to improve returns. Change in business models have their implications on shareholder value in the medium to long term.

Many major European and North American banks have undertaken the 'repair' of their balance sheets by de-risking and de-leveraging their positions. Balance sheets strengthened for regulatory capital however, imply carrying higher costs (a higher equity spread on bank loans), as well as lower return on equity (ROE) and return on assets (RoA), compared to historical values. Banking CFOs therefore face multiple challenges, constraints, and factors that influence each other, which in turn might result in an upward or downward spiral in shareholder value.

 Enterprise Performance Management is the Answer

A banking enterprise requires a strong EPM system to accurately evaluate itself and its entities— the group, parent, subsidiaries, business lines, value centers, and branches. This requires EPM systems to have planning, forecasting, budgeting, and performance review capabilities that align with the bank's objectives for enhancing shareholder value. The EPM system should also build in the flexibility for the bank to recast its plans and forecasts if necessary, considering the business or economic cycle it finds itself in. 

Designing an Effective EPM System

Enterprise system for evaluation, tabulation, analysis, and suggestion, is only as good as the data and process definitions fed into it. Hence, the primary requisite of a good EPM system for banking institutions is the access to accurate, current enterprise data. This will ensure the accuracy of projections on profitability, cash flows, and more.

Key considerations while designing an EPM system for banks are:

  • Enterprise data
  • Macroeconomic indicators
  • Risk factors and key decision variables
  • Controls and constraints
  • Quantitative methods
  • Data visibility


Shareholder value is a pragmatic and holistic measure to assess a bank's financial health. Performance management systems for banking institutions need to go beyond common market multiples and provide deeper insights into future profitability and cash flows, to understand and predict shareholder value. EPM systems need to have requisite analytics capabilities to provide ample granularity regarding this vital parameter in terms of banking metrics like profitability, efficiency, credit, leverage, liquidity, and capital adequacy.