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Keeping customers satisfied after a bold acquisition
Arbejdernes Landsbank is one of Denmark’s best-known and most trusted retail banks. In May 2021, they acquired the majority of the stock shares in the almost equally sized and listed Vestjysk Bank.
While Vestjysk Bank would remain its own entity, Arbejdernes Landsbank would need to adapt to new governance arrangements to comply with the regulatory requirements of a Systemically Important Financial Institution (SIFI) bank. The requirement for Arbejdernes Landsbank was to meet new regulatory compliance while maintaining its customer-centric culture.
Together with Arbejdernes Landsbank, we developed a target operating model for credit risk management and a supporting action plan, bringing our expertise in risk management and regulatory compliance in banking to the table.
As a result, there’s now an overarching risk and control governance structure in place for the two banks all the while allowing for the banks to operate each their separate business models. The structure takes account of the increased regulatory scrutiny Arbejdernes Landsbank will attract as a SIFI. And it features a new framework for risk management and control – one that supports and further enables decentralised decision-making that underpins leading customer satisfaction ranking.
By delivering an ingenious approach, we enabled Arbejdernes Landsbank to take control of the newly enlarged group quickly and be ready for future growth.
Enabled a non-listed bank to own and oversee the operations of a listed bank for the first time ever in Denmark
Balanced the needs of two very different institutions for risk profiles and risk management and control
Won client confidence by designing a fit-for-purpose and easy to implement risk management framework
Positioned the bank to pursue growth ambitions and new customer segments while protecting the value of two distinctive brands at the same time
Arbejdernes Landsbank provides everyday banking activities. Their vision is that decisions should be made locally so that customers can get quick answers on applications for loans or mortgages, and clear information on the reasons for the decision. This desired operating model for credit risk management sits well with the highly personalised customer service approach that has seen the bank rated the highest for customer satisfaction among Danish banks for 13 years in a row.
As part of its growth strategy, Arbejdernes Landsbank acquired Vestjysk Bank – a listed company, serving both corporate and personal customers. Arbejdernes Landsbank planned to run the two banks separately under the overarching oversight of a group board while still maintaining individual boards and separate operations. In a significant moment, this would represent the first time in Denmark an unlisted bank has run a listed bank. The challenge this presented was two-fold.
Firstly, the acquisition brought new regulatory obligations for Arbejdernes Landsbank. Under single ownership, the combined banks became one financial group large enough to be a SIFI, hence, attracting a heightened degree of regulatory scrutiny and being required to hold more capital. Secondly, Arbejdernes Landsbank were eager to preserve as well as leverage and learn from the stronger experiences around the business model servicing business customers in Vestjysk Bank. Generally speaking, credit risk management around business customers requires a lot more ongoing efforts and additional capabilities compared to credit risk management around personal banking customers. These capabilities include macro-level monitoring and reporting on industries (Credit Portfolio Management) and ongoing individual customer management, for example, acquiring customer’s financial statements and analysing them to identify risks in due time.
“Managing risk and preserving culture in a way that protects what’s valuable about individual businesses is a challenge many organisations face following an acquisition, not just banks,” says Susanne Gildberg, financial services expert, PA. “An approach that’s too heavy handed can stifle innovation and responsiveness and drive costs. A route that’s not robust enough can lead to financial losses and put the reputation of a business and, with this the trust of its customers, at risk.”
A complex task such as this would require a team with previous experience navigating complex regulatory requirements. In tandem with the Arbejdernes Landsbank team, our financial services experts brought invaluable real-world experience having worked with all of Denmark’s major banks. Our team included consultants with first-hand experience of working with risk management and compliance in financial institutions as well as credit risk management expertise.
“Our on-the-ground experience gives us a deep understanding of the detail and practicalities of managing banking risks,” says Rasmus Emmertsen, risk management expert, PA. “That was key to our ability to develop a pragmatic solution tailored to Arbejdernes Landsbank’s specific requirements.”
The first step was assessing the current state of governance and carrying out a detailed appraisal of risk management at Arbejdernes Landsbank. Interviews with the bank’s leaders and desk research were central to building a clear picture. And this process enabled the bank’s senior team to develop a shared and accurate understanding of the existing governance and risk management frameworks.
“In effect, we held a mirror up to the organisation – then added our analysis from our experience – and helped the senior team confirm and agree on what they saw,” explains Rasmus Emmertsen, risk management expert, PA.
The team then benchmarked the findings against a carefully selected group of the bank’s peers. Then the bank confirmed their ambitions in four different areas covered by our benchmarking. These included group-wide governance and risk management principles including Lines of Defence; policies, processes and management information; credit risk profile and strategy; and operating model and culture.
In partnership with Arbejdernes Landsbank, we designed a range of interventions to enable it to achieve its goals. For example, for enabling decentralised credit decision-making, we identified needs to revise instructions in the form of Standard Operating Procedures (SOPs), guidelines and policies, launching training and implementation initiatives around credit risk profile, and strengthening the control environment. Other interventions included rethinking committee structure and mapping top risks to key controls.
A total of thirteen development initiatives were identified and designed with Arbejdernes Landsbank. The next step was to design a roadmap to prioritise these activities. Each activity was assessed against impact and ease of implementation while also catering to mutual dependencies to ensure the delivery of a coordinated programme with maximum impact.
Winning the confidence of the bank was a crucial stepping stone and by the time the work was complete, the majority of our recommendations were already being put into practice.
Following the finalisation of our engagement with Arbejdernes Landsbank, the bank has continued implementation of most of the recommendations within an adjusted timeline. The result is that the bank is ready to meet more onerous regulatory obligations and to handle associated risks in good time.
“We’ve provided an overarching governance framework that’s right for the scale of the combined banks,” says Susanne Gildberg, financial services expert, PA. “In addition, it gives Arbejdernes Landsbank the flexibility it needs to take decisions at a local level, preserving the personal approach that’s central to its brand. It balances this with the tight, more centralised control they’ll need to exercise serving corporate clients.”
Instead of working with the PA team in a short an intensive period we were stretching out the workload which gave us time to absorb and work with the recommendations. Working with a highly skilled team with in-depth practical experience was very valuable – and the capability also to bring in pragmatic and concrete initiatives to the table was also of very high importance to us. The PA team managed to develop together with us – leaving us with a target operation model for credit risk management which both brings us up to best practise and makes room for the group to operate two different banks with different risk profiles.