In the banking sector, how to evaluate the profitability of a customer' segment compared to the overall aggregates of the bank?

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Mohd Halim Kadri Popular answer

Dear Mohamed Ben Mzoughia

I found the following references. They may be useful for your research.

https://www.sas.com/content/dam/SAS/en_us/doc/solutionbrief/banking-measure-customer-profitability-104255.pdf

http://www.imanet.org/docs/default-source/thought_leadership/management_control_systems/customer_profitability_management.pdf?sfvrsn=2

https://www.icaew.com/~/media/corporate/files/technical/business%20and%20financial%20management/busines%20support%20functions/marketing/customer%20profitability%20analysis%20gpg%2037%20march%2002.ashx

http://www.oracle.com/us/industries/financial-services/045613.pdf

Faris Alshubiri

Greetings,

please find the attached file your topic may be useful for you.

Best Regards,

Mohd Halim Kadri

Eckart Koerner

Dear Mohamed

Have you considered RAROC?

Vital for the profitability measurement is the risk/return basis. However looking at solely depositors that is where Fund Transfer Pricing comes into the play.

Regards

Eckart

Axel Wieneke

Dear Mohamed,

just a word of caution: Banks do a lot of cross-subsidisation of their products and a large fraction of their cost are overheads and thus hard to allocate (e.g. how much of the IT infrastructure should be charged to depositors vs. savings accounts). Depending on how they allocate these costs, they get completely different results for the profitability of subsegments. Furthermore, there are plenty of synergies & externalities. My bank certainly makes a loss on my deposit account (no fees and I keep my balance close to 0), however, they would lose me as a savings account customer if they would try to introduce deposit account fees. Once they lose my savings account, they might get into trouble financing their otherwize profitable loan portfolio. It is certainly a controversial and interesting topic. Good luck!

Axel