Integrated enterprise information transforms banking operations at NLB

Overview

The Challenge
Replace a siloed information infrastructure with a central information repository that all bank departments use; adopt proven best practices for maintaining information used enterprise-wide

Why IBM?
Build upon IBM’s prior experience working with over 200 leading banks to bring best practices to NLB Group

The Solution
Use IBM® Information FrameWork (IFW) containing Banking Data Warehouse (BDW) for deployment on IBM DB2® for z/OS® software

Key Benefits
Access to a single view of each customer’s activities has enabled new upselling and cross-selling
campaigns to boost revenue and attract new customers
Offer acceptance rates from customers have been up to 11 percent, well above the generally accepted average for direct mail campaigns
The cost of compliance with new regulations has dropped and the quality of information has resulted in a reduction of the capital adequacy ratio
Bank management now has the information they need to make faster, better decisions, which makes NLB Group more competitive in the global banking field

“The data warehouse literally transformed how we acquire new business. And the resulting growth has had an immense impact on the bank.”
—Erik Alic, Data Warehouse Project Manager, NLB Group

“IBM was the only vendor that had a banking-specific data model. And IBM has a long history of successfully implementing its data model in the banking industry.”
—Erik Alic, Data Warehouse Project Manager, NLB Group

“Reuse is the name of the game. We now have the team and tooling to tackle any integration task in the future.”
—Erik Alic, Data Warehouse Project Manager, NLB Group

“Now we can address many new requirements in less than a month. That quick time to market is a major competitive advantage for our bank.”
—Erik Alic, Data Warehouse Project Manager, NLB Group

Key Components
Software
DB2 for z/OS
IBM Information FrameWork containing IBM Banking Data Warehouse models
Hardware
IBM eServer™ zSeries® 990 mainframe

IBM Banking Data Warehouse
IBM Banking Data Warehouse provides a starting point for both business and IT professionals to understand the requirements and architecture needed to re-engineer and update outmoded information systems, typically with a Service Oriented Architecture. The BDW model can help banks in the following ways:

• Identify opportunities to provide more responsive customer service
• Integrate product lines
• Integrate channels to help customers receive a consistent, accurate view of information—whether they walk into a branch, fax a request or bank online
• Leverage new channels and technologies, such as kiosk and wireless services
• Integrate merged companies
• Reengineer processes to comply with regulatory requirements

Nova Ljubljanska Banka d.d. (NLB Group) is the largest international financial firm in Slovenia. Serving over 3 million customers in southeast Europe, NLB Group is composed of 14 banks as well as leasing companies, international trade financing businesses, insurance companies and other finance companies in 16 countries.

In the early 2000s, due to the rapid growth of the region and increased sophistication of Slovenian financial markets, NLB management placed a high priority on expansion. But the firm’s existing IT infrastructure made the prospects for expansion look daunting. Each department had its own dedicated applications and maintained its own data. With so many siloed information systems, there was little data consistency from one department to the next.

As a result, marketing initiatives were limited because there was no way to easily view all of the interactions that a customer had with the bank. Standard direct marketing tactics were not possible. And customer service personnel could not provide comprehensive advice to customers, including recommending additional services from the bank.

Compliance with a growing regulatory environment was labor-intensive because of the need to make cross-departmental data consistent. And the consolidated reports needed by management were painful to create and labor-intensive to rationalize across departments.

NLB needs an information integration platform to support growth
To accomplish its goals for expansion, NLB clearly needed integrated information across all its operations. In 2001, management decided to centralize information management and maintain a single repository of data that all departments would use. Supported by IT, each department at the bank would lead the consolidation effort within its own area. However, questions remained—how could NLB best architect the information system and which software vendor could best help the company achieve the integration?

IBM DB2 chosen as the foundation for a world-class banking information system
In 2002, the new data warehouse project team began to review vendors. According to Erik Alic, data warehouse project manager, “Because we are the largest bank in the country, we attracted the world’s best database vendors. But after reviewing each vendor’s capabilities, IBM was the only one that had a banking-specific data model. And IBM has a long history of successfully deploying its data model in the banking industry. We were also impressed by the IBM Slovenia team, which has strong project management and infrastructure implementation skills.”

Intellectual capital from IBM helps launch the data integration project
IBM introduced the NLB integration team to IBM Information FrameWork, a portfolio of data, process and service models designed to help retail and wholesale banks transform their business through the use of enterprise blueprints.

IBM Banking Data Warehouse models can provide the basis for process re-engineering, integration of mergers and acquisitions, process outsourcing and workflow automation. For example, using the BDW model can help jumpstart major integration initiatives by providing up to 80 percent of the core concepts upfront.

Alic’s team used the BDW model as a catalyst to help users define their business needs. “We need to reconcile what the users need with what the data warehouse can provide. All departments need to adopt common data definitions and data management processes. We have been very successful using the BDW model to guide this process,” he explains. “When users ask why we recommend a certain approach, the BDW model is a very credible reference to best practices compiled from over 200 leading banks all over the world. Pointing out that the BDW approach has been shown to reduce the time required to define the structure of the data warehouse helps us gain each department’s agreement to use it.”

For example, the risk department was very committed to its own way of collecting and maintaining data. That made sense because the department makes sure the bank is in compliance and also helps mitigate risk—roles that require a conservative nature. As Alic describes, “At the start, they said, ‘we want our data on our machines under our desks, because it is the safest way.’ But we ultimately overcame a tough organizational challenge and convinced the group to rely on the data warehouse. The key was explaining the benefits of the BDW model and the strengths of DB2 for z/OS.”

NLB data warehouse evolves to encompass all banking operations
Once established at NLB in 2002, the data warehouse became a platform for meeting a wide range of information needs over the next five years. The project team completed over 9 projects during that time, including the following major initiatives:

• Daily reporting required by the Slovenian Central Bank (2002)
• Marketing support (2003 and 2004)
• Reporting for the European Central Bank (2004 and 2005)
• International Financial Reporting Standards (IFRS) provisions (2006)

BASEL II reporting is expected to be completed by January 2008.

Composition of the data warehouse project team was determined by the scope of work. Project leaders and architects stayed on the team for the entire five-year timeframe. As each phase was initiated, users from the affected departments joined the team. Commenting on the success of this approach, Alic says, “A continuity of leadership really helped improve the degree of integration across the business.”

Data warehouse creates competitive advantage for NLB
Now that the data warehouse has been adopted throughout the bank, all the siloed integrations are gone. In addition, new requirements are constantly being addressed by the combination of the BDW model and the DB2 for z/OS platform. “Reuse is the name of the game,” says Alic. “We now have the team and tooling to tackle any integration task in the future.”

Alic points out that if NLB had not taken the data warehouse approach, “Each of our 9 integration tasks would have required a full integration crew and a year or two of development. Plus, according to some industry watchers, tasks like this have more than a 60 percent chance of failure. Now we can address many new requirements in less than a month. That quick time to market is a major competitive advantage for our bank.”

Because the enterprise-wide data warehouse ensures that marketing staff, accountants and risk managers are all looking at the same data, everyone can make better decisions. There is also less duplication of effort and automated tools help employees do a better job—which of course contributes to better financial performance for the bank and greater returns for its shareholders.

DB2 data warehouse helps transform how NLB acquires new customers
Today, direct marketing is a well-used tool within the NLB marketing department. The data warehouse provides staff with the tools to conduct very effective customer acquisition campaigns and measure their results. The bank can now target high-potential customers and suggest services tailored to their needs. “Immediately, results were outstanding,” notes Alic. “We achieved acceptance rates of up to 11 percent from targeted mailings. And we continually learn more about our customers and their needs for b anking services.”

Adds Alic, “The data warehouse literally transformed how we acquire new business. And the resulting growth has had an immense impact on the bank.”

DB2 data warehouse helps lower the cost of compliance
Slovenia joined the European Union in 2004, which brought new reporting requirements for NLB. The European Central Bank (ECB) imposes strict requirements on banks, and fines are significant for non-compliance. Says Alic, “Without our data warehouse, we could not have met those requirements.”

The flexibility of the new data warehouse also enables NLB to support IFRS and Basel II requirements as an extension of what was previously developed for the ECB, dramatically reducing the cost of compliance. Alic says, “Banks starting from scratch to support Basel II would incur a huge development cost—millions of Euros. Fortunately, NLB is now in a position where we no longer have to reinvent the wheel each time a new requirement emerges.”

Integrated information leads to reduced capital adequacy ratio
In 2001, the Slovenian Central Bank required that NLB maintain an integrated reporting system that encompassed all banking operations.

In 2006, when the bank’s new data warehouse enabled NLB to meet those requirements, the Slovenian Central Bank agreed to cut the capital adequacy ratio once the integrated reporting system was approved by the regulator. According to Alic, one of the key reasons for the favorable treatment was that NLB reports originate from an integrated informational system that provides referential integrity—all the numbers tie together.

Also, as Figure 1 shows, the Moody’s rating of NLB has improved significantly during the time period of the project.

The IBM BDW model sets the stage for dramatic corporate growth
After five years of evolving the data warehouse, BDW concepts are well incorporated into the bank’s daily business. Thus, there is little need to refer to BDW today. But IBM continues to evolve the framework. Those updates, such as Basel II, provide banks with valuable insight into how to accommodate new requirements.

The increased agility and streamlined operations afforded by the data warehouse have positively impacted the performance of NLB. Since 2004, total assets have grown by almost 44 percent and profit growth from 2005 to 2006 was 37 percent.

Looking back, Alic says, “The most memorable quote came from the first sponsor of the project. He literally said, ‘Hey, that data warehouse is not just a tool—it’s a weapon.’ Considering how we transformed the bank’s effectiveness, he was absolutely right.”

For more information
For more information, contact your IBM representative or IBM Business Partner, or visit:

ibm.com/db2
ibm.com/industries/financialservices/ifw

For more information on NLB, visit:
www.nlb.si