Industrial and Commercial Bank of China: Branch Reconfiguration Practice through Analytics
The Problem
The financial market in China is rapidly changing with the increased economic level, modernization, urbanization, and globalization of China. Many new urban districts and satellite cities are emerging in this rapid urbanization process. As personal wealth increases, people require more financial services. In this fast-changing and competitive market, a critical strategic problem for ICBC was the reconfiguration of the branch locations and service capabilities to match the regional economy and customer distribution, along with the quick identification and relocation to new high-potential market areas. It was necessary for ICBC to develop a systematic methodology and analytical system to support the branch network optimization for all ICBC branches.
The Analytics Solution
ICBC wanted a scalable, quantitatively rigorous branch reconfiguration methodology tailored for the specific needs of ICBC to optimize the branch networks to improve branch performance and to increase the return on investment of branch rebuilding and personnel allocation. In 2006, ICBC partnered with IBM to develop a customized branch network optimization system known as Branch Reconfiguration (BR) by applying analytics techniques while considering the practical business needs of banks.
BR features a customer resource prediction model that uses a semi-supervised regression method and formulates a large-scale branch network optimization problem that is solved by a hybrid nested partition algorithm. BR (1) allocates branch resources to match the economic situation and financial potential of the local area; (2) models the financial potential of a market based on geographic and demographic data and identifies new high-potential market areas and good branch locations; (3) determines the right locations and personnel arrangements of new, relocated, and rebuilt branches, and helps improve branch management; and (4) improves the decision making of branch reconfiguration to minimize capital costs, allows quicker decision making, and reduces the chances of costly mistakes caused by poor branch investment choices.
The Value
The ICBC BR project has achieved significant results since being deployed across China: It has
- Improved branch performance. The increase in deposits attributable to BR in a typical major city like Suzhou was USD 1.04 billion. Over time it is expected that ICBC will continue to experience additional deposits.
- Increased efficiency of branch rebuilding. BR provides a quantitative basis for making reconfiguration decisions. It helps minimize the cost and risks associated with opening low-profit branches. ICBC has achieved a competitive advantage by identifying profitable market locations.
- Improved methodology and efficiency of branch management. BR provides a quantitative view of how each branch and area is performing that helps management more reliably make branch planning decisions.
