Bancorp

Business landscape assessment

- General Trend

The corporate banking landscape has been changing to achieve more of fee-based income and to become less dependent on interest sensitive revenues. The line of business is consistently diversified and value added to successfully compete in an increasingly competitive environment.

This means the market trend is shifting more toward the non-credit services, with returned on equity at 10-15%, relatively more profitable than returns on equity of profitability in commercial credit ranging at 5-15%. However these percentages are expected to be driven down by intensified competition. This in turn forces financial providers to adjust the way they do business. It is very difficult to continue offering a full range of credit and fee-income services. Instead, providers focus on being niche and creating more value to their product and service offerings.

Providers need to adjust their cost structures and its profit making ability as pricing become very competitive. By doing so, there will be an opportunity to take advantage of the higher demand in the middle market. In addition, larger providers will gain advantage through economy of scale. The key to survival is how efficient providers can drive down the overhead cost regarding the non-credit services.

- Landscape Analysis

BanCorp has been able to maintain profitable despite shrinking margins. This is due to its strong asset quality and cost structure. Nonetheless, there is an opportunity to improve its profitability in both the Credit and Cash management products.

BanCorp continues to focus on its traditional business lines while strengthening its regional presence. They are able to capture market share through loan growth and acquisition and thus sustain their credit market share in large corporate. Their strength lies within the ability to achieve low overall cost structure. However, strong focus on cost containment has resulted in inadequate attention being paid to enhancing revenue growth. BanCorp's net interest growth has not kept pace with the growth of its loan portfolio. Our study will focus on how to improve the revenue growth and thus profitability.

Below shows our summary of landscape analysis findings:

Credit Business Line

Revenue Group

1990-1994 BanCorp Bank A Bank B Bank C

Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking

USD100m Rev 0% 1 +2% 2 +2% 3 +4% 2

Industry Group

1990-1994 BanCorp Bank A Bank B Bank C

Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking

Manufacturing -3% 3 +3% 2 +5% 1 +2% 4

Retail/Wholesale 0% 3 +4% 1 +4% 2 +3% 1

Service +2% 3 +6% 1 +5% 2 +2% 4

Others 4% 1 2% 1 0% 2 -2% 2

These two tables show that BanCorp is only strong in the >USD25m Rev and in the other industry group.

Cash Management Line

Revenue Group

1990-1994 BanCorp Bank A Bank B Bank C

Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking

USD25m Rev 0% 3 +3% 4 +7% 1 +3% 2

Industry Group

1990-1994 BanCorp Bank A Bank B Bank C

Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking Mkt Share Ranking

Manufacturing 0% 3 +2% 3 +4% 1 +3% 2

Retail/Wholesale +2% 4 +5% 3 +7% 1 +4% 2

Service +3% 1 +4% 3 -1% 4 +4% 2

Others -2% 3 3% 4 7% 1 +6% 2

These two tables also show that overall market share of BanCorp is low relative to its competitors.

Key Findings:

The performance is relatively poor compare to its competitors. Business line and geographic expansion have not been carried out effectively. There is a need to re-position the focus toward a more attractive segment of the market. In this case, we will find a way to improve the market share in all area (which means an improvement in the infrastructure and new policy making). We will also pay a strong attention to the Cash Management line as we believe there is a good opportunity for growth.

Looking specifically at Bank B performance, it has done very well in most of both industry and revenue group. It is similar to BanCorp in term of corporate size and cost structure. However, Bank B strategy has been successful as it is more intensive in geographical expansion ans while BanCorp has been focusing on its traditional lines of business, Bank B has maintained core lines of business but with limited expansion into new fee-income producing businesses. In addition, its cash management has been strong and supportive to its profitability.

Bank A and Bank C are doing reasonably well. However, we decide we should not looking too much into the success of their strategies as the study tells us that they are focusing on moving into smaller markets and hence becoming more of a niche player.

Strategy

We believe BanCorp needs a re-structuring of its corporate model, both in the state and city level. Following are key changes that we would like to make:

- Standardization