Navigating Interest Rate Changes: Optimizing Mortgage Product Planning (Part 2)

As the rapid rise in interest rates continues to impact us all, banks are faced with lower profits, higher default risk, and more competition. It’s a challenging environment.

We wanted to find out: How are banks planning for rapid change?

In part one, we explored how banks are approaching strategic mortgage product planning in this volatile environment, improving resilience through advanced stress testing, and touched on some of the key metrics for optimizing mortgage product offerings.

Now, in part two of our interview with Ewan Smith, Financial Planning and Analysis Specialist at Bedford Consulting, we dig deeper into the challenges facing banks in the light of the sharp rise in interest rates and share further insights on how to address these, including:

• The key metrics that banks should prioritize to optimize mortgage product planning
• Techniques to enable cross team collaboration
• How banks can maintain compliance and streamline reporting for mortgage product planning

Optimizing Decision Metrics and Collaborative Alignment

Q: What are the key metrics that banks should prioritize to optimize mortgage product offerings during rising interest rates?

A: In large banks with diverse teams, maintaining uniform models can be tough. It’s preferable and advantageous to create a model that is uniformly agreed as reflecting how the entire business operates. By identifying financial changes and organizational KPIs across the organization, you can build customized models that represent the relationships between various business drivers.

For banking-specific KPIs, banks require insight into key metrics such as cost of funds (COF), margin, pricing, competitor positioning, risk-weighted assets (RWA), loan impairments, and a range of capital and balance sheet ratios. Anaplan can assess these metrics but in a smarter way. Instead of reverse-engineering margins, it enables users to adjust operations for desired outcomes.

This means it accommodates both top-down and bottom-up approaches. For instance, you can start with a KPI target and work down to needed drivers or analyze specific drivers and evaluate their impacts for desired outcomes.

This gives you central control of your business logic, rather than hoping to aggregate data from multiple different engines that need to be using a consistent model and set of assumptions, but often have nuances, tweaks, or exclusions that cause deviations.

By modeling all business drivers, banks can understand how changes in one driver impacts overall performance, enabling targeted and impactful actions.

Facilitating Collaboration

Q: With interest rates on the rise, how can banks collaborate across departments to align mortgage product planning with broader business strategy?

A: Often, various teams generate outputs that need to be swiftly shared across different departments. These outputs serve as inputs for other teams to run through models and generate results. This process is iterative, involving multiple rounds of communication and adjustments.

Historically, transferring this data internally has been a cumbersome and time-consuming task. Ideally, departments would have a window into each team’s business models, so each team—product, risk, BSM, ALCO, treasury—can quickly obtain necessary data from other teams and assess the impact of any changes.

Advanced financial planning and analysis tools, such as Anaplan, grant access and updates in near-real time, expediting the consensus-building process and allowing decisions to be made faster. This reduces the need for extensive internal data management and transfers, saving substantial amounts of process time.

Because each team receives data in a format optimized for their unique processes, or directly integrated into their models, it eliminates the need to repurpose or transform data to make it compatible with specific inputs. Importantly, these capabilities can be scaled, meaning that this improved efficiency is maintained throughout the organization as adoption grows.

Regulatory Compliance, Monitoring, and Strategic Planning

Q: As regulations evolve, how can banks maintain compliance and streamline reporting for mortgage product planning?

A: Regulators often require specific insights and granular data that can be challenging for banks to collate due to fragmented data spread across different teams, often residing in spreadsheets, emails, or on individual workstations. Assembling this data coherently can be arduous and presents an ongoing data and information management challenge.

To be effective, banks must foster collaboration between various departments, including legal, compliance, risk management, and IT to ensure mortgage product planning is aligned with compliance requirements and that reporting processes are integrated seamlessly.

Advanced tools such as Anaplan transform this dynamic by enabling banks to construct detailed, driver-based information. They capture the logic and process underlying the data, ensuring updates are well-documented. This results in a cohesive narrative that aligns with market behavior and decision-making.

By simplifying data processing and presentation, banks benefit from a smoother and more transparent reporting process. Its inherent organizational structure contributes to internal review processes, elevating data quality. This equips banks to engage regulators in meaningful conversations supported by accurate data all parties can trust.

Seizing the opportunity for change

Navigating the intricacies of mortgage product planning within the dynamic world of retail banking demands a synthesis of strategic acumen, operational agility, and collaborative excellence. Ewan’s insights highlight the multifaceted challenges that banks face in adapting their mortgage product portfolios to rising interest rates.

These challenges span across pricing strategies, cross-functional alignment, risk assessment, and compliance with evolving regulations. Amidst this complex landscape, one platform, Anaplan, emerges as a transformative solution which:

• Streamlines data aggregation
• Fosters cross-team collaboration
• Enables accurate stress testing
• Enhances decision metrics
• Facilitates compliance
• Provides real-time insights

This platform empowers banks to not only weather interest rate fluctuations but also to proactively seize opportunities presented by an evolving financial market.

By harmonizing disparate data, enhancing scenario modeling, and promoting strategic agility, Anaplan acts as a compass, guiding banks through the uncertain seas of interest rate changes, enabling them to optimize their mortgage product offerings and thrive in a rapidly changing environment.

To learn more about how Anaplan can help your bank elevate its FP&A, visit this page.

Ewan Smith is a finance leader with over 20 years of experience at top global banks including HSBC and ABN Amro. Ewan has deep expertise in financial planning and business modelling and has been leading change and transformation initiatives for five years, helping businesses unlock value for their teams and stakeholders.