process efficiency review

Process Efficiency and Organization Review

Take the right steps - A pragmatic approach
for pragmatic results .
Synthesis

June 13th 2012
Advisory & Consulting Services

Agenda

Objectives of the meeting
1. Explain where we stand
2. Provide key results of our analysis on:
• Organization
• Processes
• Branch and unit network
• IT governance and project management
3. Validate IT organization structure option
4. Next steps

2 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte Tax & Consulting S.à r.l.

Table of content

1 Approach – where we are 4

Key recommendations for Organization and Process
2 6
Efficiency

3 Branch and units network analysis results 10

4 IT Stream review: approach and key findings identified 12

5 Timeline and next steps 15


The approach can be summarized in the following 4 steps
We are
here
26/03 26/06

III Synthesis IV Roadmap

Recommendations Definition of a Roadmap for
II
Universe Definition recommendations
• Re-classification of implementation in line with pre-
identified issues around 2 agreed prioritisation criteria
Information
I main resolution themes and
Gathering • Classification and 5 relevant work streams for
formalisation of all Streams, except for IT
identified issues • Re-classification of
• Spell out of actionable identified issues around 2
• Interviews analysis
recommendations and main resolution themes and
• Documents and data
related benefits 7 relevant work streams for
analysis
IT Stream

• Understanding of Kapital • Draft list of identified • Validation and agreement
Bank business model and issues, recommendations on the number of
organisation and attended benefits determined
• Identification of pain points classified on the basis of 6 recommendations‟ themes
• Identification of necessary axes: and related work streams &
follow-up analysis e.g. 1. Loans operational
review of customers‟ 2. Plastic cards recommendations
accounts, loan origination, 3. Customer accounts
plastic cards processes; 4. Cash management
skills matrix; prioritisation 5. Organization
correlation etc. 6. IT Processes
• Process flows
formalisation and review


Table of content


2 6
Efficiency





Mission statements of a sound Organisation

Workstreams

• Build strong organization and governance to support business activities and
Organisational contribute to the objectives of risk reduction, process efficiency improvement and
review control environment set up

Organisation Competency • Give human resources the proper tools to develop in order to support activities
& Human building & effectively and contribute to grow business
Capital sharing

• Change mentality and push a culture of :
Process & • Ethics
Control • Control
ownership • Efficiency
• Risk

Source: Kapital Bank, interviews, Deloitte analysis and best practices review

REMINDER
Recommendations for Organisation & Human
Capital can potentially lead to 15 FTEs savings and significant
soft benefits

Workstreams Summary of key recommendations Potential savings
• Creation of Head of Markets position and function integrating marketing
department in charge of branch and product performance
• Creation of a Risk and Compliance department and CRO position
• Creation of a COO function (Chief Operating Officer) responsible for all
Organisational back-office activities • 15 FTEs identified
review • Reallocation of “Control and Work with Structural Units” activities to
original owners (e.g. compliance, human resources, etc.)
• Integration of strategic planning division within budget preparation
division in Financial Management department
• Integration of IT Security under CRO in Risk Management department

Organisation & • Professionalize trainings through training programmes (both
Human Capital technical, e.g. FlexCube, and soft skills, e.g. English courses),
Competency welcome onboard package and career development plan set up
building & sharing • Identification of High Potentials within the Bank and retention
programme
• Set up a mobile training workforce for remote regions • No hard savings
identified
• Clear allocation of responsibilities and ownership through defined
governance
Process & Control • Alignment all procedures with processes
ownership • Identification of KPIs to monitor performance and procedure
complance
• Increase awareness of staff for controls and risks


Recommendations to improve process efficiency can
potentially lead to significant risk reduction and 34 FTEs
savings
Workstreams Summary of key recommendations Potential savings

• Define pre-determined settings and mandatory fields for all products
and restrict modification possibilities (i.e. commission rates, interest
rates, repayment schemes, collateral requirements, start/end date, • No hard savings can be
Setup allowance) quantified
modification • Enable mandatory 2nd level of authorization embedded in system for
prolongation of loans, loan status, cash reception, rate modifications
and in Kapkart
• Automate payments for loans (direct debit) • 12 FTEs (direct debit)
• Centralization of client register, implementation of data warehouse to
Technology

• 3 FTEs (reporting in
develop reporting capabilities and improve monitoring through
dashboard on business activities based on centralized processes IT), 1.5 mln (loans)
Interfacing
• Automate reconciliation capabilities between Kapkart and Flexcube • 3 FTEs
by enhancing interfacing (e.g. GL account postings, settlement and
Process interbranch settlement, movements, positions, etc.)
efficiency • Automate all loan and deposit contracts generated by configuration • 12 FTEs (direct debit)
of reporting module 14 FTEs (loans), 2
• Implement workflow management system and document
Module FTEs (deposits)
management system to better monitor interactions between Head
optimization
Office and branches
• Enable cash and teller module to better monitor and automate cash • 4 bln AZN turnover
management process

• Define and harmonize risk and performance criteria within the bank • 68% NPL (65 mln AZN)
policy and impose to branches. Align branch and staff incentives with
credit book performance
Risk control
• Implement a procedure for setup and maintenance of user profiles
improvement
and access rights
• Implement encrypted or automated communication flow for plastic • 4 bln AZN turnover
card data

Table of content


2 6
Efficiency





We have identified 607 FTEs potential savings (37% of total) by combining
BAKU –
analysis on performance and branch current structure A
ABSHERON
OTHER
I. II. B ECONOMIC
REGIONS
ANALYSE HEADCOUNT REQUIREMENTS
ANALYSE HEADCOUNT REQUIREMENTS REORGANIZE STRUCTURE OF
PER BRANCH
PER BRANCH BRANCHES

• We have identified best performing branches • Based on option selected by Kapital Bank:
based on staff workload and capacity to A
perform functional responsibilities
Identification of branches to transform into
units
• We distributed results of top performing
branches for all in the region (Baku-Absheron Identify possible branches to be transformed
and other economic regions ) into operational units based on performance
indicators (e.g. loan portfolio volume and
• We estimated the required number of staff for: performance, deposit portfolio, commission
income and expenses) and geographical
Description of density and align commercial and sales
approach  Credit specialists
 Accounting staff messaging and strategy
 Customer servicing staff
 Cash desk specialists B
 Deputy heads and secretaries CORPORATE vs. RETAIL
Based on share of corporate loans in branch
portfolio identify regional centers for corporate
loans.
Ensure existence of center for corporate loans
in each economic region of Azerbaijan.
Current
FTEs

A 276 A 17 branches; 8 units 1,672
69

Savings • 8 branches in 7 regions as regional TOTAL
identified B 262 B 0 centers for corporate loans Expected
• 56 retail profile branches savings
Only split of
activities
performed
TOTAL 538 TOTAL 69 607


Table of content


2 6
Efficiency





Dashboard, IT stream - 13/06/2012

Overall status: GREEN Project
Tracking
Indicator*
Project on target so far – Main achievements:
• All interviews completed (15 people) 100%
• All the processes in the scope of the mandate have been discussed
(22 processes), mapped and benchmarked % completion
of overall
• Gaps identified and grouped in 2 dimensions - IT operations and IT project effort
governance and management.
50%
Next steps / Current Priorities
• Prioritize and analyze identified gaps. Development of SOD matrix.
• Develop recommendations and implementation roadmap for identified gaps

Decisions to be taken Due Date Owner

Selection of options on organizational structure 20 June 2012 Deloitte & Pasha

Key risks and issues Resolution Owner
• No risk or issues identified

Main achievements up to date
Interviews sessions are achieved Review of FlexCube, Tranzware (Processing) and SWIFT applications
IT policies, organization, budgeting, planning process are analyzed Performed IT Maturity Assessment based on Deloitte proprietary tool
Information security review (running services, file permissions, patch
management, database administration, firewall configuration,
password settings, antivirus settings, physical security)

Tasks behind schedule * Measure of the Owner
% of completion of activities due atDue date
the time of publication of the dashboard.
Rev. date


Key themes identified for next steps are the result of 74 issues
observed Average maturity level of IT processes is 1.36 out of 5, that is
below industry average of 3

Themes Work streams Summary of highlights
1
A Organization structure does not reflect current job responsibilities of IT Staff
IT
B There is no systematic approach on development of IT Organization Structure
Organization
1 and Capacity, C Segregation of duties between IT and IS division is not clearly defined
Budgeting D There is no common approach on IT budgeting development and control
IT Governance and Planning
& Management E Prioritization of IT expenditures is not based on cost benefit analysis

A Only 6 out of 37 implemented IT projects were approved by the IT
IT Project Committee
2
Management
B Partial utilization of IT projects by business

2
A Due to technological complexity 53% of IT employees time is spent on
support and maintenance activities
Support &
1 B Configuration management is performed on ad hoc basis
Maintenance
C Existing infrastructure has significant spare capacity

IT Operations Application A Functionality of Core Banking application is underutilized
2
architecture B Business requests and technical specifications are not formalized.

A IT infrastructure is prone to security vulnerabilities
Information
3
Security B Weak security management of critical applications & key infrastructure


We are proposing 2 different scenarios on future organizational
structure of IT
Separate processing & BI and outsourced Processing & BI within IT and internal
“As Is” organizational structure
development (To be option 1) development (To be option 2)

• Segregation of IT and IS functions • Better SoD between IT and Processing • Processing as a separate unit within IT
+ • Quick response time to issue resolution • Lower SoD risks due to outsourcing of • BA as a separate unit within IT
• Relatively low number of FTEs development • Shorter implementation time than
• Separate BA unit provides better translation Option 1
of business needs to IT and vice versa • Separate PMO provides more efficient
• Separate PMO provides more efficient project management capacity
project management capacity

- • Development and operations are
performed by the same employees
• Higher personnel expenses due to
introduction of new units
• Higher risks than in Option 1 due to
keeping processing and development
• Responsibilities are not assigned in • Higher development costs due to under IT
accordance with the positions held outsourcing • Less influential BA functionality
• Organizational structure is based on • Increased response time on issue
historical development rather than resolution
functional principles • Less knowledge on application
• High reliance on key individuals development due to outsourcing
• Lack of project management and strategy • Longer implementation time than Option 2
development capacity
Source: Kapital Bank; interviews & Deloitte analysis

Table of content


2 6
Efficiency





Project status and next steps
Next steps:

I. KPI definition for key activities
II. Definition of roadmap based on following prioritization
criteria:
• FTE savings
Should be validated by
• Reduction of risk Kapital Bank
• Effort required

III. Finalised detailed analysis for IT stream

Roadmap IT Analysis


Process Efficiency and Organization Review

Take the right steps - A pragmatic approach
for pragmatic results .
Appendices

June 13th 2012
Advisory & Consulting Services

Appendix
1. Detailed project timeline and
deliverables
2. Organisational Review
3. Detailed Process Analysis
4. Branch Network Analysis
5. IT Stream: Key Findings
6. Universe of Recommendations

© 2012 Deloitte Tax & Consulting S.à r.l.

Appendix 1 – Detailed project
timeline and deliverables

© 2012 Deloitte Tax & Consulting S.à r.l..

Time spent on Task

Project timeline – where we stand (1/2) Deliverables
Elapsed time

April May June

26/03 02/04 09/04 16/04 23/04 30/04 07/05 14/05 21/05 28/05 04/06 11/06 18/06 25/06

Kick-off meeting 1. Current Operating Model
Interviews

2. Process Catalogue
3. Process maps
Management interviews 4. Automation Opportunities
5. Intermediary Recommendation report
6. KPIs
Operational teams’ leaders interviews 7. TOM (roadmap)

STREAM 1 – Processes Review
• In-depth analysis of key business activities at KB:
customer accounts, loans, cash, plastic cards,
management reporting
• Determine how to use Flexcube at its full capacity
• Gaps analysis
• Possible options & scenarios development and
validation
• Design of TOM
• Implementation planning & communication &
sign-off

STREAM 2 – Organizational Review
Activities

Step 1-”As-Is” Description
• Functions, Roles and Responsibilities 1. Current Organizational Map
2. Highlight Risks and overlap
• Decision making structure and reporting lines functions in current org. map
• Management Reportin tools and KPIs 3. Recommendation report (including
• High level business flows recommendations to ensure
business agility)
• Staff allocation/usage 4. KPIs
5. Roadmap
Step 2- Optimization
• Overlaps and duplication of functions
• Bottlenecks and key man dependencies
• Risk and control issues/opportunities
• Centralization vs. Decentralization work allocation
• Staff workload rebalancing
• Timeliness of service delivery
• Timeliness of new service launch
• Staff skillset requirements and training needs

20 Kapital Bank Process Efficiency and Organization Review Weekly status progress meeting © 2012 Deloitte Tax & Consulting S.à r.l.

Time spent on Task

Project timeline – where we stand (2/2) Deliverables
Elapsed time

April May June

26/03 02/04 09/04 16/04 23/04 30/04 07/05 14/05 21/05 28/05 04/06 11/06 18/06 25/06

STREAM 3 – Design of Target Operating
Model
• Activities (product sold and service offered)
1. Analysis on branch network
• Customer segments and client experience and profile
(consistency throughout the network) 2. Recommendation Report
• Key operational processes and technology used 3. KPIs
4. Implementation Roadmap
• Geographic dispersion
• Reporting tools and financial performance
• Comparative positioning versus other channels
Activities

(internet, mobile, call center, ATM)
• Branch performance and overlap report
• Automation opportunities within branches
• Opportunities to increase the added value of the
branch network

STREAM 4 – Design of Policies and
Procedures
• IT/Business alignment capabilities
• IT management and governance
• IT performance metrics
• Project management
1. Current IT Organization
2. Control Environment
assessment
Weekly status progress meeting 3. IT capabilities and agility
assessment
4. Project management and
prioritization
5. KPIs
6. Implementation Roadmap

Note: Capacity Planning and skillset assessment have not been performed as not applicable to the overall organization (i.e. over-capacity has been identified)


Appendix 2 – Organizational
Review


Organisational Review –
Detailed analysis


Today’s organization can be improved to reduce risks, boost
efficiency and support long term actions
Review of Committees Review of activities and
Review of management
composition and key controls performed
board composition This review of organizational structure
responsibilities needs to be validated by management
team

Key actions to be performed
• Review of Management Board
Composition based on requirements and
best practices
• Review Committees composition and key
responsibilities
• Review activities and controls performed
in Treasury and Cash Management
departments
• Review activities and avoid tasks
duplication within Financial Management,
Marketing & Strategic Planning and Control
and Work with Structural Units departments
• Review Front Office functions and
representation in organizational chart in
order to add transparency
• Review of risk and compliance activities
in order to comply with regulatory
requirements

Identification of Review of activities
Review Front Office
compliance activities performed and avoid
functions and add
within the organization duplication
transparency


1.1 A Review of Compliance activities performed in Risk
Management Department

Time split per activity, FTEs
1 FTE in Work with Structural Units Department
is also performing compliance task which is
preparing reports for corresponding banks
Total
7
Key observations
Procedures review
activities 1 • Risk Management Department is currently in charge of
all compliance activities
Credit file review & • 1 FTE is dedicated to Compliance function (AML) and
Credit Committee does not report to head of Risk but directly to the
attendance 1
Management Board
• The same team is in charge of monitoring procedures
Compliance activities and checking regulatory compliance  no respect of
1 independence principles

Reporting activities Key Recommendations
1

• Compliance activities should include AML, Fraud
Risk control activities Management and Compliance to Ethics Principles as
1 well
• Employees awareness regarding compliance matters
Deputy Director/ should be increased thanks to specialized trainings
Director 2
• Compliance function must be supervised by Risk
Management Department before reporting to the
Management Board (Deputy Chairman)


Typical changes based on best
1.1 A We propose five main changes within the current practices
Specific changes based on Kapital
B Bank structure
organizational chart

Proposition of organizational structure
Key changes

1 • Transparency and clear representation
of Front and Back office functions
thanks to the creation of a new
department dedicated to markets

2 • Regroup of financial and strategic
planning functions under the same
department and division named
budget/strategic planning
3 • Creation of a Risk and Compliance
department based on the existing
department
4 • Creation of the Chief Operating Officer
(COO) responsible of all back office
operations
5 • Absorption of “Control and Work with
Structural Units” activities to other
divisions within the organization:
- Problematic loans to legal department
- Bank supervision to IT, Human
Resources and Risk management
- Other activities to markets department

Important note:
IT Security division has been incorporated in Risk & Compliance Department as a proposition based
on Deloitte experience
Allocation of certain activities should be submitted to Kapital Bank approval (such as
compliance, problematic loans and IT Security)


1.1 B Typical organizational chart in Retail Banking illustrates three
changes identified in the current organizational chart of
Kapital Bank
Organizational structure of Banque de Détail et des Entreprises à Luxembourg (BGL BNP Paribas)
3
Risk & Compliance

Key observations
Compliance function is performed at a group
level and is in charge of all subject matters
linked to regulatory compliance

Key observations
Existence of Chief Operating Office
responsible for operations within the Bank

4

1

Key observations
Representation of Front Office activities (retail and corporate) within the
organization – Those departments are in charge of managing and
developing clients market and of the visibility of the Bank


1.1 B Review of performing reporting activities shows potential
savings of 3 FTEs within the IT Department

Number of developed reports (2011 – Q1 2012) Man days required to develop reports (2011 – Q1 2012)

Key recommendations
Total 265 Total 1,325

• Develop formal requests
Number of Man days per system (requisition form)
88 88 88 441 441 440 different for a change request
reports per year year
and a new demand

Assuming that the development of 1 report To develop 265 reports, maximum 1,325 man days should • Set up priorities of business
should take maximum 5 man days, the minimum be needed, which is represent 441 man days per year and demands based on business
of developed reports per year should be of 88 2.2 FTEs dedicated to development opinion AND IT Committee
decision

• Rationalize number of
Key observations reports existing in the system
(compare to reports used by
• Total number of reports (265) represent reports • There are currently 5 FTEs full time dedicated to develop business)
currently existing in the system. Some reports reports for business use while, based on the time required to
are duplicated and used to compare accuracy of develop a report, 2 FTEs should be enough • Involve business in IT
new ones (“legacy reports”) developments by adding an
• There is no formal request procedure (email or  3 FTEs could be allocated to other activities
“IT representative” in
face-to-face) and no priority level between • There is no business analyst to translate business business services
business requests requirements into technological request
• New demands and change requests are not • Reduce FTEs dedicated to
considered separately reporting based on the
• Business is not using totality of developed previous observations (Max 2
reports (no tracking) FTEs)


1.1 B We have identified a potential savings of 8 FTEs in the Head
office through the review of 5 departments or divisions

Description of actions Current # of FTEs Potential savings

1
• Review of performing reporting activities 5 FTEs 3 FTEs
IT Department
• Comparison to best practices

2
• Review of activities performed 8 FTEs 2 FTEs
Human Resources
Department • Comparison to Azeri and European banks

3 Drivers: 14 FTEs
• Review of administrative staff (drivers and cleaning staff) 23 k AZN
Support functions
• Transformation of contracts into sub-contract agreements Cleaning staff: 9 FTEs

4 • Review of activities performed in Marketing & Strategic
Planning Department
Strategic Planning 3 FTEs 3 FTEs
• Reallocation of Strategic Planning activities into Budget
preparation division in Financial Management department

5 • Review of activities performed
Control and Work 15 FTEs 10 FTEs
with Structural Units • Reassign activities to original owners (e.g.
compliance, human resources, legal, etc.)


1.1 B In the current set up of activities performed by Human
Resources Department, 2 FTEs could potentially be saved
AZERBAIJAN LUXEMBOURG

Human Resources key capabilities Kapital Bank Central Bank BGL BNP Paribas Key observations
• HR Administration • Activities dedicated to employee rewards
- Perform employee data and salary administration
   and satisfaction are not performed within
the bank  No reward system to retain
- Perform & administer employee benefits N/A  talent
- Manage payroll
   • No existing proactive system to anticipate
- Monitor employee health and safety    job vacancy and facilitate employee
• HR Management activities integration

- Plan and manage employee resources    • Top-Down decisional & communicative

- Manage vacancy and employee integration  approach

- Manage employee separation process    • With less HR staff, proportionally
speaking, Central Bank performs two times
- Manage employee rewards system N/A  me activities that Kapital Bank department
- Manage career development process N/A 
- Manage employee satisfaction 
- Manage internal policies & procedures    Key recommendations

- Measure employee performance   • Reduce number of FTEs in HR department
to 6 FTEs (compared to best practices)
• Recruitment & Mobility
- Manage recruitment (internships & events)   • Setting-up a recruitment system to attract
and select people
• Learning
• Develop Induction Programs to facilitate
- Manage induction programs
  employees integration
- Develop and train workforce    • Support high potentials and skills
development through career development
# of FTEs in HR department 8 14 - path
TOTAL # of FTEs 270 612 -
• Develop bottom – up approach to retain
Ratio FTEs per HR FTE 33.75 43.71 FSI Average talent in the Bank (employee satisfaction
Ratio: 90 FTEs surveys, rewards system)


1.1 B 23 K AZN annual potential savings could be generated by
transforming contracts of support staff into sub-contract
agreements
Total distribution of administrative staff in Head Office (56 FTEs)
Key observations

TO… 56 100% • There is no clear attribution of staff among divisions (repartition
could be different in Head Office and branches) – For example:
Dir… 2 4% cleaning staff is classified under supply and services in Head
He… 4 7% Office and under building services in branches

As… 6 11% Recommendations
Ch… 1 2%
• Define a clear and harmonized repartition of staff among
En… 2 4% divisions
Le… 3 5%
2%
Key observations
Ch… 1

Sp… 2 4% • Transportation division represents 25 % of total staff in
Administrative department (14 FTEs)
Off… 2 4%
Su… 1 2% • Cleaning staff represents 16 % of total staff (9 FTEs)

Te… 4 7%
Recommendations
El… 3 5%
4% • Transformation of support staff contracts into sub-contract
Ge… 2
agreements
Cl… 9 16% Staff involved # FTEs Salary
Dri… 14 25% • Drivers 14 500
• Cleaning staff 9 400
Potential social charges reduction per year:
• Drivers:15,120 AZN (6,000*14*18% )
= 22,896 AZN
• Cleaning staff: 7,776 AZN (4,800*9*18%)


1.1 B Contract amendments for the whole organization can lead to
274k AZN saving in social charges

Current number of FTEs Current FTEs

Total 1672 • Contract social charges comparison
Branch director 97 (for monthly salary up to 2,000 AZN)
Deputy director 26 Sub- Potential
Contract
contract saving
Head accountant 99
Employee part 17% 4%
Deputy head acc. 34
Leading… 35 Employer fee 20% to 22% 5%
Controller 60
Accountant 53
TOTAL CHARGE ~37% 9% 26%

Head of division 18
Senior specialist 31
Leading specialist 104
Specialist 245
Operator 84

Head ofdivision 35
Senior specialist 23 Contract conditions review
7
Specialist 89 • To subcontract
192 FTEs  drivers (99+10)
Senior cashier 91
 office cleaners (83)
Cashier 140
Operator 14
~274k AZN • Subcontract conditions will
social alow to benefit from social
charges charges (~26%*):
Secretary 26
savings
Cash collector 42
Annual Salary*No.of Employees*26%
Driver-collector 99
Cleaner 83 99+83

Other 64 10

32 Kapital Bank Process Efficiency and Organization Review Drivers © 2012 Deloitte Tax & Consulting S.à r.l.
Source: Kapital Bank data as of end of March 2012, Deloitte Analysis

1.1 B Reallocation of Strategic Planning activities into Budget
Preparation Division and Marketing Division could
generate 3 FTE savings Key observations
Strategic Planning Budget Preparation & Control Marketing
• Overlap of activities:
Development of strategic plan &
• Setting-up and develop strategic • Participate in development of • Multi channel analysis budget forecast are performed by 2
goals strategic plan different divisions
• Measure product performance
• Manage financial reports forecast • Manage and discuss budget • Follow up of action plans is not
Current forecast
• Manage budget forecast & performed in strategic planning
activities
allocation • Manage budget allocation to division

• Provide macro & micro
branches • There is no proper segmentation
and targeting strategy
environment monitoring • Performance monitoring
• No rationalization of products and
• Define & develop market approach • Control implementation of budget • Conceive & apply commercial services offering
for segments/markets offers • There is no functional support to
• Monitor and analyze the costs of
branches regarding deployment of
Other • Develop Marketing plan the Bank and the financial aspects • Develop Products & Services
marketing actions
best of activities offering
• Manage action plans in
practice • There is no process in place
consultation with management • Propose tool & methods to
activities regarding “voice of consumer”
answer client‟ needs
• Implementation of sales events
• 3 FTEs in Strategic Planning
• Manage customer relationships division are mostly dedicated to
redundant activities (cf. budget
# of FTEs 3 3 4 preparation)

Key recommendations

• Integrate strategic planning functions regarding development of strategic goals and budget forecast to budget preparation division
• Review of activities currently performed and what should be performed according to best practices and activities description provided by the Bank
• Marketing functions will be integrated under the responsibility of a “chief market specialist”


1.1 B Organizational representation and new roles of Marketing
Department and Budget & Strategic Planning Division will
be presented as following: Proposed Organisational Chart

Marketing Department (Front Office)
4 FTEs under the responsibility of “chief market
specialist”
• Define strategic goals
• Develop marketing plan according to
targeting approach
• Manage action plans in consultation with
management
• Monitor and follow-up of branches
• Manage delivery channels
• Develop Products & Services
• Market Products & Services
• Manage customer relationships
Budget/Strategic Planning Division
• Propose recurring reporting of all needs
identified to the head office (e.g. IT 3 FTEs under the responsibility of “chief financial officer”
developments, recruitments, vacations…)
Key activities:
• Participate in development of strategic plan
• Manage and discuss budget forecast
• Manage budget allocation to branches
• Monitor and analyze the costs of the Bank and the financial aspects
of activities
• Performance monitoring ((establish indicators of financial and non
financial performance through reporting tools)

1.1 B Reallocation of activities of Control and Work with
Structural Units Department could potentially generate 10
FTEs savings

Analysis, monitoring and Key observations
Working with structural units control of problematic loans Bank supervision • Department is currently performing
activities that are typically assigned
• Market related activities • Credit analysis • IT Security activities to other owners leading to a lack of
clear ownership of roles and
Performed

• Monitoring of problematic loans • Human Resources activities
Activities

responsibilities regarding key
• Determine best solution in order • Compliance activities: activities within the Bank
to ensure a reimbursement of preparing reports for
the credit to the Bank corresponding banks • 15 FTEs (14 + deputy director) are
performing “redundant”
activities, only 5 FTEs could be
# of FTEs 5 5 4 reallocated:
• 2 FTEs to Marketing under Head
of Markets
• 3 FTEs in Problematic Loans
division under Legal department
or directly under CRO
supervision (to be validated by
Kapital Bank)
Reallocation of activities

Key recommendations
• Reassign activities of control and
work with structural units department
to corresponding divisions within the
•Reallocation into markets •Reallocation into Legal •Reallocation into Human
organization
department (2FTEs) department or as a separate Resources and Risk
•Report to Chief Operational
division under CRO (3FTEs) departments as well as in IT • Setting up a clear process ownership
Security division for those activities that will be
Officer •Report to Chief Compliance
Officer •Report correspondently to reallocated to other departments
Chief Executive Officer, Chief
Risk Officer and Chief
Information Officer

1.1 C 26% of current workforce at the Head Office correspond to
management functions within departments
% of total number
of staff
Total number of FTEs in Head Office by Functions*

TOTAL* 270 100%
Director 14

Deputy Director 10 26%
Key observations
Head of Division 46
• High percentage of management
Chief Specialist 41
staff:
Lead Specialist 39 26% of employees are part of
management functions inside
Specialist 33 divisions (besides existing
Chief Engineer
management positions in the Bank)
6

Lead Engineer 7 • Mismatch between positions and
actual activities:
Engineer/ Programmer 6 Positions are created in order to
74% retain employees and lead to a
Senior Lawyer 2
mismatch of positions and activities
Lead Lawyer 1 performed
Chief Cashier 1

Cashier 7

Lead Cash Collector 6

Cash Collector 7

Admin. & tech. support 44

* Excluding senior management executives


1.1 C The organizational structure of Head Office is characterized
by a heavy function decomposition and grading system
Key observations
• Current organizational structure is a many-
Current Organizational structure within Kapital Bank
layered hierarchy  5 different layers from
TOTAL of FTEs: 270* 100% operation to top management
• It can take a long time for information to
pass up & down due to heavy chain of
command:
- Deputy directors & directors position
represent s11% of total number of FTEs
within the Head Office (min 1 per
department)
- Heads of division position represents
17% of total number of FTEs and is created
as many times as there are divisions within
departments (at least 3 per department)
6%
• Nomination of deputies and directors is
5% linked to pay raise and seniority rather than
linked to a real need of layers within the
organization

17% Key recommendations
• Change efficiently the current organisational
structure to make the decision making
system more “lean” – maximum 4 layers of
hierarchy from top to down functions
• Review of current grading system based on
current activities performed
• Setting up an appropriate remuneration
system: bonus reward system rather than a
* Excluding top management positions pay rise in case of seniority


1.1 C Review of organizational structure of Risk Management
Department could facilitate decision making process
Risk Management Department

TOTAL of FTEs: 7
Risk Management
Key observations
Deputy Director
Risk management current team includes 4 heads
(directors and head of division) on a total of 7 FTEs
Director (more than 50% of staff)
100%

Methodology Division Risk Control Division

Head of Division Head of Division

• ..... • .....
• …. • ….
• ..... • .....

Key Recommendations
Mngt

Key observations
• Heads of divisions will be acting as heads of the
Head of risk control division department
will act as the head of
Head of
dept.

Risk Management department • Reduce the number of layers to 2 levels instead
of 4 within the department

Key benefits
Methodology Division Risk Control Division
Head of
division

• Increase the process efficiency
Head of Division Head of Division
• Better allocation of workload
Operation

• ..... • ..... • Increase efficiency and reduce time waste in
• …. • …. the decision making process
• ..... • .....


1.1 C Review of organizational structure shows narrowed spans of
control within the departments in Head Office
Key observations
Best practices in Retail Banking shows that the
optimum span of control should be superior to 8 • Most of division have spans of control going
from 2 to 5 which means that one head of
division generally supervises 2 to 5
employees
• The average span of control is 5.5
• The optimal number of subordinates per
supervisor is in general office, cash
management security, ATM support and call
center divisions
• On another hand, 3 divisions have a span
of control too high : procurement and
technical supply, transportation and general
regime services

• This situation can be explained by the
hierarchical business structure of the Bank

Key recommendations
• Review factors affecting smaller span of
control such as limited capabilities of
workers, limited motivation of people and
potential diversity of tasks performed
• Adapt span of control based on best
practices
• Review of certain activities performed in
Optimum spans of control “problematic” departments
Spans of control too high


1.2 A Mindset Change – Training program and career development
B C

Key Issues identified
• Lack of standard training, career development and on boarding • Absence of clear deadline for the implementation of an adequate
programs (only ad hoc) training process
• Cluster mentality – Lack of global picture vision • No HR person with the skills and knowledge dedicated to training
• Limited skills for some positions (credit specialist) and career development of employees
• Limited knowledge on system used (Flexcube)

Recommendations

i • Personal & Technical Training Programs v • Increase People awareness*
• Centralized training process with mandatory trainings • By conducting a row of trainings for Flexcube users on
depending of the position (validation with a certificate) specific and certain topics
and voluntary trainings • Open classes for employees who want to learn a new
• Mobile Training workforce for employees in branches language (English)

ii • Internal Mobility vi• On boarding Program
• Inter-departmental career development paths in order to have a • "First day at KB" including all that new employees
global view of key activities performed within the Bank need to know about working at KB
• Assign an "onboarding officer" to each new employee that will
introduce the newly joined staff to the departments, show him
iii• Job Description Adequacy where information can be found, etc.
• Review adequacy of job description and
• Support this program with written presentation where all the
requirements (e.g. Strategic Planning, IT)
basic/must know information will be presented
iv• Identification of High Potentials •
vii Training Management Team
• Identify people inside the bank with the knowledge • Create a team in HR department able to handle
and expertise in order to share it through trainings employees request regarding trainings and career
• Support people expertise with trainings materials and guidance development path (in HO and branches through
local coordinators)

Benefits
• Increased understanding of other departments issues • Expansion of capabilities through back-ups
• Increased collaboration between department members • For the Bank, retaining talents in offering development opportunities
• Increase in the awareness of the overall operational process • Increased visibility of people leading to an increase in motivation and
• Better understanding of operational environment and thus increase commitment
quality of received data • Better monitoring of the work performance and standardized procedures


1.3 A Operational controls must be pushed within the organisation
to reinforce risk control through 4 levers
Key issues identified Key actions

• Lack of process control 1
• Determine governance process within the Bank i.e.
ownership, mentality of “this is not identification of roles and responsibilities
Governance
my responsibility” but another
department‟s • Determine procedures owners and key actors

• All departments are expecting
department of internal audit to 2
• Increase awareness regarding control monitoring matters
perform control Mentality
Change/Trainings • Force process ownership
• Silo / fragmented approach • Promote compliance & risk matters through trainings
regarding process ownership:
vision by department and tasks to • Trainings dedicated to sensitive matters regarding
perform rather than the overall compliance & risk
process and related • AML training to allow employees to detect potential
interdependencies fraud of clients in operations
• Make sure that people understand the importance of
controls monitoring and take ownership for it
• Control & efficiency should become a stated objective
in the appraisal process
3
• Identify clear procedures and control points to put in place
Procedures

4
• Identification of KPIs to control processes and systems
KPIs / KRIs
• Identification of KRIs to ensure compliance and risk
monitoring


Review of activities performed in Treasury and Cash Management
departments compared to benchmark in Azerbaijan
Key observations
Treasury Department International Bank of Azerbaijan Central Bank of Azerbaijan
• In all 2 benchmark banks cash
• Cash and other valuables safe • Cash and other valuables safe • Cash and other valuables safe management division is not part of
keeping and accounting keeping and accounting keeping and accounting treasury function.
• In comparison with peers number
Activities • ensuring provision of cash to • ensuring provision of cash to • ensuring provision of cash to of staffs in Kaptial Bank‟S Cash
performed regional offices regional offices regional offices Management division is in line with
CBAR‟s staffs, while number of
• Recounting of notes, paper, metal • Recounting of notes, paper, metal • Recounting of notes, paper,
Kapital Bank‟s treasury division
money of bank in circulation money of bank in circulation metal money of bank in
employees is in line with CBAR‟s.
circulation
# of FTEs 16 13 61

Cash Management Department International Bank of Azerbaijan Central Bank of Azerbaijan

• To ensure the realization of The • To ensure the realization of The • To ensure the realization of
Bank's market operations and Bank's market operations and The Central Bank's market
monetary policy targets monetary policy targets operations and monetary policy
Activities targets
performed • To participate in promoting the • To participate in promoting the
development of the domestic development of the domestic • To participate in promoting the
financial market financial market development of the domestic
financial market

# of FTEs 17 32 16

Key recommendations

• Based on Azerbaijani bank benchmark analysis we recommend to keep both treasury and cash management division as two separate units reporting to
different curators.


Appendix 3 – Detailed
Process Analysis


25% of loans approved by Credit Committee have been rejected
by Legal and Risk Departments

Key observations

• There‟s no effective procedure of loan requests review
and validation by responsible departments and
following criteria for Credit Committee approval
Number of loan requests received by Credit Committee
(2011 – Q1 2012)* • Out of 919 loan requests approved by Credit Committee
in 2011-Q1 2012 25% of loan requests were previously
rejected by Legal and Risk departments

• There‟s lack of monitoring, communication of credit
Total 986 % of total rejections. Furthermore, the decision-making process
based on analysis and review of involved responsible
departments is not fully transparent
Approved
by 100%
Commitee • Major reasons to reject loan request is incomplete
Approved by application file, current obligations of the
Committee
919
Rejected by applicants, existence of outstanding or NPL loans, non-
144
Risk sufficient collateral, etc.
25%
Rejected by
Legal 83
Rejected by
Committee
67
Approved
692 75%
loans
Key recommendations

• Unify, formalize and approve requirements for loan
Also rejected by Risk and Legal request approval process
Departments
• Ensure actionable, pragmatic procedure for loan
approval and compliance to it

• Ensure responsibility and ownership for loan files
preparation and review procedure

* Information as per March 2012
Source: Kapital Bank Loan Registry, Deloitte analysis © 2012 Deloitte Tax & Consulting S.à r.l.

The lack of centralized information leads to high level of risks
(identified at 1.5M AZN only for loans)

Key observations

• No consolidated or centralized client registry system: the
same client can be created in several branched. As a
result, client can potentially request and receive for a
loan several times:
Number of loans granted (2011 – Q1 2012)* - Loans under 3000 AZN are not approved and
validated by the head office and thus
duplicated client will not be identified

ILLUSTRATIVE
1 client x 3000 AZN x 1 branch=3000 AZN
TOTAL 27,755 100 clients x 3000 AZN x 50 branches=1.5 M AZN
One out of 226 loans
can potentially be
issued to the same • Each branch has its own clients and reinforces the
person throughout “each branch is an own bank” spirit
Dublicated the year. • There is no monitoring of client database, no system
issued loans 123 check on ID numbers of clients
• Loans, Credit lines and plastic cards could be granted
several times (i.e. in several branches to the same
client)
Key recommendations

• Centralize client registry (unique ID
numbers, name, addresses and all personal client detail):
- In FelxCube (this is simply an overall re-
engineering of processes, trainings
requirements, procedures and etc.
- Outside FlexCube (i.e. thorough external
management system)

* Information as per March of 2012

Loans origination and underwriting – More than 60% of loans
granted with Head Office approval are considered as non-
performing loans and are lacking of limits monitoring
Volume of loans* granted with Head Office approval, AZN Million
(2011 – Q1 2012)**
Volume of Non Performing Loans
Key observations

# of loans % of total • If there is approval from Head Office, it is only paper-
based (signature/stamp on file): There is no existing
workflow in the system for approval process
TOTAL • 63% of loans granted with Head Office approval are
88.8 1,064 100% considered as non performing loans (56 M AZN)
• The system does not assess loan performance, this
has to be calculated outside the system itself, in
Loans granted by 32.8 579 37% Excel
branches with HO
approval 56 484 63% • There is no limit monitoring embedded in the
system, monitoring for each branch is manually
performed in Excel by Risk Department
• Responsibility of limit monitoring is not clearly
allocated
Key recommendations
• There is no preventive controls in place
• Rationalize types of loans granted based on NPL percentage
• There is no control to ensure that loans outside the
• Enable document flow management in FlexCube for loans request approval process limits have been granted with Head Office approval
• Enable functionality in FlexCube allowing assessment of NPL (see next slide) • There is no check in the system to identify existing
loan contractors requesting additional loans
• Centralize all clients documentation and requested information for loans granting in
Head Office • There is no centralized client register, resulting in
duplicated loans issued
• Implement limit monitoring functionality directly in FlexCube

* Represents loans of more than 3,000 AZN without daily needs since approval of Head Office is not required
** Information as per March 2012

Loans origination and underwriting – The miscalculation of non-
performing loans leads to a wrong assessment of allowance

Key observations

• Outstanding loans represent 78% of total volume of
loans granted
• Among those outstanding loans, 68 % are
considered as non-performing loans which
Volume of loans granted, AZN Million (2011 – Q1 2012)* represent a volume of 60 M AZN

Volume of Non Performing Loans • There is no possibility to calculate the allowance
Volume of paid loans directly in the system
• No direct debit in place (see detailed analysis in
# of loans % of total
next slide)

27,755 100% • No automated way of calculating level of non-
TOTAL 114
performing loans, resulting in difficulty to calculate
collateral

22% • System does not make the difference payment of
Paid loans 25
interest or full payment leading to miscalculation of
non-performing loans

Outstanding loans 89 78%
68% Key recommendations

Non performing loans 60.5 • Enable allowance calculation functionality in the
6,334
system FlexCube
• Restrict/block repayment schedule modifications in
the system
Estimation of non-performing • Enable direct debit in FlexCube
loans based on Kapital Bank
information review • Change settings to automatically recognize if full or
partial amount is due

Loans origination and underwriting - With the assumption that
25% of loan payments could be automated (direct debit function
enabled in FlexCube), 12 FTEs could potentially be saved on a
yearly basis Assumption:
• Time required to make payments directly at
Key observations
the branch is maximum 15 min
• Based on figures provided by Kapital Bank and our
• 25% of loans payments that have potential for
automation will be automated understanding of loans features, 94% of loans
Calculation: payments should potentially be automated
((# of loans x 25%) x 15 min x 12 / 60 min / 8
• 1,636 loans are considered as having no potential for
hours) / 200 days
automation
Number of loans granted (2011 – Q1 2012)* • 94% of loans payments could be automated but
direct debit functionality is not enabled in FlexCube
# of loans without potential for
automation
• For all types of loans, clients pay at the desk of
branches directly in cash
% of total

TOTAL 27,755 100%

Potential room for automation 26,119 6,530 94%
Key recommendations

• Enable direct debit functionality in the system
6% FlexCube
No potential for automation 1,636
• If time required for payment at the branch is 15 min
per payment, therefore the potential generated
savings could be of:
• Represents daily needs loans 25% should be potentially
• Credit cards loans guaranteed by salaries could be automated ((26,119 x 25%) x 15 x 12)/ 60 min)/8 hours
potentially automated but numbers could not be = 12 FTEs
assessed in this analysis (200 days)

Source: Kapital Bank, interviews and Deloitte analysis

Loans origination and underwriting - 14 FTEs could potentially be
saved if generation of contracts would be automated in the
system
Assumption:
Key observations
Time spent to manually create a contract is of 1
hour (including all administrative tasks)
• Baku and Absheron regions represent 65% of total
Calculation: amount of loans granted but for a very small
(Yearly # of contracts / 8 hours) / 200 working numbers of loans (3,683)
days
• All loan contracts are manually created by credit
specialists in the branches as the system does not
Volume of loans granted, AZN Million (2011 – Q1 2012)* generate contracts automatically

Volume of Non Performing Loans • Terms of contracts can be amended from its original
template version
# of loans % of total • Contracts are not reviewed once they have been
created although they are manually created
TOTAL 114 27,755 100% • More than 55% of loans are non performing loans in
Baku and Absheron
• Number of loans granted is much more higher in
Baku and Absheron 33.1 40.7 3,683 65% economic regions than in Baku and Absheron
(represents 87% of total number of loans issued)

Other Economic
Key recommendations
20.4 19.8 24,072 35%
Regions
• Implement contract generation functionality in
FlexCube. Following assumptions taken
before, generated savings could be of:

(27.755 x 80%) / 8 hours
= 14 FTEs
(200 days)

Detailed figures:
For Baku and Absheron : 2 FTEs
For other Economic Regions: 12 FTEs

Deposit contracts - Automation of deposits could generate
2 FTEs savings
Assumption:
Time spent to manually create a contract is of Key observations
30 minutes (including all administrative tasks)
Calculation: • Deposit contract is prepared in
(30 minutes per contract x Yearly number of Word/Excel, and is not
contracts / 8 hours) / 200 working days automatically printed out from
the system

Number of deposits contracts, (2011 – Q1 2012)* • Contract conditions could
differ from the Bank terms as
not generated automatically

TOTAL 15 months 5,177

TOTAL 12 months 3,937
Key recommendations

Automated Potential 5,177 • Enhance Flexcube to allow
automation of contracts with
predefined settings that cannot be
amended unless approved by
Head Office. Automation of
deposits can save:

(30 min x 3,937) / 8hours
= 2 FTEs
(200 days)


Loans origination and underwriting - Only 6% of total volume of
bank guarantee issued are collateralized, leaving 258 Million AZN
without any collateral
Key observations

• Only 6% o bank guarantees issued are
collateralized (6 M AZN)
• The system does not allow to block money for
Volume of bank guarantees issued, AZN Million (2011 – Q1 2012)* guarantees (existing possibility to check “non
collaterals”)
Volume of not collateralized
guarantees • There is no possibility to check the accurate volume
of bank guarantees that should be collateralized
% of total
• Bank guarantee certificates could be issued in the
branch without formal approval of Head Office
TOTAL 264 ? 100%
• Multiple guarantees could be provided with the
same collateral as there is no system reset function
available

Collateralized 6 25%

Key recommendations
Not collateralized 258 75% • Define mandatory settings for all products without
other possibility than to have approval from the Head
Office
• Centralize maximum of guarantees process and
certificates in the Head Office
Potential bank guarantees that could
be issued in branches without Head • Differentiate branch stamps by types, i. e. stamp for
Office approval and consciousness guarantee to unable branches to use it for other
purpose
• Enable functionality in the system to ensure that
guarantees have been taken for loans granted

Product management – Rationalize current product range offering
could potentially reduce the number of non performing loans
Volume of loans granted (2011 – Q1 2012)*
Volume of Non Performing Loans Key observations
Total vol. • Some products (i.e. individual flat
products %NPL maintenance, individual mortgage
BSTDB, government ANFES and private ANFES) are
systematically classified as non-performing loans
TOTAL 114
(100% NPL)
Private 38.5 74% • 3 others categories of products have more than 80%
of non-performing loans (i.e.
Individual daily consumption 24.7 21% government, entrepreneurs ANFES and individual
provided with deposits loans)
Government 15.5 88%
Exclusive Non-Performing • Individual mortgage, lombard and daily consumption
Loans 13.8 100% loans are the most performing loans according to the
system
Car loans 5 30%
• The standard set of information can be
Entrepreneurs ANFES 3.9 97% amended/modified without 2nd user authorization at
the system level
Individual Mortgage (AMF) 3.3 9%
Individual loan with plastic
cards 2.7 70% Key recommendations
Individual other 2.6 50%
• Restructure and rationalize all products depending on
non performing loans
Entrepreneurs 2.6 46%
Individual provided with • Enable restrictions for product characteristics
deposits 1.5 80% amendment
Bank‟s employees loans • Redefine standard settings and ensure that they are
3.9 26%
non-modifiable
Lombard loans
0.03 10%


Loans origination and underwriting – Among loans granted with
Head Office approval, 25% of those requiring collateral are not
registered in the system as collateralized loans
Assumption:
Key observations
The following loans should not require
collateral and have been taken off to assess
• 90% of loans issued with Head Office approval should
number of loans requiring collateral:
- Guarantee letters be collateralized
- Guarantees • 25% of those potentially collateralized loans (234
- Deposit loans loans) are not recorded in the system as collateral
• There is no existing module used in FlexCube to
manage collateral: Blocking money on the account is
Number of loans granted* with Head Office approval (2011 – Q1 2012)** not allowed
• Recorded collateral are not properly managed: no
follow up, monitoring or reassessment of collateralized
accounts
% of total • Branches can remove collateral without system or
formal approval from Head Office
TOTAL 1,064 100% • The system allows collateral to be taken for loans
which are not ended
• Products settings are not in line with the requirements
Recorded collateral 721 for collateral, as a result, there is no possibility to
identify the exact loans/products requiring collateral
234
Loans requiring collateral 955 90%
Key recommendations

Doubtful loans 109 10% • Enable or configure system to allow blocking of money
of collateral on the account
• Restrict “disable” function on collateral when the loan
is still running
• Monitoring and follow up of collateral centralized at the
Those loans are considered as doubtful Head Office
since there is no possibility to identify if • All blocking/ unblocking of collateral should be
they require collateral or not approved by Head Office (e.g. credit department
and/or credit committee)
• Allocate collateral management responsibility to a
* Represents loans of more than 3,000 AZN without daily needs since approval of Head Office is not required specific department
** Information as per March 2012

Appendix 4 – Branch network
analysis


Branch rationalization could be performed in 2 main steps in 5 areas
and special focus on branches and reach a reduction of 538 FTEs:
Current Expected
I. Description of approach FTEs savings
1 Reduction of
Identify the required number of credit specialists in each branch based on TOP5 A 49
ANALYSE HEADCOUNT REQUIREMENTS

number of credit 206
branches (based on number and volumes of loans issued) 89
specialists B 40

2 A 49
Reduction of Reduce number of accountants to 2 per branch and 1 per operational unit
281 92
accounting staff 43
B

3 Reduction of Identify the required number of customer service personnel in each branch/operational A 100
customer servicing unit based on TOP5 branches (number of plastic cards issued, number of 482 238
staff B 138
customers, number of operations, i.e. deposit and money transfer transactions)
4 Identify the required number of cash staff in each branch and operational unit based on A
Reduction of 37
TOP5 branches (number of operations, deposits, utility payments) 246 67
cash staff
B 30

5 Reduction of A 41
deputy head and Remove secretary and branch deputy head positions in applicable branches and 52
52
secretaries operational units B 11

II. TOTAL SAVING 538
A
Option selected by the Bank for
1 Identify best Identify TOP10 best performing branches within the following dimensions: further analysis and validation:
Reduce the number of branches to the
performing branches A
1. Loan portfolio volume 3. Deposit portfolio volume number of Baku regions
to keep branch format 2. Loan portfolio performance 4. Commission income and expense for 2011 B
Transform weak performing
REORGANIZATION OF

branches into units
2 Identify branches
Identify branches with low level of required FTEs and insignificant loan portfolio. A 60
to transform into units 69
Identify weak performing branches, branches with non-performing loan portfolio, with 599
or close 9
limited number of regional inhabitants and high competition.
BRANCHES

B
1 Option selected by the bank for
Identify corporate Identify branches with significant focus on corporate loans in volumes and numbers further analysis and validation:
oriented branches A Transform minor regional branches into
units
Differentiate corporate and retail
B
branches
2
Differentiate retail
Identify branches with low volumes of corporate loans and overall loan portfolio and low  8 regional centers for
branches
number of required staff corporate loans (7 regions)
 56 retail branches

A BAKU – Reorganization of branches could potentially generate 276 FTEs
ABSHERON
savings in Baku region A BAKU – ABSHERON

Branches Current FTEs Revised FTEs Option

Total 599 340 FTEs
Key observations
1 saylı… 32 16 TOP10 branch
Rabitə 31 16 TOP10 branch
Xəzər 30 21 1 in region • Review of headcount
1 sayılı… 28 12 TOP10 branch requirements based
Bakı şəhər 28 20 TOP10 branch on benchmarking for
2 saylı… 28 14 unit Baku-Absheron
Suraxanı 28 20 1 in region
regions covers overall
Current number of staff in branches, % savings of 1 saylı… 27 11 TOP10 branch
FTEs Curr.FTEs organizational
2 sayılı… 27 12 TOP10 branch
structure and impacts
potential savings Nərimanov 26 11 TOP10 branch the several
1 saylı… 26 14 unit departments. Analysis
2 saylı… 26 13 unit of performance can
Total 1,672 538 100% 32% 1 sayılı… 24 11 better performing potentially save:
1 saylı… 24 14 unit
Baku- 49 FTEs in loan
46% Qaradağ 23 13 1 in region
Abshero 599 276 36% department
n region 1 saylı… 22 10 unit
2 saylı… 21 16 unit
49 FTEs in
Other 2 sayılı… 20 14 better performing accounting can be
1,073 262 64% 24%
regions 1 saylı… 18 10 TOP10 branch saved according to
2 saylı… 18 13 unit assumption of 2
Abşeron 17 11 1 in region accountants per
Tərəqqi 15 10 unit
Xızı 10
branch
10 1 in region
100 FTEs in
customer service
Units Current FTEs Revised FTEs 37 FTEs cash staff
Total 65 48 FTEs 41 FTEs for deputy
6 №-li şöbə 10 4 heads and
1 №-li şöbə 9 6
5 №-li şöbə 7 secretaries
4
10 №-li şöbə 6 4
2 №-li şöbə 5
3 №-li şöbə 5 4 • Additional savings of
5
4 №-li şöbə 5
5
69 FTEs can result
7 №-li şöbə 5
4 from re-organization of
11 №-li şöbə 5
8 №-li şöbə 4
4 branches into units
4
9 №-li şöbə 4
4

Review of credit specialists’ activity may lead to 89 FTEs savings


Total 1672 Management
Branch director 97
123 7%
Deputy director 26

Head accountant 99 Accounting
Deputy head acc. 34
Leading… 35 281 17%
Controller 60
Accountant 53

Head of division 18
Customer Service
Leading specialist 104 482 29%
Specialist 245
Expected • 49 FTEs in Baku-Absheron and
savings 40 FTEs in other economic
Operator 84
regions could be saved based
Head ofdivision 35 Credit on the following assumptions:
206 12% 89 1. Minimum 1 loan specialist
Specialist 89 required per branch
2. TOP5 best performing
Cash
Senior cashier 91 branches in loans are used
Cashier 140 245 15% as a benchmark to identify
Operator 14 required number of
specialists
Senior specialist 21 Administrative
Secretary 26 • Based on those
Cash collector 42 271 16% assumptions, only 57% of total
Driver-collector 99
credit specialists are required
Cleaner 83
Other
• Reducing the number of credit
Other 64
64 4% specialists will be effective only
in increased level of automation
and proper staff training and
development


Proposed methodology to determine required number
of credit specialists per branch distribution
A BAKU – ABSHERON

1 Determine the average number of loans
Assumptions:
granted by credit specialist* 2 Identify the top 5 of • Minimum number of loan
best performers specialists per branch must be 1
Total 1,399 • If credit specialists in any branch
Xızı 328
Top 5 for the number outperform the benchmark, the
of loans issued by assumption is not applied to the
Xəzər 234
loan specialist branch
1 saylı Binəqədi 161
Suraxanı 146 Benchmark:
Benchmark = 194 194 loans issued per loan specialist
Abşeron 101
2 sayılı Səbail 96
Bakı şəhər 51
1 saylı Sabunçu 35 4 Determine required number of
2 saylı Xətai 27 credit specialists
2 saylı Nizami 27
Apply assumptions, benchmark
2 saylı Sumqayıt 23
and use results of analysis
Rabitə 21
performed to determine a
Tərəqqi 20 required number of loan
Nərimanov 17 specialist per branch
2 saylı Nəsimi 17 3 Identify benchmark
We used the number
Qaradağ 14
of loans granted and
1 saylı Sumqayıt 14 the number of credit
2 saylı Binəqədi 12 specialists in the top 5
1 saylı Xətai 10 branches to determine
1 saylı Nəsimi 9 the average number
of loans that should
1 saylı Nizami 7
be granted by credit
1 sayılı Yasamal 7 specialist and used it
2 sayılı Yasamal 6 as benchmark
2 saylı Sabunçu 3

Source: Kapital Bank reports as of end of March 2012, Deloitte analysis

Required number of credit specialists per branch distribution
amounts to 34 FTEs for Baku region
≠ with existing # benchmark
# of loans granted per credit specialist in # of credit Required # of of credit A BAKU – ABSHERON
branch* specialists credit specialists specialists

34 FTEs 49 FTEs • Required number of
Total 1399 83 FTEs
specialists is estimated at
Xızı 328 1 1 -
34 FTEs, almost 3 times
Xəzər 234 2 2 - less than the current
1 saylı Binəqədi 161 4 4 - headcount
Suraxanı 146 4 4 -
• Based on considered
Abşeron 101 1 1 - assumptions, 18 branches
2 sayılı Səbail 96 4 2 2 are overstaffed
Bakı şəhər 51 5 2 3
1 saylı Sabunçu 35 1 • Benchmarking based on
4 3
loans issued per loan
2 saylı Xətai 27 3 1 2 specialist index for TOP5
2 saylı Nizami 27 2 1 1 Baku-Absheron branches
2 saylı Sumqayıt 23 1 1 - identifies 49FTEs potential
Rabitə 21
savings
3 1 2
Tərəqqi 20 2 1 1 • Branches with low loan
Nərimanov 17 3 1 2 activity and required FTEs
2 saylı Nəsimi 17 5 1 4 can be transfered to units or
1 sayılı Səbail 16 closed based on
5 1 4 performance of their loan
Qaradağ 14
4 1 3 portfolio
1 saylı Sumqayıt 14
3 1 2
2 saylı Binəqədi 12 • Such analysis will be
5 1 2
1 saylı Xətai 10 performed based on the
5 1 4 strategic option selected in
1 saylı Nəsimi 9
3 1 4 Step II. for Baku-Absheron
1 saylı Nizami 7 branches
5 1 2
1 sayılı Yasamal 7
3 1 4
2 sayılı Yasamal 6
3 1 2
2 saylı Sabunçu 3

59 Kapital Bank Process Efficiency and Organization Review Data as of end of March 2012 © 2012 Deloitte Tax & Consulting S.à r.l.
Source: Kapital Bank reports & Deloitte analysis * No data provided for Susha branch

Proposed methodology to determine required number of credit
specialists per branch distribution
1 Determine the number of loans granted per credit B OTHER ECONOMIC REGIONS
specialist in branches*
Total 11310 2 Identify the top 5 of Assumptions:
Cəlilabad 535
best performers • Minimum of credit specialists per
Şirvan 468
Lerik 458 branch must be 1
Gədəbəy 455 • If credit specialists in any branch
Ağstafa 435
Ağdaş 393 Top 5 branches on outperform the benchmark, the
Biləsuvar 384 Benchmark= 470 the number of loans assumption is not applied to the
Yardımlı 377
İsmayıllı 374 granted by credit branch
Ucar 369
Qax 360
specialist
Yevlax 313 Benchmark:
Siyəzən 307 470 loans issued per loan specialist
Xaçmaz 301
Ağcabədi 290
Tərtər 280
Qobustan 275
Tovuz 273
Sabirabad 244
Ağdam 242 4 Determine required number of
Saatlı 232
Şəmkir 207 credit specialists
Zərdab 206
Beyləqan 189
Daşkəsən 189 Apply assumptions, benchmark
Gəncə** 186
Bərdə 184 and results of analysis
Hacıqabul 184
Göygöl 172
Şamaxı 165
3 Identify benchmark required number of loan
Oğuz 159
Qazax 157 specialist per branch
Astara 146
Ağsu 140 We used the number
Qəbələ 140 of loans granted and
Göyçay 133
Lənkəran 128 the number of credit
Masallı 115
Samux 115 specialists in the top
Kəpəz 111 5 branches to
Qusar 98
Naxçıvan MR 96 determine the
Balakən 92
Fizuli 91 average number of
Salyan 81 loans that should be
Kürdəmir 77
Şəki 72 granted by credit
Mingəçevir 65
Cəbrayıl 61 specialist and used it
İmişli 48 as benchmark
Naftalan 43
Şabran 37
Neftçala 32
Quba 18
Goranboy 6
Laçın 4 Data as of end of March 2012
60 Kapital Bank Process Efficiency and Organization Review * No data provided for © 2012 Deloitte Tax & Consulting S.à r.l.
Source: Kapital Bank reports & Deloitte analysis Sahbuz, Kengerli, Ordubad, Babek, Culfa

Required number of credit specialists per branch distribution is
83 FTEs for regions (1/3)
# of loans granted per credit specialist in # of credit Required # of of credit B OTHER ECONOMIC REGIONS
Total 12067 123 FTEs 83 FTEs 40 FTEs
Cəlilabad 535 2 2 - • Based on the benchmark of
Şirvan 468 3 3 - 470 loans issued per credit
Lerik 458 1 1 - specialist, 33 branches
Gədəbəy 455 1 1 - have the required number
Ağstafa 435 1 1 - of credit specialists
Ağdaş 393 2 2 -
Biləsuvar 384 2 2 - • Based on our
assumptions, 83 FTEs are
Yardımlı 377 1 1 -
required in branches for
İsmayıllı 374 1 1 -
-
other economic regions
Ucar 369 2 2
than Baku-Absheron with
Qax 360 2 2 -
potential savings of 40
Yevlax 313 3 2 1
FTEs
Siyəzən 307 3 2 1
Xaçmaz 301 2 2 -
• Based on the strategic
Ağcabədi 290 3 2 1
option selected in Step II.
Tərtər 280 2 2 - for branches located in
Qobustan 275 1 1 - other economic regions
Tovuz 273 3 2 1 specific focus should be
Sabirabad 244 3 2 1 given to corporate loans
Ağdam 242 3 2 1 portfolio and branches
Saatlı 232 2 1 1 involved in granting process
Şəmkir 207 3 2 1
Zərdab 206 2 1 1 • Outcome of loan portfolio
Babək 205 1 1 - analysis could potentially
Beyləqan 189 3 2 1 result in extra FTEs or
Daşkəsən 189 1 1 - related savings
Gəncə 186 4 2 2
Bərdə 184 6 3 3
Hacıqabul 184 2 1 1
Göygöl 172 1 1 -
Ordubad 169 1 1 -
Şamaxı 165 1 1 -
Source: Kapital Bank reports & Deloitte analysis

Required number of credit specialists per branch distribution is
83 FTEs for regions (2/3)
# of loans granted per credit specialist in # of credit Required # of of credit B OTHER ECONOMIC REGIONS
Total 12067 123 FTEs 83 FTEs 40 FTEs • According to the benchmark
Oğuz 159 2 1 1 33 regional branches have
Qazax 157 2 1 1 the required number of credit
Astara 146 1 1 - specialists
Şahbuz 142 1 1 -
Ağsu 140 2 1 1 • Considering the benchmark
Qəbələ 140 2 1 1 for loans issued per credit
Göyçay 133 2 1 1 specialist index in almost
Lənkəran 128 2 1 1 70% cases only 1 loan
Naxçıvan MR 115 5 2 3 specialist is required for
Samux 115 1 1 - other regional
Masallı
Culfa
115
113
v 1
1
1
1
-
-
branches, than Baku-
Absheron
Kəpəz 111 3 1 2
Kəngərli 103 1 1 - • Review of BOTTOM5
Qusar 98 1 1 - regional branches with index
Balakən 92 3 1 2 value <10 loan per credit
Fizuli 91 2 1 1 specialist results in their 50%
Salyan 81 2 1 1 FTEs savings:
Kürdəmir 77 1 1 -
Şəki 72 2 1 1 3 regional branches
Mingəçevir 65 3 1 2 (Goranboy, Serur, Lacin
Cəbrayıl 61 1 1 - ) have low loan granting
İmişli 48 3 1 2 activity with loans per
Naftalan 43 1 1 - credit specialist index
below 10
Şabran
Neftçala
37
v 1 1
1
-
32 1 -
Quba 18 1 1
Additionally, 2 regional
2
Goranboy 6 1 branches (Sederek and
2 1
Şərur 6 1
Zaqatala) staffed with 1
1 -
Laçın 4 1
FTE each do not issue
1 -
Sədərək - -
loans
1 1
Zaqatala - 1 - 1

Source: Kapital Bank reports & Deloitte analysis

Required number of credit specialists per branch should comply
to 2-level authorization principle (3/3)

ILLUSTRATIVE

LOAN REQUEST IN BRANCHES Key recommendations

FOCUS ON LOAN SPECIALIST ROLE 2-level authorization is required to ensure
proper segregation of duties and existing
controls at place
START
Customer
CLIENT

This principle allows to follow 4-eyes
Initiate credit
control principle to ensure independent
request
review and compliant segregation of duties

From practical perspective, in branches 2-
1 Validate client level authorization should not be obligatory
documents and prepare performed by 2 different loan specialists.
BRANCHES

credit file Second level review and authorization can
Branch

Requirement
be responsibility of Head of the Branch.
2 Review loan file 2 2-level authorization
completion and prepare This would allow to keep minimum required
for HO review number of loan specialists according to the
methodology proposed to determine
required number of credit specialists per
HEAD OFFICE

branch distribution
department
Credit

Receipt of loan
request – prepare for
Credit Committee

…

Source: Procedure on Internal Control and Audit by Central Bank, Deloitte analysis

92 FTEs of accountants could potentially be reduced to
2 per branch and 1 per operational unit, if all conditions are met


Branch director 97
7%
Expected • 49 FTEs in Baku-Absheron
Deputy director 26 123 savings
region and 43 FTEs in other
economic region of accounting
Head accountant 99 Accounting positions could be saved, if the
Deputy head acc. 34 92 following steps are taken:
Leading… 35 281 17%
Controller 60
1. Implement adequate
Accountant 53
development and training
programs to ensure diverse
Head of division 18
Customer Service and multi-task staff
Specialist 245 2. Centralize payroll and related
Operator 84 administrative activities at the
head office
Head ofdivision 35 Credit
Senior specialist 23 3. Critically reconsider
Leading specialist 59 206 12% processes and controls to
Specialist 89 maximize use of Flexcube
Cash
Senior cashier 91
Cashier 140 245 15%
Operator 14

Senior specialist 21 Administrative
Secretary 26
Cash collector 42 271 16%
Driver-collector 99
Cleaner 83
Other
Other 64
64 4%


Potential savings in accounting function could reach 33% of
current headcount

Current number of FTEs

Current FTEs No. of branches

15 Current number of accountants
15 6 5
90 22 281 TOTAL 281 89
28 11 Baku -
10 5 99 25
Baku Absheron
Other
economic…
171 64
64 9 3 Operational
20
units 11 11

14 9 3 Revised FTEs
8 -33%

Current number of accountants

189
Number of FTE‟s in Accounting TOTAL 189
16 6
Number of Branches Baku -
50
Absheron
Other
economic… 128
Operational
units
11

• Potential savings could be identified in branches in Baku-
Absheron region and other economic regions.

• We applied assumption of 2 accountants per branch
required to execute related responsibilities.

• Calculated results could be achieved, if certain criteria are
met.


The required number of customer service staff could be reduced
by 238 FTEs


Branch director 97
123 7%
Deputy director 26

Head accountant 99 Accounting Expected • Based on TOP10 performing
Deputy head acc. 34 savings branches extra 100 customer
Leading… 35 281 17% Expected
service specialists in Baku-
Controller 60 savings
Absheron region and 138 FTEs in
Accountant 53 other economic regions can be
238
saved, if the following criteria are
Head of division 18
Customer Service met:
Leading specialist 104 482 29% 1. Develop related training
Specialist 245 programs to ensure ability of
Operator 84 customer service specialist to
perform related front-desk
Head ofdivision 35 Credit multi-task responsibilities.
Ensure sustainable education
206 12% to adequately leverage
potential savings
Specialist 89

Cash 2. Critically reconsider
Senior cashier 91
processes and controls to
Cashier 140 245 15% maximize use of Flexcube
Operator 14
3. Consider potential changes in
Senior specialist 21 Administrative business processes due to
Secretary 26 external factors to distribute
Cash collector 42 271 16% work accordingly (eg. Plastic
Driver-collector 99 cards validity and distribution)
Cleaner 83
Other
Other 64
64 4%


We analysed 3 different aspects to determine the required
number of customer service staff in branches and units
Current number of CS staff 1 Required staff based on 2 Required staff based on 3 Required staff based on
number of operations/staff number of customers/staff comm.income/staff

TOTAL 482 TOTAL 244 -238 TOTAL 283 -199 TOTAL 299 -183

Baku - Baku - Baku - Baku -
179 93 -86 Absheron
94 -85 143 -36
Absheron Absheron Absheron

Other Other Other Other
economic 274 economic 136 -138 economic 178 -96 economic 134 -140
regions regions regions regions

Operational Operation -14 Operation -18 Operation -7
29 15 11 22
units al units al units al units

Delta with
current FTEs

FOCUS ON… Key observations

Option 1. • Calculation of required number of customer service staff based on the benchmark by 3 different aspects
Required staff based on identifies up to 238 FTEs potential savings.
1 number of operations/staff
-238
• We propose to focus on the results of benchmarking based on the number of operations (i.e. deposits, money
TOTAL 244
transfers via quick payment systems) per specialist.
Baku -
Absheron
93 -86 • This approach identifies 238 FTEs saving, 49% of current headcount. The required number of customer
service staff is 108 FTEs for Baku-Absheron region and 136 FTEs for other economic regions.
Other
economic 136 -138
regions • Analysis based on customers per service staff encounters for several constrains and limitations, such as
expected business process change and decrease in plastic cards validity.
Operation -14
15
al units
• Results based on the benchmark of transactions generating commission income represent current state of
operational activity and do not factor opportunities for IT applications automation and centralization.

Proposed methodology to determine required number of
customer servicing staff based on number of operations
A BAKU – ABSHERON

1 Determine the number of operations per customer
servicing specialist in branches* 2 Identify the top 10 of Assumptions:
best performers • Minimum of customer service
staff per branch must be 2
Total 6323 Top 10 branches and • If customer specialists in any
2 saylı Nizami 936 operational units on the branch outperform the
number of deposit and benchmark, the assumption is
Bakı şəhər 639
not applied to the branch
money transfer
Xəzər 559
operations executed by
2 sayılı… 535 customer service. Benchmark:
540 operations per customer
2 saylı Xətai 463
specialist
Suraxanı 428

2 saylı Sabunçu 295 Benchmark= 540
2 saylı Nəsimi 287
4 Determine required number of
customer specialists
2 saylı… 285

1 saylı… 260
Qaradağ 240
Abşeron 204 performed to determine required
2 saylı Binəqədi 159 3 Identify benchmark number of customer service
specialist per branch
Rabitə 150
We used the number of
1 saylı Xətai 144
operations and the
1 saylı Nizami 132
number of customer
1 saylı Sabunçu 131 specialists in the top 10
Tərəqqi 80 branches und units to
determine the average
number of operations
1 sayılı… 74
that should be
1 saylı Binəqədi 73 performed by CS and
Nərimanov 55 used it as benchmark

1 saylı Nəsimi 42

Xızı 23


customer servicing staff based on number of operations
1 Determine the number of operations per customer
servicing specialist in branches* 2 Identify the top 10 of B OTHER ECONOMIC REGIONS
best performers
Total 22,856
2,428 Assumptions:
Sabirabad 2,045
1,582 Top 10 branches on • Minimum of customer service
Zərdab 1,341 staff per branch must be 2
950 the number of deposit
Ağsu 752 • If customer specialists in any
726 and money transfer
Şəmkir 707 branch outperform the
675 operations executed benchmark, the assumption is
Hacıqabul 673 by customer service
669 not applied to the branch
Ağcabədi 639
556
Gədəbəy 542 Benchmark:
530
Şabran 499 1,188 operations per customer
Masallı
478
469 Benchmark = 1,188 specialist
430
Tərtər 425
413
Şirvan 373

Neftçala
371
346
Astara
338
313
credit specialists
289
Şəki 282

Samux
262
246
Siyəzən
240
233
3 Identify benchmark and use results of analysis
225 performed to determine required
İmişli 164
154 We used the number of number of customer service
Biləsuvar 149
134 operations and the specialist per branch
Cəlilabad 125
117 number of customer
Bərdə 103 specialists in the top 10
96
Yardımlı 95 branches to determine
91
Qazax 88 the average number of
81
Yevlax 76 operations that should
76
Mingəçevir 72 be performed by CS
70
Xaçmaz 49 and used it as
42
Daşkəsən 12 benchmark
10
Beyləqan 5
2
Laçın 1
1
Culfa -
-
Şərur -
-
Sədərək -
-
Şahbuz -

Required number of customer service staff based on number of
operations per specialist is 108 FTEs for Baku region
benchmark
# of operations per customer service staff # of CS Required # of CS ≠ with existing #
A BAKU – ABSHERON
in branch specialists specialists of CS specialists
2 saylı Nizami 936 6
• Benchmark of customer
6 -
Bakı şəhər 639 10 10 - service performance based
Xəzər 559 7 7 - on the current account
2 sayılı… 535 6 6 - operations and money
2 saylı Xətai 463
7 7 - transfer transactions
Suraxanı 428
7 6 1 requires 93 FTEs for Baku-
2 saylı Sabunçu 295
4 3 1
2 saylı Nəsimi 287 3
Absheron branches and 15
8 5
2 saylı… 285
7 4 3 FTEs for operational units
1 saylı… 260
8 4 4
Qaradağ 240
8 4 4 • Selected approach identifies
Abşeron 204
5 2 3 100 FTEs potential
10 3 7
Rabitə 150
savings, almost 50% of
9 3 6
1 saylı Xətai 144 6 current headcount
9 3
1 saylı Nizami 132
8 2 6
5 2 3 • Number of operations
Tərəqqi 80
4 2 selected as a criteria for
2
1 sayılı Səbail 79 10 customer service staff
12 2
1 sayılı… 74 5
7 2 benchmarking is one of the
1 saylı Binəqədi 73 8
Nərimanov 55
10 2
3 key indicators of the Bank‟s
5 2
2 sayılı Səbail 50 4 performance. The Bank
6 2
1 saylı Nəsimi 42 7 earns main part of income
9 2
Xızı 23 - from commissions on
2 2
money transfer and utilities
in units payments operations
661 2 2 - • TOP5 branches in Baku and
3 №-li şöbə 511 2 2 - TOP4 operational units
374 1 1 -
8 №-li şöbə 290
comply with the identified
1 1 -
215
2
benchmark
4 2
3 2 1
154
2 1 1
7 №-li şöbə 94
73 2 1 1
10 №-li şöbə 28 2 1 1
1 3 1 2
7 1 6

operations per specialist is 136 FTEs for regions (1/2)
benchmark
# of operations per customer service staff in # of CS Required # of CS ≠ with existing # B OTHER ECONOMIC REGIONS
branch specialists specialists of CS specialists
• Based on the TOP10
274 FTEs 136 FTEs 138 FTEs benchmark of operation per
Total 22,856

Balakən 4 4
customer specialist and
2,428 -
Sabirabad 5 5
limitation of minimum 2
2,045 -
Ağdaş 5 5
specialist per branch, 18
1,582 -
Zərdab 4 4
branches have the required
1,341 -
Ucar 4 4 number of employees
950 -
Ağsu 752 3 2 1
Saatlı 5 4 • Based on our
726 1
Şəmkir 5 3 assumptions, 136 FTEs are
707 2
Kürdəmir 4 3 required in branches for
675 1
Hacıqabul 3 2 other economic regions than
673 1
Lənkəran 5 3 Baku-Absheron with
669 2
Ağcabədi 6 4 potential savings of 138
639 2
Tovuz 7 4 FTEs
556 3
Gədəbəy 542 4 2 2
Qax 530 4 2 2
• In 70% the required number
Şabran 499 3 2 1
of customer specialists
Qusar 478 4 2 2
amounts to the required
Masallı 469 5 2 3
minimum of 2 FTEs per
Oğuz 430 4 2 2
branch
Tərtər 425 5 2 3
İsmayıllı 413 3 2 1
Şirvan 373 5 2 3
Naftalan 371 2 2 -
Neftçala 346 2 2 -
Naxçıvan… 338 10 3 7
Astara 313 5 2 3
Göygöl 289 3 2 1
Şəki 282 5 2 3
Ağdam 262 5 2 3
Samux 246 2 2 -
Göyçay 240 6 2 4
Siyəzən 233 2 2 -

benchmark
• The required number of
274 FTEs 136 FTEs 138 FTEs customer service specialists
Total 22,856

Ağstafa 225 4 2 2 is estimated at 136 FTEs,
İmişli 164 8 2 6 twice as less than existing
Gəncə 154 7 2 5 headcount in other regions
Biləsuvar 149 7 2 5
Qəbələ 134 4 2 2 • Additional focus on
Cəlilabad 7 2 5 speacialists activity and
125
Salyan 117 7 2 5 performance in branches
Bərdə 103 10 2 8 with index <10 can result in
Zaqatala 96 4 2 2 additional savings.
Yardımlı 95 4 2 2 • Current approach identified
Quba 91 7 2 5 sufficient potential savings in
Qazax 88 6 2 4 Beyleqan branch among
Fizuli 81 5 2 3 these branches
Yevlax 76 7 2 5
Goranboy 76 4 2 2 • Extra potential savings can
Mingəçevir 72 4 2 2 result from decision selected
Kəpəz 70 5 2 3 in Step II. for branches
Xaçmaz 49 6 2 4 located in other economic
Lerik 42 3 2 1 regions
Daşkəsən 12 2 2 -
Qobustan 10 3 2 1 • Review of BOTTOM7
Beyləqan 5 12 2 10 regional branches reveals
Şamaxı 2 3 2 1 limited or no customer
Laçın 1 2 2 - accounts or money transfer
Cəbrayıl 1 4 2 2 operations. These branches
Culfa - - - - don‟t have dedicated
Ordubad - - - - customer service specialists
Şərur - - - -
Babək - - - -
Sədərək - - - -
Kəngərli - - - -
Şahbuz - - - -

customer servicing staff based on number of clients (plastic
cards) A BAKU – ABSHERON

1 Determine the number of plastic cards serviced by
credit specialist in branches 2 Identify the top 10 of Assumptions:
best performers • Minimum of customer specialists
per branch must be 2
Total 43,245 Top 10 branches • If customer specialists in any
2 sayılı Səbail 6,751 and operational units branch outperform the
on the number of benchmark, the assumption is
Abşeron 5,196
plastic cards issued
1 saylı Xətai 3,759
by customer
Nərimanov 3,484 specialist Benchmark:
3,231 cards issued per customer
2 saylı Sabunçu 3,013
specialist
2 saylı… 2,423

1 saylı Binəqədi 2,260 Benchmark = 3,231
credit specialists
Xəzər 1,773

Rabitə 1,749
Qaradağ 1,723
Xızı 1,694 performed to determine a
1 saylı Nizami 1,438 3 Identify benchmark required number of customer
Suraxanı 1,317
We used the number
2 sayılı… 1,128
of plastic cards issued
2 saylı Nizami 776
and the number of
Bakı şəhər 750 customer specialists in
1 saylı Nəsimi 551 the top 10 branches to
determine the average
number of cardholders
that should be
1 saylı Sabunçu 181 serviced by customer
1 sayılı… 165 specialist and used it
1 saylı… 121
as benchmark
Tərəqqi 100

2 saylı Nəsimi 98


customer servicing staff based on number of clients (plastic
cards) B OTHER ECONOMIC REGIONS

credit specialist in branches* 2 Identify the top 10 of Assumptions:
Total 221,485
10,449 • If customer specialists in any
Ağdam 7,842
Top 10 branches on
7,414 branch outperform the
Goranboy 7,327
the number of plastic benchmark, the assumption is
7,173
Lənkəran 7,039
cards issued by not applied to the branch
6,195
Fizuli 6,040
customer specialist
5,834
Zaqatala 5,810 Benchmark:
5,637
Qusar 5,326 7,112 cards issued per customer
5,176
Salyan 5,071 Benchmark= 7,112 specialist
4,972
Şəki 4,915
4,711
Astara 4,669
4,564
Cəlilabad 4,208 4 Determine required number of
4,188
Tovuz 4,150 credit specialists
3,897
Tərtər 3,882
3,856
Şirvan 3,776
3,643
Saatlı 3,606
3,594
İmişli 3,361
3,285
Qax 3,148
required number of customer
Balakən
3,096
3,023 3 Identify benchmark
2,943 specialist per branch
Yardımlı 2,931
2,795 We used the number
Qazax 2,730

Qəbələ
2,715
2,693
of plastic cards issued
Biləsuvar
2,682
2,633
and the number of
Beyləqan
2,490
2,476
customer specialists in
Ağsu
2,405
2,378
the top 10 branches to
2,328 determine the average
Göyçay 2,256
2,205
Ağstafa 2,102 number of cardholders
1,951
İsmayıllı 1,911 that should be
1,866
Oğuz 1,698 serviced by customer
1,366
Zərdab 1,059 specialist and used it
-
Culfa - as benchmark
-
Şərur -
-
Sədərək -
-
Şahbuz -

clients (plastic cards) per specialist is 105 FTEs for Baku
benchmark
# of clients per customer service staff # of CS Required # of CS ≠ with existing #
A BAKU – ABSHERON
Total 43245 179 FTEs 94 FTEs 85 FTEs • Based on the selected
2 sayılı Səbail 6,751 6 6 - benchmark of cards issued
Abşeron 5,196 5 5 -
by customer specialist the
1 saylı Xətai 3,759 9 9 -
Nərimanov 3,484 -
required number of staff is
5 5
4 4 - estmated at 94 FTEs for
2 saylı… 2,423
7 6 1 Baku branches and 11 FTEs
1 saylı Binəqədi 2,260
10 7 3 for operational units
7 5 2
Xəzər 1,773 3
7 4 • 6 branches in Baku-
Rabitə 1,749
9 5 4
Qaradağ 1,723 3 Absheron region and 2
8 5
Xızı 1,694 2 - operational units are staffed
2
1 saylı Nizami 1,438
8 4 4 according to the benchmark
Suraxanı 1,317
7 3 4 identified
2 sayılı… 1,128
6 3 3
Bakı şəhər 750
6 2
7
• The plastic cards per
10 3
1 saylı Nəsimi 551 7 specialist index has various
9 2
2 8 limitations and potential
10
2 10 constrains, among which the
12
2 3 major are:
5
1 sayılı… 165
2 5
 Potential workload
7
1 saylı… 121
2 6
Tərəqqi 100
8
2
increase on customer
4 2
2 saylı Nəsimi 98 6 service and cash desk
8 2
speciallists due to
in units introduced 1 year
validity of plastic cards
Total 29 FTEs 11 FTEs 18 FTEs
842
1
 Plastic cards distriution
231 2 1
5 №-li şöbə 125 3 1 2 process change:
124 2 1 1 introcing pastic cards
9 №-li şöbə 88
1 1 - distribution by branches
80 1
2 1 to individuals instead of
8 №-li şöbə 65
1 1 -
40 previous delegatin to
4 1 3
7 №-li şöbə 36
1
the employing
33 2 1
2 1 1 organization
2 3 1 2
7 1 6

clients (plastic cards) per specialist is 178 FTEs (1/2)
benchmark
• According to the benchmark
274 FTEs 178 FTEs 96 FTEs of customers served (based
Total 221,485

Masallı 10,449 5 5 - on the plastic cards issued)
Ağdam 7,842 5 5 - by customer specialist the
Neftçala 7,414 2 2 - required number is
Goranboy 7,327 4 4 - estimated at 178 FTEs for
Gəncə 7,173 7 7 - regional branches
Lənkəran 7,039 5 5 -
Lerik 6,195 3 3 - • Based on the selected
Fizuli 6,040 5 5 - approach 22 regional
Sabirabad 5,834 5 5 - branches have the required
Zaqatala 5,810 4 4 - number of customer service
Quba 5,637 7 6 1 specialist and potential
Qusar 5,326 4 3 1 savings amount to 96 FTEs
Ağcabədi 5,176 6 5 1
Salyan 5,071 7 5 2 • It should be noted that the
Laçın 4,972 2 2 - approach based on
Şəki 4,915 5 4 1 customers per service
Şəmkir 4,711 5 4 1 specialist has a number of
Astara 4,669 5 4 1 limitations and
Hacıqabul 4,564 3 2 1 constrains, i.e. mainly
Cəlilabad 4,208 7 5 2 potential increase in the
Şamaxı 4,188 3 2 1 workload and process
Tovuz 4,150 7 5 2 change
Siyəzən 3,897 2 2 -
Tərtər 3,882 5 3 2
Naftalan 3,856 2 2 -
Şirvan 3,776 5 3 2
Cəbrayıl 3,643 4 3 1
Saatlı 3,606 5 3 2
Gədəbəy 3,594 4 3 1
İmişli 3,361 8 4 4
Mingəçevir 3,285 4 2 2
Qax 3,148 4 2 2

clients (plastic cards) per specialist is 178 FTEs (2/2)
benchmark
• Required number of
Total 221,485

Xaçmaz 3,096 6 3 3 is estimated at 178 FTEs
Balakən 3,023 4 2 2 based on the plastic cards
Şabran 2,943 3 2 1 processed index and 96
Yardımlı 2,931 4 2 2 FTEs potential savings
Bərdə 2,795 10 4 6
Qazax 2,730 6 3 3 • Certain branches do not
Göygöl 2,715 3 2 1 have customer base to issue
Qəbələ 2,693 4 2 2 plastic cards as well as
Kəpəz 2,682 5 2 3 dedicated staff
Biləsuvar 2,633 7 3 4
Daşkəsən 2,490 2 2 - • Despite of the fact, that the
Beyləqan 2,476 12 5 7 Bank is percieved as social-
Yevlax 2,405 7 3 4 oriented serving militaries
Ağsu 2,378 3 2 1 and
Ağdaş 2,328 5 2 3 pensioners, thus, generating
Göyçay 2,256 6 2 4 most of income from
Qobustan 2,205 3 2 1 commission on plastic
Ağstafa 2,102 4 2 2 cards, the index used as
Samux 1,951 2 2 - benchmark represents
İsmayıllı 1,911 3 2 1 current state of the Bank and
Kürdəmir 1,866 4 2 2 does not factor process
Oğuz 1,698 4 2 2 change and constrains
Ucar 1,366 4 2 2 mentioned above
Zərdab 1,059 4 2 2
Naxçıvan… - 10 2 8
Culfa - - - -
Ordubad - - - -
Şərur - - - -
Babək - - - -
Sədərək - - - -
Kəngərli - - - -
Şahbuz - - - -

customer servicing staff based on commission income
A BAKU – ABSHERON

1 Determine the number of utilities payment
operations per customer specialist in branches 2 Identify the top 10 of Assumptions:
Total 60,285 • If customer specialists in any
Xəzər 7,892
Top 10 branches and branch outperform the
operational units on benchmark, the assumption is
the number of utilities
payments by
2 sayılı… 3,564 customer specialist Benchmark:
4,570 utilities payments per
2 sayılı Səbail 3,407
customer specialist
Tərəqqi 3,145

Rabitə 3,132 Benchmark = 4,570
credit specialists
Abşeron 2,961

Bakı şəhər 2,187 performed to determine a
1 saylı Nəsimi 2,072 3 Identify benchmark required number of customer
Suraxanı 2,057
1 saylı… 1,927
payments and the
Nərimanov 1,673
number of customer
1 saylı Sabunçu 1,671 specialists in the top 10
2 saylı Nəsimi 1,603 branches to determine
the average number of
operations earning
2 saylı… 1,069
commission that should
Xızı 905 be processed by
1 sayılı Səbail 625 customer specialist and
1 sayılı… 550
used it as benchmark
Qaradağ 430



customer servicing staff based on commission income
B OTHER ECONOMIC REGIONS

operations per customer specialist in branches 2 Identify the top 10 of Assumptions:
Total 46596
Top 10 branches on
11,735 • If customer specialists in any
Zaqatala 10,739
Siyəzən 3,779
payments by customer benchmark, the assumption is
2,100
Şamaxı 1,767
specialist to decrease not applied to the branch
1,225
Göygöl 1,177
the effect of extremely
1,156
Gəncə 1,047 Benchmark:
615 high number of
Naxçıvan MR 558 3,899 utilities payments per
527 operations in the top
Gədəbəy 476 customer specialist
470 branches
Kürdəmir 464
435
Qusar 427
386
Tovuz 319 4 Determine required number of
Salyan
294 Benchmark= 3,899
283
268
credit specialists
Qax 242
217
Oğuz 202
199
Göyçay 125
119
Şabran 88
86
Qazax 76
required number of customer
Astara
73
70 3 Identify benchmark
66 specialist per branch
Biləsuvar 65
63 We used the number of
Ucar 58

Masallı
49
41
payments and the
Şəmkir
39
38
number of customer
Bərdə
31
25
specialists in the top
Tərtər
21
17
10 branches to
15 determine the average
Goranboy 14
14
Lerik 12 number of operations
9
Saatlı 5 earning commission
3
Beyləqan 3 that should be
-
Culfa - processed by customer
-
Şərur - specialist and used it
-
Sədərək - as benchmark
-
Şahbuz -
-
Fizuli -

Required number of customer service staff based on commission
income per specialist is 165 FTEs for Baku region
benchmark
# of operations per customer service staff # of CS Required # of CS ≠ with existing #
A BAKU – ABSHERON
Total 60285 179 FTEs 143 FTEs 36 FTEs • Benchmark index calculated
Xəzər 7,892 7 7 - based on the commission
2 saylı Sabunçu 6,077 4 4 - income from regular
2 sayılı… 3,564 6 6
customer payments
-
2 sayılı Səbail 3,407 6 6 -
estimates 143 FTEs required
Tərəqqi 3,145 4 4 - for Baku-Absheron region
Rabitə 3,132 9 9 - and 22 FTEs for operational
2 saylı Nizami 3,045 6 6 - units
Abşeron 2,961 5 5 -
2 saylı Binəqədi 2,350 10 10
• Based on these assumptions
-
Bakı şəhər 2,187 10 10 - most of the brances and
1 saylı Nəsimi 2,072
9 9 - units have the required
Suraxanı 2,057
7 7 - number of FTEs: 16
1 saylı… 1,927
8 8 - branches in Baku-Absheron
Nərimanov 1,673
5 4 1
1 saylı Sabunçu 1,671 region and 9 operational
5 4 1
6
units have the required
8 2
8 6 2 number of customer service
2 saylı… 1,069
7 4 3 staff
Xızı 905
2 2 -
1 sayılı…
12 4 8 • This approach appears to be
550
7 2 5 the closes option to current
Qaradağ 430 8 2 6
8
activity and identifies
10 2
potential 43 FTEs savings
in units
5,581 1 1 -
4 №-li şöbə 5,516 2 2 -
3,726 1 1 -
3 №-li şöbə 2,550
2 2 -
1,861
3 3 -
1 №-li şöbə 1,714
4 4 -
1,474 -
3 3
2 №-li şöbə 1,346 -
1,192 2 2
2 -
7 №-li şöbə 950 2
1 1
40 2
1 6
7

income per specialist is 134 FTEs for regions (1/2)
benchmark

134 FTEs 140 FTEs • Based on the TOP10
Total 46596
274 FTEs
benchmark of utilities
Kəpəz 11,735 5 5 - payment transactions per
Zaqatala 10,739 4 4 - customer specialist and
Qobustan 4,262 3 3 - limitation of minimum 2
Siyəzən 3,779 2 2 - specialist per branch, 18
Sabirabad 2,100 5 5 - branches have the required
Şamaxı 1,767 3 3 - number of employees
Şəki 1,225 5 4 1
Göygöl 1,177 3 2 1 • Based on our
Ağdaş 1,156 5 4 1 assumptions, 134 FTEs are
Gəncə 1,047 7 4 3 required in branches for
Cəlilabad 615 7 3 4 other economic regions than
Naxçıvan… 558 10 4 6 Baku-Absheron with
Quba 527 7 3 4 potential savings of 140
Gədəbəy 476 4 2 2 FTEs
Lənkəran 470 5 2 3
Kürdəmir 464 4 2 2 • The same results for
Ağstafa 435 4 2 2 required FTEs are estimated
Qusar 427 4 2 2 for the benchmark factored
Neftçala 386 2 2 - on comission income and
Tovuz 319
7 2 5 operation per customer
Hacıqabul 294 3 2 1 service specialist
Salyan 283 7 2 5
Xaçmaz 6 2 4
268
• In 72% the required number
Qax 4 2 2
242 of customer specialists
Samux 217 2 2 - amounts to the required
Oğuz 202 4 2 2 minimum of 2 FTEs per
Yevlax 199 7 2 5 branch
Göyçay 125 6 2 4
Zərdab 119 4 2 2
Şabran 88 3 2 1
Şirvan 86 5 2 3
Qazax 76 6 2 4

benchmark
Key recommendations
274 FTEs 134 FTEs 140 FTEs
Total 46,596 • Based on the TOP10
İsmayıllı 73 3 2 1 benchmark of commission
Astara 70 5 2 3 operation per customer
Mingəçevir 66 4 2 2 specialist and limitation of
Biləsuvar 65 7 2 5 minimum 2 specialist per
Balakən 63 4 2 2 branch, estimate 134 FTEs
Ucar 58 4 2 2 required and 140 FTEs
Qəbələ 49 4 2 2 potential savings, i.e. 51% of
Masallı 41 5 2 3 current headcount
Ağcabədi 39 6 2 4
Şəmkir 38 5 2 3 • Based on our
Naftalan 31 2 2 - assumptions, additional
Bərdə 25 10 2 8 savings can be gained for
Daşkəsən 21 2 2 - branches with low (eg. <10)
Tərtər 17 5 2 3 activity ratio
Laçın 15 2 2 -
Goranboy 14 4 2 2
Ağsu 14 3 2 1
Lerik 12 3 2 1
İmişli 9 8 2 6
Saatlı 5 5 2 3
Ağdam 3 5 2 3
Beyləqan 3 12 2 10
Cəbrayıl - 4 2 2
Culfa - - - -
Ordubad - - - -
Şərur - - - -
Babək - - - -
Sədərək - - - -
Kəngərli - - - -
Şahbuz - - - -
Yardımlı - 4 2 2
Fizuli - 5 2 3

The required number of cash desk specialists could be reduced
by 67 FTEs


Branch director 97
123 7%
Deputy director 26

Head accountant 99 Accounting
Deputy head acc. 34
Leading… 35 281 17%
Controller 60
Accountant 53
Expected • Based on TOP10 performing
savings branches on processed
Head of division 18
Customer Service Expected
Senior specialist 31 savings operations (such as deposit and
Leading specialist 104 482 29% money transfer transactions) 37
Specialist 245 67 FTEs in Baku-Absheron region
Operator 84 and 30 FTEs in other regions
can be saved based on the
Head ofdivision 35 Credit following criteria:
1. Minimum 2 cash desk
Specialist 89 specialists required per
Cash branch and 1 per
Senior cashier 91 operational unit
Cashier 140 245 15% 2. Ensure proper segregation
Operator 14
of duties between cash
desk specialists in
Senior specialist 21 Administrative approvals and validation of
Secretary 26
front-desk transactions
Cash collector 42 271 16%
3. Critically reconsider
Driver-collector 99
Cleaner 83
processes and controls to
Other maximize use of Flexcube
Other 64
64 4%


We analysed 4 different aspects to determine the required
number of cash desk staff in branches
Required staff Required staff based Required staff Required staff based
Current number of CD staff 1 based on number 2 on number of 3 based on 4 on number of serviced
of operations/staff customers/staff comm.income/staff loans/staff

TOTAL 245 TOTAL 178 -67 TOTAL 190 -55 TOTAL 184 -61 TOTAL 174 -71

Baku - Baku - Baku - Baku - Baku -
Absheron
89 Absheron 55 -34 Absheron 55 -34 Absheron 60 -29 Absheron 58 -31

Other Other Other Other Other
economic 142 economic 112 -30 economic 124 -18 economic 113 -29 economic 116 -26
regions regions regions regions regions

Operation Operation -3 Operation -3 Operation -3 Operation -14*
al units
14 al units 11 al units 11 al units 11 al units -

FOCUS ON… Key recommendations
• Calculation of required number of cash desk staff based on the benchmark by 4 different aspects identifies up to
Required staff 30% potential FTEs savings
1 based on number
of operations/staff • We propose to focus on the results of benchmarking based on the number of operations (i.e. deposits, money
TOTAL 178 -67 transfers via quick payment systems) per specialist.

• This approach identifies 67 FTEs saving, 27% of current headcount. The required number of customer service
Baku - staff is 66 FTEs for Baku-Absheron region and 112 FTEs for other economic regions. The average required
55 -34
Absheron
number of cashiers is 1 specialist per unit.
Other
economic 112 -30 • Analysis based on customers per cashier encounters for several constrains and limitations, such as expected
regions
business process change and decrease in plastic cards validity.
Operation -3
11 • Results based on the benchmark of transactions generating commission income represent current state of
al units
operational activity and do not factor opportunities for IT applications automation and centralization.

84 • Benchmark
Kapital Bank Process Efficiency and Organization Review on loans per staff for operational units is not representative as units © 2012 Deloitte Tax & loan activities..
do not conduct Consulting S.à r.l.

Proposed methodology to determine required number of cash
desk staff based on number of operations
A BAKU – ABSHERON

1 Determine the number of operations per cash desk
specialist in branches 2 Identify the top 10 of Assumptions:
best performers • Minimum of cash desk service
Total 15034 Top 10 branches and • If cashiers in any branch
Bakı şəhər 2,129 operational units on the outperform the benchmark, the
number of deposit and assumption is not applied to the
branch
money transfer
2 sayılı… 1,605
operations executed by
2 saylı Nizami 1,123 cashiers. Benchmark:
1,181 operations per cash desk
Qaradağ 962
specialist
1 saylı… 693

Rabitə 675 Benchmark= 1,181
2 saylı… 665
customer specialists

1 saylı Nizami 527
1 sayılı… 519
Suraxanı 500 performed to determine required
1 sayılı Səbail 473 3 Identify benchmark number of cash desk specialist
per branch
Xəzər 435
operations and the
1 saylı Xətai 432
number of cash desk
1 saylı Binəqədi 364 specialists in the top 10
Abşeron 340 branches to determine
operations that should
Tərəqqi 161
be performed by
2 saylı Sabunçu 131 cashier and used it as
1 saylı Nəsimi 127 benchmark

Nərimanov 39

Xızı 23


of cash desk staff based on number of operations

1 Determine the number of operations per cash desk
specialist in branches 2 Identify the top 10 of Assumptions:
best performers • Minimum of cash desk service
Total 47,441
Top 10 branches on
4,855 • If cashiers in any branch
Ağdaş 3,955
the number of deposit
3,409 outperform the benchmark, the
Zərdab 2,683
and money transfer assumption is not applied to the
2,120
Ucar 1,900
operations executed by branch
1,814
Şəmkir 1,768 Benchmark= 2,556
1,565 cashiers.
Şabran 1,496 Benchmark:
1,350
Tovuz 1,298 2,556 operations per cash desk
1,129
Lənkəran 1,116 specialist
1,083
Tərtər 1,062
958
Qusar 956
948
Oğuz 859 4 Determine required number of
845
Masallı 782 credit specialists
721
İsmayıllı 620
469
Şirvan 466
465
Ağstafa 451
437
Göygöl 434
performed to determine required
414
Salyan 409
number of cash desk specialist
Naftalan
379
348 per branch
Neftçala 346
İmişli 328

Qəbələ
292
268
operations and the
Samux
265
246
number of cash desk
Zaqatala
213
192
specialists in the top 10
Mingəçevir
180
143
branches to determine
134 the average number of
Yevlax 133
101
Xaçmaz 97 operations that should
88
Lerik 64 be performed by
31
Daşkəsən 24 cashier and used it as
15
Şamaxı 7 benchmark
2
Laçın 1
1
Şərur 1
-
Sədərək -
-
Şahbuz -

Required number of cash desk staff based on number of
operations per specialist is 66 FTEs for Baku region
benchmark
# of operations per cash desk staff # of CD Required # of CD ≠ with existing #
A BAKU – ABSHERON
in branch specialists specialists of CD specialists
Bakı şəhər 2,129
• Benchmark of cash desk
3 3 -
2 saylı Xətai 1,621 2 2
staff performance based on
-
2 sayılı… 1,605 2 2 - the current account
2 saylı Nizami 1,123 5 5 - operations and money
Qaradağ 962
2 2 - transfer transactions
1 saylı… 693
3 2 1 requires 55 FTEs for Baku-
Rabitə 675
2 2 -
2 saylı… 665 Absheron branches and 11
3 2 1
1 1 -
FTEs for operational units
1 saylı Nizami 527
2 2 -
1 sayılı… 519
1 1 - • Selected approach identifies
Suraxanı 500
6 3 3 37 FTEs potential
2 2 -
savings, almost 36% of
5 2 3
Xəzər 435 current headcount
9 4 5
1 saylı Xətai 432
3 2 1
2 2 - • 13 branches in Baku-
Abşeron 340
3 2 1 Absheron region and 9
2 3 operationl units have the
5
Tərəqqi 161
2 -
2 required number of cash
2 7
9 desk specialists
2 1
3
3
5 2
Nərimanov 39
5 • Number of operations
7 2
Xızı 23
- selected as a benchmark
2 2
criteria is one of the key
in units indicators of the Bank‟s
Total 4367 14 FTEs 11 FTEs 3 FTEs performance. The Bank
1,321 1 1 - earns main part of income
3 №-li şöbə 1,021 1 1 - from commissions on
430 2 1 1
money transfer and utilities
1 1 -
307 - payments operations
1 1
1 1 -
199
3 1 2
-
145 1 1
1 1 -
9 1 1 -
1 1 -

benchmark
# of operations per cash desk staff in # of CD Required # of CD ≠ with existing # B OTHER ECONOMIC REGIONS
branch specialists specialists of CD specialists
142 FTEs 112 FTEs 30 FTEs benchmark of operations per
Total 47,441

Balakən 2 2
cash desk specialist and
4,855 -
Ağdaş 2 2
limitation of minimum 2
3,955 -
Sabirabad 3 3
specialist per branch, 44
3,409 -
Zərdab 2 2
branches have the required
2,683 -
Qax 1 1 number of employees
2,120 -
Ucar 1,900 2 2 -
Saatlı 2 2 • In 73% cases the required
1,814 -
Şəmkir 2 2 number of customer
1,768 -
Astara 1 1 specialists amounts to the
1,565 -
Şabran 1 1 required minimum of 2 FTEs
1,496 -
Kürdəmir 2 2 per branch
1,350 -
Tovuz 1,298 3 2 1
Ağsu 1,129 2 2 -
Lənkəran 1,116 3 2 1
Gədəbəy 1,083 2 2 -
Tərtər 1,062 2 2 -
Qusar 956 2 2 -
Ordubad 948 1 1 -
Oğuz 859 2 2 -
Masallı 782 3 2 1
Göyçay 721 2 2 -
Şəki 469 3 2 1
Şirvan 466 4 2 2
Siyəzən 465 1 1 -
Ağstafa 451 2 2 -
Ağdam 437 3 2 1
Göygöl 434 2 2 -
Culfa 414 1 1 -
Salyan 409 2 2 -

benchmark
• The required number of
Total 47,441

Yardımlı 1 1
is estimated at 112 FTEs for
379 -
Naftalan 2 2
other regions
371 -
Biləsuvar 348 3 2 1
Neftçala 2 2
• Additional focus on
346 -
Bərdə 342 3 2 speacialists activity and
1
İmişli 4 2 performance in branches
328 2
Cəlilabad 3 2 with index <10 can result in
292 1
Qəbələ 2 2 additional savings.
268 -
Qazax 265 2 2 -
Samux 2 2 • Review of BOTTOM9
246 -
Quba 3 2 regional branches shows
213 1
Zaqatala 2 2 limited or no customer
192 -
Gəncə 6 2 operations. These branches
180 4
Mingəçevir 143 2 2 -
have a required number of
Fizuli 134 3 2 1
cash desk specialists
Yevlax 133 4 2 2
Goranboy 101 3 2 1
Xaçmaz 97 3 2 1
Kəpəz 88 4 2 2
Lerik 64 2 2 -
Qobustan 31 1 1 -
Beyləqan 15 4 2 2
Şamaxı 7 1 1 -
Babək 2 1 1 -
Laçın 1 1 1 -
Cəbrayıl 1 2 2 -
Şərur 1 2 2 -
Hacıqabul - - - -
Sədərək - 1 1 -
Kəngərli - 1 1 -
Şahbuz - 1 1 -

of cashiers based on number of clients (plastic cards/PINs)
A BAKU – ABSHERON

cash desk specialist in branches 2 Identify the top 10 of Assumptions:
best performers • Minimum of cash desk
specialists per branch must be 2
Total 95,346 Top 10 branches • If cash desk specialists in any
1 saylı Binəqədi 11,301 and operational units branch outperform the
on the number of benchmark, the assumption is
plastic cards issued
Abşeron 8,660
(PINs distributed) by
2 sayılı Səbail 8,101 cash desk specialist Benchmark:
7,556 PINs distributed per cash
Rabitə 7,870
desk specialist
Qaradağ 6,890

2 saylı Xətai 6,673 Benchmark= 7,556
2 saylı… 5,653

2 sayılı… 3,384
Bakı şəhər 2,499 performed to determine a
Nərimanov 2,489 3 Identify benchmark required number of cash desk
Xızı 1,694
We used the number
of plastic cards
Suraxanı 1,536
issued/PINs distributed
Xəzər 1,379 and the number of
2 saylı Sabunçu 1,339 cash desk specialists
in the top 10 branches
1 sayılı… 1,154
to determine the
2 saylı Nizami 931
average number of
2 saylı Binəqədi 911 cardholders that
1 saylı Sabunçu 904 should be serviced by
1 saylı… 322
cashiers and used it as
benchmark
Tərəqqi 200



of cashiers based on number of clients (plastic cards)

cash desk specialist in branches 2 Identify the top 10 of Assumptions:
Total 479,944
23,343 • If cash desk specialists in any
Salyan 17,749
Top 10 branches on
Quba 13,154
the number of plastic benchmark, the assumption is
13,069
Qax 12,592
cards issued (PINs not applied to the branch
12,565
Şəmkir 11,779
distributed) by cash
11,732
Yardımlı 11,723
desk specialist Benchmark:
11,620
Qusar 10,652 Benchmark= 14,512 14,512 PINs distributed per cash
10,158
Fizuli 10,066 desk specialist
9,944
Cəlilabad 9,818
9,769
Sabirabad 9,723
9,704
Tovuz 9,683
9,317
Lerik 9,292 credit specialists
9,015
Şabran 8,829
8,368
Şəki 8,191
8,190
Siyəzən 7,794
7,764
Beyləqan 7,427
7,414
Cəbrayıl 7,285
required number of cash desk
Göyçay
7,187
6,768 3 Identify benchmark
6,723 specialist per branch
Qobustan 6,614
6,570 We used the number
Xaçmaz 6,192

Balakən
6,144
6,045
of plastic cards
Culfa
5,821
5,681
issued/PINs distributed
Daşkəsən
5,386
4,979
and the number of
Şərur
4,721
4,524
4,518 in the top 10 branches
Yevlax 4,209
4,203
Göygöl 4,072 to determine the
3,856
Kürdəmir 3,732 average number of
3,567
Oğuz 3,396 cardholders that
3,353
İsmayıllı 2,866 should be serviced by
2,731
Kəngərli 2,645 cashiers and used it as
2,300
Zərdab 2,119 benchmark
1,951
Sədərək 1,930
-
Naxçıvan MR -

Required number of cashiers based on number of clients (plastic
cards) per specialist is 66 FTEs for Baku region
benchmark
A BAKU – ABSHERON
Total 95,346 89 FTEs 55 FTEs 34 FTEs
1 saylı Binəqədi 11,301 2
• Based on the selected
2 -
1 saylı Xətai 11,277 3 3 benchmark of PIN envelopes
-
Abşeron 8,660 3 3 distributed by cashier the
-
2 sayılı Səbail 8,101 5 5 required number of staff is
-
Rabitə 7,870
2 2 estmated at 55 FTEs for
-
Qaradağ 6,890
2 2 - Baku branches and 11 FTEs
2 2 - for operational units
2 2 -
2 saylı… 5,653
3 3 -
2 sayılı… 3,384
2 2 -
• 15 branches in Baku-
2 2 Absheron region and 9
-
3 2 operational units are staffed
1
Nərimanov 2,489
7 3
Xızı 1,694
4 according to the benchmark
2 2 -
1 saylı Nəsimi 1,654 identified
3 2 1
Suraxanı 1,536
6 2 4
Xəzər 1,379
9 2 7
• The plastic cards per cashier
9 2 index has various limitations
7
1 sayılı… 1,154
1 and potential
1 -
2 saylı Nizami 931
2
5 3 constrains, among which the
2
5 3 major are:
1
1 -
1 saylı… 322
2  Potential workload
3 1
Tərəqqi 200
2 increase on customer
2 -
2 service and cash desk
5 3
speciallists due to
in units introduced 1 year
Total 1,436 14 FTEs 11 FTEs 3 FTEs validity of plastic cards
461 1 1 -  Plastic cards distriution
4 №-li şöbə 247 1 1 - process change:
160 1 1 -
introcing pastic cards
3 1 2
88 - distribution by branches
1 1
1 №-li şöbə 80
2 1 1 to individuals instead of
71
1 1 - previous delegatin to
65 1 1 - the employing
1 1 - organization
16 1 1 -
1 1 -

cards) per specialist is 124 FTEs for regions (1/2)
benchmark
• According to the benchmark
Total 479,944
142 FTEs 124 FTEs 18 FTEs of customers served (based
Astara 23,343 1 1 - on the PIN envelopes
Salyan 17,749 2 2 - distributed or plastic cards
Masallı 17,415 3 3 - issued) by cashier the
Quba 13,154 3 3 - required number is
Ağdam 13,069 3 3 - estimated at 124 FTEs for
Qax 12,592 1 1 - regional branches
Şamaxı 12,565 1 1 -
Şəmkir 11,779 2 2 - • Based on the selected
Lənkəran 11,732 3 3 - approach 52 regional
Yardımlı 11,723 1 1 - branches have the required
Zaqatala 11,620 2 2 - number of customer service
Qusar 10,652 2 2 - specialist and potential
Babək 10,158 1 1 - savings amount to 18 FTEs
Fizuli 10,066 3 3 -
Laçın 9,944 1 1 - • It should be noted that the
Cəlilabad 9,818 3 3 - approach based on
Goranboy 9,769 3 3 - customers per cash desk
Sabirabad 9,723 3 3 - specialist has a number of
Tərtər 9,704 2 2 - limitations and
Tovuz 9,683 3 3 - constrains, i.e. mainly
Bərdə 9,317 3 2 1 potential increase in the
Lerik 9,292 2 2 - workload and process
Saatlı 9,015 2 2 - change
Şabran 8,829 1 1 -
Gəncə 8,368 6 4 2
Şəki 8,191 3 2 1
Qazax 8,190 2 2 -
Siyəzən 7,794 v 1 1 -
Ağcabədi 7,764 4 3 1
Beyləqan 7,427 4 3 1
Neftçala 7,414 2 2 -
Cəbrayıl 7,285 v 2 2 -

cards) per specialist is 124 FTEs for regions (2/2)
benchmark
Key recommendations
142 FTEs 124 FTEs 18 FTEs
Total 479,944 • Required number of
Gədəbəy 7,187 2 2 - customer service specialists
Göyçay 6,768 v 2 2 - is estimated at 124 FTEs
İmişli 6,723 4 2 2 based on the plastic cards
Qobustan 6,614 1 1 - processed index leading
Mingəçevir 6,570 v 2 2 - to18 FTEs potential savings
Xaçmaz 6,192 3 2 1
Biləsuvar 6,144 3 2 1 • Despite of the social focus to
Balakən 6,045 2 2 - serving pension cards, this
Ağdaş 5,821 2 2 - factor doesn‟t represent the
Culfa 5,681
v 1 1 - best possible scenario as
Qəbələ 5,386 2 2 - doesn‟t factor process
Daşkəsən 4,979 1 1 - change and constrains
Şirvan 4,721 4 2 2 mentioned above
Şərur 4,524 2 2 -
Ordubad 4,518 v 1 1 -
Yevlax 4,209 4 2 2
Ağstafa 4,203 2 2 -
Göygöl 4,072 2 2 -
Naftalan 3,856 2 2 -
Kürdəmir 3,732 v 2 2 -
Ağsu 3,567 2 2 -
Oğuz 3,396 2 2 -
Kəpəz 3,353 4 2 2
İsmayıllı 2,866 2 2 -
Ucar 2,731 2 2 -
Kəngərli 2,645 1 1 -
Şahbuz 2,300 1 1 -
Zərdab
Samux
2,119
v 2 2 -
1,951 2 2 -
Sədərək 1,930 1 1 -
Hacıqabul - - - -
Naxçıvan… - 4 2 2

Proposed methodology to determine required number of cashiers
based on commission income
A BAKU – ABSHERON

operations per cash desk specialist in branches 2 Identify the top 10 of Assumptions:
Total 276,392 • If cashiers in any branch
Rabitə 29,902
Top 10 branches and outperform the benchmark, the
operational units on assumption is not applied to the
branch
2 sayılı… 22,685
payments by cash
2 saylı Xətai 19,241 desk specialist Benchmark:
19,129 utilities payments per cash
desk specialist

Tərəqqi 13,344 Benchmark= 19,129
credit specialists
Xəzər 13,023

1 saylı… 10,901
Abşeron 10,470 performed to determine a
2 saylı Binəqədi 9,970 3 Identify benchmark required number of cash desk
1 sayılı… 8,168
payments and the
number of cash desk
2 saylı Nizami 7,751 specialists in the top 10
2 saylı Sabunçu 5,730 branches to determine
operations earning
2 saylı… 5,294
commission that should
Suraxanı 5,092 be processed by
Qaradağ 3,648 cashier and used it as
benchmark
Nərimanov 2,535

Xızı 1,920


based on commission income

operations per cash desk specialist in branches 2 Identify the top 10 of Assumptions:
Total 190740
45,567 • If cashiers in any branch
Kəpəz 31,122
Top 10 branches on
27,128 outperform the benchmark, the
Siyəzən 16,036
the number of utilities assumption is not applied to the
11,246
Sabirabad 7,425
payments by cash branch
6,130
Şəki 4,330
desk specialist
3,747
Cəlilabad 3,047 Benchmark:
2,960
Quba 2,610 15,578 utilities payments per cash
2,591 Benchmark= 15,578 desk specialist
Salyan 2,101
2,050
Gədəbəy 2,019
1,968
Ağstafa 1,845
1,811
Babək 1,714 4 Determine required number of
1,660
Tovuz 1,581 credit specialists
1,139
Oğuz 858
819
Göyçay 797
739
Yevlax 738
559
Zərdab 505
484
Samux 461
Mingəçevir
321
Ucar 248
Şirvan 229

Şəmkir
207
204
payments and the
Masallı
179
143
number of cash desk
Daşkəsən
125
89
Naftalan
89
65
Ağsu 44
40
İmişli 40 operations earning
40
Saatlı 24 commission that should
20
Ağdam 12 be processed by
-
Hacıqabul - cashier and used it as
-
Ordubad - benchmark
-
Sədərək -
-
Şahbuz -
-
Fizuli -

Required number of cash desk staff based on commission
income per specialist is 71 FTEs for Baku region
benchmark
A BAKU – ABSHERON
Total 276,392 89 FTEs 60 FTEs 29 FTEs • Benchmark index calculated
Rabitə 29,902 2 2 - based on the commission
1 saylı Xətai 23,308 3 3 - income from regular
2 sayılı… 22,685 2 2 -
2 saylı Xətai 19,241 customer payments
2 2 -
1 1 - estimates 60 FTEs required
3 3 - for Baku-Absheron region
Tərəqqi 13,344
2 2 - and 21 FTEs for operational
3 3 - units
Xəzər 13,023
9 7 2
1 saylı Nizami
1 saylı…
11,890
10,901
v 2
3
2
2
-
1
Abşeron 10,470
3 2 1
most of the brances and
5 3 2 units have the required
5 3 2 number of FTEs: 14
1 sayılı… 8,168
1 - branches in Baku-Absheron
1 sayılı Səbail 7,961 v 1
2 2 - region and 9 operational
5 3 2
2 saylı Sabunçu 5,730 units have the required
9 3 6
2 3
number of cashiers
5
2 saylı… 5,294
2 1
3
Suraxanı 5,092
2 • This approach identifies
6 4
Qaradağ 3,648
potential 32 FTEs savings
1 saylı Binəqədi
Nərimanov
3,066 v 2
2
2
2
-
-
2,535
7 2 5
Xızı 1,920
v 2 2 -

in units
Total 91,597 14 FTEs 11 FTEs 3 FTEs
23,405 1 1 -
10 №-li şöbə 11,843 1 1 -
11,839 1 1 -
3 №-li şöbə 10,819
1 1 -
7,904 -
1 1
1 №-li şöbə 7,273
2 1 1
5,711
1 1 -
11 №-li şöbə 5,056
4,029 v 1 1 -
-
5 №-li şöbə 3,127 1 1
591 3 1 2

97 Kapital Bank Process Efficiency and Organization Review
v 1 1 -

benchmark
Total 190740
142 FTEs 113 FTEs 29 FTEs benchmark of utilities
Zaqatala 45,567 2 2 - payment transactions per
Kəpəz 31,122 4 4 - cash desk specialist and
Qobustan 27,128 1 1 - limitation of minimum 2
Siyəzən 16,036 1 1 - specialist per branch, 44
Şamaxı 11,246 1 1 - branches have the required
Sabirabad 7,425 3 2 1 number of employees
Ağdaş
Şəki
6,130
v 2 2 -
• Based on our
4,330 3 2 1
assumptions, 113 FTEs are
Göygöl
Cəlilabad
3,747

3,047
v 2 2
2
-
required in branches for
3 1
Naxçıvan… 2,960 2 2 other economic regions than
4
Quba 2,610 2 1 Baku-Absheron with
3
Gəncə 2,591 2 4 potential savings of 29 FTEs
6
Salyan 2,101
2 2 -
Qax 2,050
1 1 -
Gədəbəy 2,019
2 2 -
Kürdəmir 1,968
2 2 -
Ağstafa 1,845
2 2 -
Qusar 1,811
2 2 -
Babək 1,714
1 1 -
Lənkəran 1,660 3 2 1
Tovuz 1,581
3 2 1
Xaçmaz 1,139
3 2 1
Oğuz 858 2 2 -
Neftçala 819 2 2 -
Göyçay 797 2 2 -
Astara 739 1 1 -
Yevlax 738 4 2 2
Şabran 559 1 1 -
Zərdab 505 2 2 -
Qazax 484 2 2 -
Samux 461 2 2 -

benchmark
Total 190740
142 FTEs 113 FTEs 29 FTEs benchmark of commission
Biləsuvar 321 3 2 1 operation per cash desk
Mingəçevir 279 2 2 - specialist and limitation of
Balakən 266 2 2 - minimum 2 specialist per
Ucar 248 2 2 - branch, estimate 113 FTEs
İsmayıllı 232 2 2 - required leading to 29 FTEs
Şirvan 229 4 2 2 potential savings, i.e. 20% of
Qəbələ 207 2 2 - current headcount
Şəmkir 204 v 2 2 -
Bərdə 179 3 2 1 • Based on our
Masallı 143 3 2 1 assumptions, additional
Ağcabədi 125 4 2 2 savings can be gained for
Daşkəsən 89 1 1 - BOTTOM9 branches with
Tərtər 89 2 2 - low (eg. <10) activity ratio
Naftalan 65 2 2 -
Laçın 64 1 1 -
Ağsu 44 2 2 -
Goranboy 40 3 2 1
İmişli 40 4 2 2
Lerik 40 2 2 -
Saatlı 24
v 2 2 -
Beyləqan 20 4 2 2
Ağdam 12 3 2 1
Cəbrayıl - 2 2 -
Hacıqabul - - - -
Culfa - 1 1 -
Ordubad - 1 1 -
Şərur
Sədərək
-
v 2
1
2
1
-
- -
Kəngərli - 1 1 -
Şahbuz - 1 1 -
Yardımlı - 1 1 -
Fizuli - 3 2 1

based on serviced loans
A BAKU – ABSHERON

1 Determine the number of serviced loans per cash
desk specialist in branches 2 Identify the top 10 of Assumptions:
Total 1,277 • If cashiers in any branch
Top 10 branches on outperform the benchmark, the
the number of assumption is not applied to the
Xızı 164
branch
serviced loans by
cash desk specialist
Suraxanı 97 Benchmark:
105 serviced loans per cash desk
Bakı şəhər 85 Benchmark= 105 specialist

Xəzər 52

2 saylı Xətai 41
credit specialists

Abşeron 34
1 sayılı… 33
Rabitə 32 performed to determine a
Qaradağ 28 3 Identify benchmark required number of cash desk
Tərəqqi 20
1 saylı Xətai 17
serviced loans and the
2 saylı Nəsimi 17 number of cash desk
1 saylı Nəsimi 15 specialists in the top 10
1 saylı… 14 branches to determine
2 saylı Nizami 11
loans that should be
1 saylı Nizami 11
serviced by cashier and
2 sayılı… 9 used it as benchmark
2 saylı… 8

Nərimanov 7


2 saylı Sabunçu 1


based on serviced loans

1 Determine the number of serviced loans per cash
desk specialist in branches 2 Identify the top 10 of Assumptions:
Total 11085
922 • If cashiers in any branch
Qax 720
Top 10 branches on
393 outperform the benchmark, the
Yardımlı 377
the number of assumption is not applied to the
369
Ucar 369
serviced loans by branch
356
Şirvan 351 Benchmark= 445
310 cash desk specialist
Tərtər 280 Benchmark:
275
Tovuz 273 445 serviced loans per cash desk
256
Sabirabad 244 specialist
242
Yevlax 235
232
Lerik 229
228
Ağstafa 218 4 Determine required number of
217
Zərdab 206 credit specialists
205
Xaçmaz 201
189
İsmayıllı 187
169
Şamaxı 165
159
Qazax 157
146
Naxçıvan MR 144
Beyləqan
142
Qəbələ 140
Göyçay 133

Culfa
124
113
serviced loans and the
Mingəçevir
103
98
number of cash desk
Lənkəran
86
85
Salyan
84
81
Samux 58
49
Şəki 48 loans that should be
39
Masallı 38 serviced by cashier and
37
İmişli 36 used it as benchmark
31
Naftalan 22
16
Quba 12
4
Goranboy 4
3
Hacıqabul -
-
Zaqatala -

Required number of cash desk staff based on serviced loans per
specialist is 58 FTEs for Baku regions
benchmark
# of operations per cash desk staff in # of CD Required # of CD ≠ with existing # A BAKU – ABSHERON
• Benchmark index calculated
Total 1,277 89 FTEs 58 FTEs 31 FTEs based on loan repayments
1 saylı… 321 2 2 - per cashier estimates 58
- FTEs required for Baku-
Xızı 164 2 2
Absheron region while loan
1 saylı… 140 1 1 - activity is not performed by
Suraxanı 97 6 6 - operational units
Bakı şəhər 85 3 3 -
2 sayılı Səbail 76 5 4 1
most of the brances and
Xəzər 52 9 5 4 have the required number of
2 saylı Xətai 41 2 - FTEs: 13 branches in Baku-
v 2
2
-
Absheron region have the
2 required number of cashiers
Abşeron 34 3 1
2
1 sayılı… 33 1 - • This approach identifies
1
Rabitə 32 2 potential 31 FTEs savings
-
Qaradağ 28
v 2
2 , i.e. 35% saving of current
2 - headcount
Tərəqqi 20
2
2 -
1 saylı Xətai 17 3
2 1
2 3
2 1
1 saylı… 14 3
2 1
2 3
-
2 sayılı… 9 2 2
2 saylı… 8
v 3 2 -

Nərimanov 2 1
7 7
2 saylı… 7 5 2 5
2 saylı… 1 9 2 3


specialist is 116 FTEs for regions (1/2)
benchmark
Total 11085
142 FTEs 116 FTEs 26 FTEs benchmark of loan
Siyəzən 922 1 - repayments per cash desk
1
Qax 720 1 - specialist and limitation of
1
Ağdaş 393 2 - minimum 2 specialist per
2
Yardımlı 377 1 - branch, 46 branches have
1
Bərdə 369 3 - the required number of
3
Ucar 369 v 2 2 - employees
Cəlilabad 356
3 3 -
Şirvan 351 4 - • Based on our
4
Şəmkir 310 2 - assumptions, 116 FTEs are
2
Tərtər 280
2 2 - required in branches for
Qobustan 275 1 1 - other economic regions than
Tovuz 273 3 2 1 Baku-Absheron with
Biləsuvar 256 3 2 1 potential savings of 26 FTEs
Sabirabad 244 3 2 1
Ağdam 242 3 2 1
Yevlax 235 4 3 1
Saatlı 232 2 2 -
Lerik 229 2 2 -
Gədəbəy 228 v 2 2 -
Ağstafa 218 2 2 -
Zərdab 206 2 2 -
Babək 205 v 1 1 -
Xaçmaz 201 3 2 1
Ordubad 169 1 1 -
Şamaxı
Oğuz
165
159
v 1
2
1
2
-
-
Qazax 157 2 2 -
Astara 146 1 1 -

specialist is 116 FTEs for regions (2/2)
benchmark
Total 11091
142 FTEs 116 FTEs 26 FTEs benchmark of commission
Şahbuz 142 1 - operation per cash desk
1
Beyləqan 142 v 4 2 -
specialist and limitation of
Ağsu 140 2 2
minimum 2 specialist per
2
Qəbələ 140 2 -
branch, estimate 116 FTEs
2
Balakən 138 2 -
required leading to 26 FTEs
2
Göyçay 133 v 2 2 -
potential savings, i.e. 18% of
Gəncə 124 6 -
current headcount
2
Culfa 113 1 1 4
Kəngərli 103 1 - • Based on our
1
Mingəçevir 98 2 - assumptions, additional
2
Göygöl 86 v 2 2 - savings can be gained for
Lənkəran 85 3 - BOTTOM6 branches with
2
Kəpəz 84 4 1 low (eg. <10) activity ratio
2
Salyan 81 2 2 2
Fizuli
Samux
61
58
v 3 2 -
2 2 1
Qusar 49
2 2 -
Şəki 48 v 3 2 -
Kürdəmir 39 2 2 1
Masallı
Şabran
38

37
v 3 2 -
1 1 1
İmişli
Cəbrayıl
36
31
v 4 2 -
2 2 2
Naftalan 22 2 2 -
Neftçala
Quba
16
v 2 2 -
12 3 2 -
Laçın 4 1 1 1
Goranboy
Şərur
4
v 3 2 -
3 2 2 1
Hacıqabul - - - -
Sədərək
Zaqatala
-
-
v 1 1 -
-
2 2

Reduction of deputies and secretaries can lead to 52 FTEs
savings


Total 1672
Branch director 97 Savings from positions review
6
Deputy director 26
• Redundancy of job positions:
Head accountant 99
Deputy head acc. 34 52 FTEs  Deputy Directors (26)
Leading… 35
 Secretaries (26)
Controller 60
Accountant 53
52
Head of division 18
Specialist 245
Operator 84

Head ofdivision 35
Specialist 89

Senior cashier 91
Cashier 140
Operator 14

Secretary 26
Cash collector 42
Driver-collector 99
Cleaner 83

Other 64


Weak-performing branches can be re-organized into units or
A BAKU –
closed
A Only 1 branch in Baku regions
B ABSHERON
Revised FTEs based on 5 areas
Key branch performance indicators for ranking benchmark and analysis:
Current Revised • Credit specialists
Loan Commission Commission FTEs FTEs on • Accounting staff
Deposit
Branches portfolio, kAZ NPL, % income expense RANK Step I. • Customer service staff
portfolio, kAZN
N 2011, kAZN 2011, kAZN • Cash desk staff
• Deputy heads and secretaries
1 sayılı Səbail 18,000 64% 20,159 1,232 31 1 28 12
2 sayılı Səbail 3,184 27% 2,453 1,326 39 2 27 12
BŞF 4,259 92% 16,299 1,171 59 3 28 20
Rabitə 24,431 91% 12,567 3,060 188 4 31 16 TOP10 best performing branches based on
1 saylı Xətai 2,023 23% 2,041 917 175 5 32 16
2 saylı Binəqədi 3,894 46% 1,861 293 18 6 27 11
TOP10 performance indicators ranking:
2 saylı Nizami 430 17% 2,270 125 8 7 23 17 Performing
1 saylı Sabunçu 878 35% 980 296 7 8 18 10 • Volume of loan portfolio
branches • Quality of loan portfolio
1 saylı Nəsimi 1,965 63% 2,113 395 59 9 27 11
Nərimanov 870 43% 2,206 330 40 10 26 11 • Deposits portfolio
1 saylı Binəqədi 4,102 53% 1,009 847 165 11 26 14 • Commission income and expense in 2011
2 saylı Nəsimi 634 83% 11,350 305 9 12 28 14
Qaradağ 797 44% 1,625 358 43 13 23 13
Suraxanı 1,117 40% 829 262 33 14 28 20
Xəzər 1,894 76% 1,426 515 60 15 30 21
Abşeron 1,024 47% 790 724 163 16 17 11
2 sayılı Yasamal 343 97% 16,379 271 18 17 20 14 Can be re- Branches outside of TOP10 best performers.
1 saylı Nizami 195 21% 515 366 56 18 22 10
1 saylı Sumqayıt 741 94% 2,828 161 8 19 24 14 organized Based on selected option can be transferred into
Tərəqqi 1,718 66% 257 124 4 20 15 10 to units units or closed.
Xızı 310 13% - 91 16 21 10 10
1 sayılı Yasamal 831 71% 1,146 381 78 22 24 11 LIMITATION:
2 saylı Sabunçu 18 94% 4,437 308 58 23 26 13 min 1 branch must be present in
2 saylı Xətai 149 74% 1,224 237 28 24 21 16 every Baku region
2 saylı Sumqayıt 28 68% 493 336 77 25 18 13
TOTAL 73,835 71% 107,259 14,430 1,439 599 340
0 - - -
14
Bakı şəhəri 72,756 71% 103,938 13,843 1,339 547 303
Abşeron 1,079 73% 3,322 588 101 52 37

Applied approach

• Branches in Baku-Absheron region have been individually ranked on each performance
indicator
• Ranking on each performance parameter have been averaged to show final performance index
for the branch
• TOP10 performing branches keep branch format
• Branches outside of TOP10 can be re-organized into units or closed.
• Minimum 1 branch per region in Baku should keep branch format


Additional 69 FTEs can be saved on re-organization of Baku
A BAKU –
branches into units
A Only 1 branch in Baku regions
B ABSHERON

Key branch performance indicators for ranking Current Revised Revised
Loan Commission Commission FTEs FTEs on FTEs on Comments
Deposit Branches
Branches portfolio, NPL, % income expense RANK Step I. units option
portfolio, kAZN
kAZN 2011, kAZN 2011, kAZN

1 sayılı Səbail 18,000 64% 20,159 1,232 31 1 28 12 1 sayılı Səbail 12 TOP10 branch
2 sayılı Səbail 3,184 27% 2,453 1,326 39 2 27 12 2 sayılı Səbail 12 TOP10 branch
BŞF 4,259 92% 16,299 1,171 59 3 28 20 BŞF 20 TOP10 branch
Rabitə 24,431 91% 12,567 3,060 188 4 31 16 Rabitə 16 TOP10 branch
1 saylı Xətai 2,023 23% 2,041 917 175 5 32 16 1 saylı Xətai 16 TOP10 branch
2 saylı Binəqədi 3,894 46% 1,861 293 18 6 27 11
TOP10 2 saylı Binəqədi 11 TOP10 branch
2 saylı Nizami 430 17% 2,270 125 8 7 23 17 Performing 2 saylı Nizami 17 TOP10 branch
1 saylı Sabunçu 878 35% 980 296 7 8 18 10 1 saylı Sabunçu 10 TOP10 branch
branches
1 saylı Nəsimi 1,965 63% 2,113 395 59 9 27 11 1 saylı Nəsimi 11 TOP10 branch
Nərimanov 870 43% 2,206 330 40 10 26 11 Nərimanov 11 TOP10 branch
1 saylı Binəqədi 4,102 53% 1,009 847 165 11 26 14 1 saylı Binəqədi 4 unit
2 saylı Nəsimi 634 83% 11,350 305 9 12 28 14 2 saylı Nəsimi 4 unit
Qaradağ 797 44% 1,625 358 43 13 23 13 Qaradağ 13 1 in region
Suraxanı 1,117 40% 829 262 33 14 28 20 Suraxanı 20 1 in region
Xəzər 1,894 76% 1,426 515 60 15 30 21 Xəzər 21 1 in region
Abşeron 1,024 47% 790 724 163 16 17 11 Abşeron 11 1 in region
2 sayılı Yasamal 343 97% 16,379 271 18 17 20 14 Can be re- 2 sayılı Yasamal 14 better performing
1 saylı Nizami 195 21% 515 366 56 18 22 10 1 saylı Nizami 4 unit
1 saylı Sumqayıt 741 94% 2,828 161 8 19 24 14 organized
1 saylı Sumqayıt 14 better performing
Tərəqqi 1,718 66% 257 124 4 20 15 10 to units Tərəqqi 4 unit
Xızı 310 13% - 91 16 21 10 10
Xızı 10 1 in region
1 sayılı Yasamal 831 71% 1,146 381 78 22 24 11
1 sayılı Yasamal 4 unit
2 saylı Sabunçu 18 94% 4,437 308 58 23 26 13
2 saylı Sabunçu 4 unit
2 saylı Xətai 149 74% 1,224 237 28 24 21 16
2 saylı Xətai 4 unit
2 saylı Sumqayıt 28 68% 493 336 77 25 18 13
TOTAL 73,835 71% 107,259 14,430 1,439 599 340 2 saylı Sumqayıt 4 unit
TOTAL 271
0 - - -
14
Bakı şəhəri 72,756 71% 103,938 13,843 1,339 547 303 Bakı şəhəri 243
Abşeron 1,079 73% 3,322 588 101 52 37 Abşeron 28

Applied approach

• Branches in Baku-Absheron region have been individually ranked on each performance
indicator
• Ranking on each performance parameter have been averaged to show final performance index
for the branch
• TOP10 performing branches keep branch format
• Branches outside of TOP10 can be re-organized into units or closed.
• Minimum 1 branch per region in Baku should keep branch format


8 branches in 7 regions can be established as centers for corporate
A OTHER
loans of corporate
B ECONOMIC 87%
B REGIONS
loan portfolio

Corporate loans Number of Total loan Total number % of branch % of branch Corporate loan centers
Region Branch name
portfolio, kAZN corporate loans portfolio of loans portfolio number
Region Branch name
Aran Şirvan 1,505 10 3,079 1,404 49% 1% Aran Şirvan
Aran Göyçay 305 4 547 266 56% 2% Aran Göyçay
Aran Hacıqabul 196 3 546 368 36% 1% Gəncə-Qazax Kəpəz
Aran Sabirabad 172 11 868 731 20% 2% Naxçıvan MR Naxçıvan MR
Quba-Xaçmaz Quba
Aran Zərdab 79 4 486 412 16% 1%
Şəki-Zaqatala Şəki
Aran Ağdaş 73 6 687 785 11% 1%
Lənkəran Lənkəran
Aran Saatlı 62 5 508 464 12% 1%
Aran Bərdə 41 2 1,061 1,106 4% 0% Dağlıq-Şirvan İsmayıllı
Aran Kürdəmir 27 1 102 77 26% 1%
Aran Neftçala 25 1 56 32 45% 3% For 2 remaining regions currently not
issuing corporate loans the following
Aran Salyan 20 1 188 162 11% 1% branches can be proposed

Gəncə-Qazax Kəpəz 126 4 445 334 28% 1% Approach
Gəncə-Qazax Gəncə 20 1 1,036 743 2% 0% • Corporate loans cover loans
Gəncə-Qazax Ağstafa 1 1 372 435 0% 0% guaranteed by government, loans
Gəncə-Qazax Şəmkir 1 1 626 620 0% 0% issued to SME and individual
entrepreneurs
Naxçıvan MR Naxçıvan MR 11,998 44 13,851 576 87% 8%
Naxçıvan MR Babək 450 7 835 205 54% 3% • Within every region identify branches
Naxçıvan MR Culfa 319 8 408 113 78% 7% with significant share of corporate
Naxçıvan MR Şərur 310 5 311 6 100% 83% loans
Naxçıvan MR Ordubad 170 2 333 169 51% 1%
Naxçıvan MR Kəngərli 76 3 186 103 41% 3% • Ensure all top branches per region
Naxçıvan MR Şahbuz 1 1 161 142 1% 1% represent minimum 75% of corporate
loan portfolio
Quba-Xaçmaz Quba 32 1 98 36 33% 3%
Quba-Xaçmaz Xaçmaz 30 1 434 602 7% 0% • Ensure top branches in region are
Quba-Xaçmaz Siyəzən 1 1 805 922 0% 0% reachable, i.e. the distance from top
branch does not exceed 50km in
Şəki-Zaqatala Şəki 110 2 243 143 45% 1% average
Şəki-Zaqatala Oğuz 50 4 357 317 14% 1%
Şəki-Zaqatala Qəbələ 20 1 257 279 8% 0% • If all criteria are met branch is
considered a regional center for
TOTAL 56% 1% corporate loans
16,220 135 28,888 11,552
• Regional center for corporate loans
should be present in every economic
108 Kapital Bank Process Efficiency and Organization Review © 2012 Deloitte for Yuxarı-Qarabağ)
region (exceptTax & Consulting S.à r.l.

8 brances in 7 regions can be established as centers for corporate loans
A OTHER Branches Current FTEs Revised FTEs
B ECONOMIC
B REGIONS Total 1,008 746 FTEs
Naxçıvan 45 28
Gəncə 32 18
Bərdə 30 14 Corporate loans center
Beyləqan 29 14
İmişli 27 16
Yevlax 25 16 Key observations
Şirvan 25 17
Tovuz 25 19
Xaçmaz
Ağcabədi
23
22
16
15
• 8 brances in 7 regions
Şəki 22 16 can be established as
Quba 22 12
Göyçay 21 15 centers for corporate
Biləsuvar 21 14
loans
Sabirabad 21 19
Current number of staff in branches, % savings of Cəlilabad
Lənkəran
20 13
14
20
FTEs Curr.FTEs Salyan 19 11 • Review of headcount
Mingəçevir 19 11
requirements based on
Kəpəz 19 11
potential savings Ağdam 18 12 benchmarking for
Füzuli 17 11
Ağdaş 16 14 regional branches
16 11
Goranboy
Şəmkir 12
covers overall
32% 16
Total 1,672 538 100% Qazax 16 10 organizational structure
Balakən 16 13
Saatlı 15 12 and impacts the several
Baku- Masallı 11
15
11
departments. Analysis
46% Tərtər 15
Abshero 599 276 36% Zərdab 14 12 of performance can
n region Şamaxı 14 13
Cəbrayıl 13 10 potentially save:
Ucar 13 13
Other 1,073 64% Kürdəmir 13 11
regions
262 24%
Gədəbəy 10 40 FTEs in loan
13
Ağstafa 13 10
Qax 13 10 department
Qəbələ 13 10
10
43 FTEs in
Astara 13
Qusar 13 11 accounting can be
Oğuz 12 9
Lerik 12 10 saved according to
10
Siyəzən 12
10
assumption of 2
Ismayıllı 12
Ağsu 12 10 accountants per
Şərur 11
11 branch
8
Zaqatala 11
Yardımlı 11 9
10
138 FTEs in
Neftçala 10
Hacıqabul 10 8 customer service
9
Göygöl
Samux
10
10 10 30 FTEs cash staff
Şabran 10 9
9
11 FTEs for deputy
Daşkəsən 9
Naftalan 9
9 heads and
9
Culfa 8 8 secretaries
Ordubad 8 8
Qobustan 8 7
Laçın 7 8
Babək 7 7
Kəngərli 6
109 Kapital Bank Process Efficiency and Organization Review 7 © 2012 Deloitte Tax & Consulting S.à r.l.
Şahbuz 6 5
Source: Kapital Bank data as of end of March 2012, Deloitte Analysis Sədərək 5

Appendix 5 – IT Stream: Key
Findings


Average maturity level of IT processes is 1.36 out of 5

Key observations

• The assessment identified that the majority of Bank‟s
IT processes are primarily at non-existent, initial or
repeatable maturity states, which resulted in average
level of 1.36, while the widely accepted industry
practice for commercial banks is the level of 2.5-3.

• The Bank does not have service management
framework, including definition and implementation of
SLA. OLA, service catalogue, and service charging
mechanisms

• There is no formal process to request enhancements
and modifications to software systems. Requests
from business to IT are not tracked and analysed.

• There is lack of process to check and approve quality
of software submitted for release

• Knowledge management and sharing process is not
formalized at IT department

• Application architecture and development standards
are not defined and documented


Key findings so far
Theme 1: IT Governance
& Management


1.1 A
Org Structure does not reflect the current job responsibilities of IT
Staff

Key observations

• IT specialists assigned to separate organizational
Inform ation
units within the IT department are engaged in

Global Bank Benchmark
Manage Netw ork Managem ent Technical
Divisions System s ATM Support IT Support
m ent and Innovation adm inistration
Managem ent
wide variety of activities and often have

Abbasov Asif, Head
Employee name

Mammadova Rahila
Adil Salehov, Head

Aliyev Mahammad,
Bakhishev Dmitry,
Hamza Naghiyev

Umbayev Rahim,
Quliyev Rahman

Bakirova Vusala
Nurmammadova

Head of division

Head of division

Shabanov Majid
Bagirov Jeyhun

Arnautov Denis

Quliyev Orkhan

Rafiyeva Farah
Abudov Shamil

Total
Nabiyev Namiq
Rzayev Ramiz

Aliyev Chingiz

Sorokin Anton

Quliyev Vugar
Ali Akhundov

Sadiqov Zaur
Aliyev Yusif

Head of unit
Aliyev Rauf
Dostuxanim

Xairov Emil
responsibilities outside of the functional limits of

Rahmanov
of division

of division

Alexander
Process name their respective unit.
Incident Management 4% 5% 5% 5% 5% 7% 10% 10% 10% 15% 10% 10% 15% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 9% 6%
Problem Management 7% 6% 10% 5% 10% 15% 10% 10% 12% 20% 10% 10% 10% 10% 10% 6% 4%
Release Management
Monitoring & Alerting
5% 4%
15% 10% 20% 30%
5% 5% 15% 10%
15% 6%
10%
40% 30% 15% 30% 30% 30% 30% 30% 10% 10% 10% 10%
10% 5% 5% 5% 3%
14%
2%
2%
• Deputy IT Director, Head of Network
Supplier Management
Configuration Management
2%
7% 15% 15% 5%
3%
6%
5%
10% 15% 8%
5% 1%
3%
1%
2%
Management and Innovation, Head of Technical
Security Management
Business Continuity
5%
3%
5%
3%
5%
4%
5%
3% 3%
5%
3%
5% 1%
1%
1%
1%
administration divisions are involved in
Application Maintenance
Service Desk
10% 5% 3%
5%
4%
58% 8%
5% 3%
7%
3%
5%
3%
35% 5% 35% 35% 35% 35% 35% 30% 58% 58% 58%
1%
19%
2%
5%
development activities.
Project Management 2% 2% 0.2% 12%
Change Management 7% 0.3% 3%
Planning & Estimation 7% 0.3% 6% • 1 employee from Network Management and
Analysis & Design 7% 20% 20% 20% 20% 10% 5% 10% 5% 3% 10% 10% 5% 6% 9%
Build
Testing
4% 35% 40% 40% 40% 9% 10% 10%
7% 15% 20% 20% 20% 10% 10% 6% 5%
10% 8% 10%
5% 10% 5%
1%
4%
5%
5%
1%
4%
1%
4%
1%
4%
1%
4%
1%
4%
6%
3% 5% 5% 5%
9%
7%
11%
11%
Innovation is spending 58% of his time on
Implementation
Closure 4%
10% 15% 15% 15% 5%
2% 5%
5% 10% 2%
5%
5% 5% 10% 10%
5% 5% 5%
10% 10% 10% 15% 18% 18% 15% 1%
5%
2% 2% 2% 8%
1%
3%
1%
Service Desk.
Team Management 10% 5% 5% 5% 5% 1% 4%
Reporting & Communication 10% 5% 4% 7% 5% 3% 5% 2% 5% 2% 2% 5% 5% 2% 2%
Client Relationship
Management
7% 5% 4% 3% 5% 3% 5% 5% 1% 3% • System administrator of SWIFT is assigned to
Finance Management &
Department Admin
2% 0.1% 2% Network Management and Innovation division.
Risk Management 3% 0.1% 2%
Strategy/ Vision Definition 3% 3% 3% 3% 3% 3% 1% 2%
Governance
Other
7% 3%
100%
0.4%
4%
2%
1%
• Information Systems Management Division is
FTEs 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 27 spending over 90% of its time on
Analysis, Build, Testing and Implementation
activities, while it should be engaged in running
day-to-day operations


1.1 B
We are proposing 2 different scenarios on future organizational
structure of IT
Separate processing & BI and outsourced Processing & BI within IT and internal
“As Is” organizational structure
development (To be option 1) development (To be option 2)

• Segregation of IT and IS functions • Better SoD between IT and Processing • Processing as a separate unit within IT
+ • Quick response time to issue resolution • Lower SoD risks due to outsourcing of • BA as a separate unit within IT
• Relatively low number of FTEs development • Shorter implementation time than
• Separate BA unit provides better translation Option 1
of business needs to IT and vice versa • Separate PMO provides more efficient
• Separate PMO provides more efficient project management capacity
project management capacity

- • Development and operations are
performed by the same employees
• Higher personnel expenses due to
introduction of new units
• Higher risks than in Option 1 due to
keeping processing and development
• Responsibilities are not assigned in • Higher development costs due to under IT
accordance with the positions held outsourcing • Less influential BA functionality
• Organizational structure is based on • Increased response time on issue
historical development rather than resolution
functional principles • Less knowledge on application
• High reliance on key individuals development due to outsourcing
• Lack of project management and strategy • Longer implementation time than Option 2
development capacity

1.1 C
Segregation of duties between IT and Information Security is not
clearly defined

Key observations

• No clear segregation of duties (security
management and administration) between IT
department and Information Security division as
some security settings are configured by ITD (e.g.
Unix servers), while others - by Information Security
division (Flexcube). At the same time, there is
access to all systems of both ITD and ISD.

• Information security tools are configured by
IT, whereas IS Division performs monitoring of logs
only. This creates a risk of unauthorized changes to
monitoring and logging settings by IT staff.

• Ultimate responsibility for administration of Active
Directory server is not given to specific department.
Both IT and IS Division have administrative access
rights to the system

• Information Security or IT administrator can change
log management configurations without any tracing
mechanisms in place.


1.1 D
There is 35% deviation between planned and actual IT budget
for 2011
Key observations

• IT Budgets are not properly
executed once planned, as the
Planned Factual Deviation difference between estimated and
actual IT budget was AZN 3.3 m in
Total IT Budget 9,417 6,109 -35% 2011, which means that overall IT
budget was overestimated for
Total IT Opex 421 754 79%
35%.

Total IT Capex 8,995 5,354 -40% • This occurred as budget wasn‟t
updated based on decision not to
Acquiring service 4,618 3,174 -31% implement project on Reserve
Reserve Center Center for Card Processing
1,500 1,679 12% System
(Flexcube)
Reserve Center
1,500 - -100% • Budget and cost are estimated
(Processing)
based on historical data and
UPS systems 998 226
-77% summary information
Other 379 276 -27% • While CAPEX budget was
overestimated, there was
significant underestimation of
OPEX budget by 79%

• Internal IT projects are not
included into IT budget


1.1 E
95% of IT capex budget for 2012 is allocated on hardware purchase

Key observations
Allocation of capex budget items
• 95% of IT capex budget forecast is
allocated to hardware and only
remaining 5% are allocated to
Total 4,175
software purchase. While the Bank
100%
has acquired and implemented
infrastructure that corresponds to
industry practices, there are
Processing reserve сenter 1,800 43%
significant opportunities for further
improvement and optimization of
software & application landscape .
Acquiring service 1,370 33%

• Prioritization of budget expenditures
is performed not using formal
UPS System 500 12%
analyses and assessment of
established criteria, but rather on
informal discussion basis.
PC and network hardware 302 7%
• Projects of highest importance for
the Bank are postponed while less
Plastic card software enhancement 120 3% important projects are initiated (e.g.
migration from Kapkart to CMS)

Anti money laundering software 83 2%


IT Committee isn’t involved in approval of all IT projects 1.2 A

Moved
# of
to Duratio
№ Name of project FTE Load Period FTE
Producti n (days)
s
on
1 Миграция филиалов на АБС «Flexcube» 4 35% 01.11-06.11 X 42 0.6
2 Проект по PCI DSS 5 25% 01.11-12.11 X 60 1.0
3
4
Call Center
Проект «Клиент-Банк»
2
3
40%
60%
02.11-05.11
02.11-07.11
X
No
32
72
0.2
0.7
Key observations
5 Проект по миграции на IBAN 3 35% 04.11-02.12 X 77 0.8
Разработка интерфейса по подключению «Smart Telecom», «BakiElektrikSebeke»,
• 6 out of 38 IT Projects executed in 2011 – mid 2012
6 3 30% 03.11-04.12 X 84 0.8
«AzerSu», «PortManat» по «e-commerce»
7 Миграция ПО «SWIFT» на версию 7.0 4 25% 06.11-01.12 X 35 0.5

8
Проект по построению резервного центра в г. Ширван (анализ оборудования, решения по
подготовке коммуникационных узлов, энергообеспечение центра и филиала в целом, 6 25% 04.11 - present X 75 1.5
were not approved by IT Committee despite the fact
9
охлаждение, пожаротушение, безопасность и др. задачи)
Настройка и запуск услуги «SMS-банкинг» для клиентов компании «Bakcell» 2 40% 06.11-07.11 X 16 0.1
that 2.7 FTE was spent on these projects.
10 Настройка и запуск услуги «Mobile-банкинг» 4 60% 11.11-02.12 No 48 0.6
11 Разработка интерфейса по осуществлению платежей по системе «KOMIS» 3 40% 07.11-08.11 X 16 0.2
12 Разработка системы формирования сложных отчетов 3 90% 01.11-11.11 X 198 2.0 • IT Project Portfolio management process is not
13 Разработка ПО по автоматической загрузки проводок в АБС «Flexcube» 2 45% 09.11-10.11 X 18 0.1
14 Тестирование и установка новой версии ПО банкоматов «Wincor» 2 40% 02.12-05.12 X 32 0.2 established, project management methodology and
15 Разработка сценарий по безкарточным платежам 2 40% 01.12-03.12 X 24 0.2
16
Проведение тестов по резервированию канала связи филиалов по технологии 3G с
1 40% 02.12-04.12 No 24 0.1
project implementation monitoring approach are not
компаниями «Azercell», «Bakcell»
17 Проект по запуску ПО HR, Payroll, Основные средства, E-Learning 2 50% 01.12 - present X 60 0.4
implemented
Проект по запуску системы денежных переводов «XAZRI» в Украине (согласно
18 2 45% 01.12-05.12 X 45 0.3
техническим требованиям)

19
Анализ и выбор терминалов (банкоматов внутренних и внешних, киосков, пос терминалов,
2 40% 03.12-05.12 X 24 0.2
• All projects which were brought to discussion during
оборудования купле-продажи валюты согласно бизнес требованиям банка)
20 Проект по подключению филиалов (последней мили) по оптическим каналам 2 50% 01.12 - present X 60 0.4
2011 – mid 2012 were approved by the IT
21 Обучение сотрудников новой версии «Flexcube v.11» 4 60% 09.11-09.11 X 12 0.2 Committee without any rejections.
22 Создание и параметризация бонусных программ 2 40% 02.11-04.11 X 24 0.2
23 Проект по интеграции с системой приема платежей «GoldenPay» 3 50% 10.11-11.11 X 30 0.3
Проект по резервированию канала связи с платежной системой VISA (спутниковый канал)
• There are no established acceptance criteria for
24 2 60% 10.11-12.11 X 36 0.2
25 Проект по резервированию каналов связи с Головным офисом банка 2 50% 04.11-06.11 X 30 0.2
26 Запуск в промышленную эксплуатацию систем денежных переводов «Contact» и пр. 3 45% 02.11-04.11 X 27 0.3
27 Миграция серверов на новую платформу «Windows Server 2008», Exchange Server 2010. 3 40% 01.12 - present X 48 0.5
analysis of potential projects
28 Проект по разработка бэкофисного карточного интерфейса (CMS) 4 35% 11.11 - present X 56 0.7
29 Разработка ПО по Финансовому мониторингу
30 Cash By Code
2
3
35% 01.12 - present
45% 01.12-04.12
X
X
42
27
0.3
0.3
• IT Committee is not involved in monitoring of
31 Автоматизация потребительских кредитов
32 Ежегодная профилактика терминальной (банкоматы) сети
3
4
50% 02.12-05.12
35% 11.11-02.12
X
X
40
28
0.4
0.4
approved ongoing projects.
33 Проект по выдаче разовых индивидуальных выплат вкладчикам Азербайджана 4 40% 03.12 - present X 32 0.4
34 Обновление ПО модулей процессингового центра 4 30% regular X 6 0.1
35 Сертификация MasterCard (TIP) 2 30% 01.11-08.11 X 54 0.4
36 Сертификация VISA Fast Funds Acquiring 2 30% 01.12-03.12 X 24 0.2
37 Проект по созданию «Intranet» 1 40% 11.11-03.12 X 40 0.1
38 Разработка языкового пакета интерфейса банкоматов 2 60% 02.12-03.12 No 24 0.2
1.5
TOTAL 43% 01.11 - 06.12 16.0
years


1.2 B
4 projects implemented by IT are not used by
business, representing 10% of IT FTEs
Key observations
Moved
• 4 projects were delivered to Business but were not
# of
to Duratio
№ Name of project FTE Load Period FTE
Producti n (days)
s
1 Миграция филиалов на АБС «Flexcube» 4 35% 01.11-06.11
on
X 42 0.6
used even after 4 months after delivery (as of
2
3
Проект по PCI DSS
Call Center
5
2
25%
40%
01.11-12.11
02.11-05.11
X
X
60
32
1.0
0.2
31/05/12).
4 Проект «Клиент-Банк» 3 60% 02.11-07.11 No 72 0.7
5 Проект по миграции на IBAN 3 35% 04.11-02.12 X 77 0.8
6
Разработка интерфейса по подключению «Smart Telecom», «BakiElektrikSebeke»,
3 30% 03.11-04.12 X 84 0.8
• Although the Bank has produced a project plan of
«AzerSu», «PortManat» по «e-commerce»
7 Миграция ПО «SWIFT» на версию 7.0 4 25% 06.11-01.12 X 35 0.5 pending IT projects through to 2012, detailed financial
Проект по построению резервного центра в г. Ширван (анализ оборудования, решения по
8 подготовке коммуникационных узлов, энергообеспечение центра и филиала в целом, 6 25% 04.11 - present X 75 1.5 analysis of these projects, including cost-benefit and
охлаждение, пожаротушение, безопасность и др. задачи)
9 Настройка и запуск услуги «SMS-банкинг» для клиентов компании «Bakcell» 2 40% 06.11-07.11 X 16 0.1 SWOT analysis wasn‟t performed.
10 Настройка и запуск услуги «Mobile-банкинг» 4 60% 11.11-02.12 No 48 0.6
11 Разработка интерфейса по осуществлению платежей по системе «KOMIS» 3 40% 07.11-08.11 X 16 0.2
12
13
Разработка системы формирования сложных отчетов
Разработка ПО по автоматической загрузки проводок в АБС «Flexcube»
3
2
90%
45%
01.11-11.11
09.11-10.11
X
X
198
18
2.0
0.1 • CMS implementation project to replace legacy KapCard
Тестирование и установка новой версии ПО банкоматов «Wincor»
14
15 Разработка сценарий по безкарточным платежам
2
2
40%
40%
02.12-05.12
01.12-03.12
X
X
32
24
0.2
0.2
system was completed for user testing by April, 2012.
16
Проведение тестов по резервированию канала связи филиалов по технологии 3G с
компаниями «Azercell», «Bakcell»
1 40% 02.12-04.12 No 24 0.1 However, as of June 2012 the project was not yet
17 Проект по запуску ПО HR, Payroll, Основные средства, E-Learning 2 50% 01.12 - present X 60 0.4 moved to production, which was explained by shifting
Проект по запуску системы денежных переводов «XAZRI» в Украине (согласно
18
техническим требованиям)
2 45% 01.12-05.12 X 45 0.3
priorities to the project of “Automation of consumer
19
Анализ и выбор терминалов (банкоматов внутренних и внешних, киосков, пос терминалов,
оборудования купле-продажи валюты согласно бизнес требованиям банка)
2 40% 03.12-05.12 X 24 0.2 products”. The reasons for such shift in priority weren‟t
20 Проект по подключению филиалов (последней мили) по оптическим каналам 2 50% 01.12 - present X 60 0.4 identified.
21 Обучение сотрудников новой версии «Flexcube v.11» 4 60% 09.11-09.11 X 12 0.2
22 Создание и параметризация бонусных программ 2 40% 02.11-04.11 X 24 0.2
23
24
Проект по интеграции с системой приема платежей «GoldenPay»
Проект по резервированию канала связи с платежной системой VISA (спутниковый канал)
3
2
50%
60%
10.11-11.11
10.11-12.11
X
X
30
36
0.3
0.2
• We performed benchmarking with local banks to
Проект по резервированию каналов связи с Головным офисом банка
25
26 Запуск в промышленную эксплуатацию систем денежных переводов «Contact» и пр.
2
3
50%
45%
04.11-06.11
02.11-04.11
X
X
30
27
0.2
0.3
identify possible inefficiency in project delivery and
27 Миграция серверов на новую платформу «Windows Server 2008», Exchange Server 2010. 3 40% 01.12 - present X 48 0.5 sourcing. Projects “IBAN” and “Migration to SWIFT 7.0”
28 Проект по разработка бэкофисного карточного интерфейса (CMS) 4 35% 11.11 - present X 56 0.7
29 Разработка ПО по Финансовому мониторингу 2 35% 01.12 - present X 42 0.3
were delivered in 11 and 7 months respectively, while
30 Cash By Code 3 45% 01.12-04.12 X 27 0.3 the benchmark bank delivered the projects by
31 Автоматизация потребительских кредитов 3 50% 02.12-05.12 X 40 0.4
32 Ежегодная профилактика терминальной (банкоматы) сети 4 35% 11.11-02.12 X 28 0.4 outsourcing to third-party in 2 and 3 months
33 Проект по выдаче разовых индивидуальных выплат вкладчикам Азербайджана 4 40% 03.12 - present X 32 0.4
34 Обновление ПО модулей процессингового центра 4 30% regular X 6 0.1 respectively.
35 Сертификация MasterCard (TIP) 2 30% 01.11-08.11 X 54 0.4
36 Сертификация VISA Fast Funds Acquiring 2 30% 01.12-03.12 X 24 0.2
37 Проект по созданию «Intranet»
38 Разработка языкового пакета интерфейса банкоматов
1
2
40%
60%
11.11-03.12
02.12-03.12
X
No
40
24
0.1
0.2
• There is a risk that high volume of routine tasks will
TOTAL 43% 01.11 - 06.12
1.5
years
16.0 prevent the IT department from investing adequate
amount of resources into development of long-term
priority projects.

Key findings so far
Theme 2: IT Operations


2.1 A
53% of IT employees time is spent on support and maintenance
activities
Key observations

• Significant effort - 53% is spent on
Inform ation
incident, problem and release

Manage Netw ork Managem ent Technical
m ent
Managem ent
and Innovation adm inistration
management, monitoring, maintenance and

Abbasov Asif, Head
Employee name

Mammadova Rahila
Aliyev Yusif, Head

Aliyev Mahammad,
Bakhishev Dmitry,

service desk activities while the global
Hamza Naghiyev

Umbayev Rahim,
Quliyev Rahman

Bakirova Vusala
Nurmammadova

Head of division

Head of division

Shabanov Majid
Bagirov Jeyhun

Arnautov Denis

Quliyev Orkhan

Rafiyeva Farah
Abudov Shamil

Total
Nabiyev Namiq
Rzayev Ramiz

Aliyev Chingiz

Sorokin Anton

Quliyev Vugar
Ali Akhundov

Sadiqov Zaur
Adil Salehov

Head of unit
Aliyev Rauf
Dostuxanim

Xairov Emil
Rahmanov
of division

of division

Alexander
benchmark is 21%
Process name

Incident Management 4% 5% 5% 5% 5% 7% 10% 10% 10% 15% 10% 10% 15% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 9% 6%
Problem Management 7% 6% 10% 5% 10% 15% 10% 10% 12% 20% 10% 10% 10% 10% 10% 6% 4% • IT Department spends 19% of its time on
Release Management 5% 4% 5% 5% 15% 10% 10% 10% 5% 5% 5% 3% 2%
Monitoring & Alerting 15% 10% 20% 30% 15% 6% 40% 30% 15% 30% 30% 30% 30% 30% 10% 10% 10% 10% 14% 2% Service Desk activities while the global
Supplier Management 2% 3% 5% 5% 1% 1%
Configuration Management 7% 15% 15% 5% 6% 10% 15% 8% 3% 2% benchmark is 5% only
Security Management 5% 5% 5% 5% 5% 5% 1% 1%
Business Continuity 3% 3% 4% 3% 3% 3% 1% 1%
Application Maintenance
Service Desk
10% 5% 3%
5%
4%
58% 8%
5% 3%
7%
3%
5%
3%
35% 5% 35% 35% 35% 35% 35% 30% 58% 58% 58%
1%
19%
2%
5% • Not all requests are registered in the Help
Project Management
Change Management
2%
7%
2% 0.2% 12%
0.3% 3%
Desk system. Assuming an average of 10
Planning & Estimation
Analysis & Design
7%
7% 20% 20% 20% 20% 10% 5% 10% 5% 3% 10% 10% 5%
0.3%
6%
6%
9%
requests a day to IT, the estimate number of
Build
Testing
4% 35% 40% 40% 40% 9% 10% 10%
7% 15% 20% 20% 20% 10% 10% 6% 5%
10% 8% 10%
5% 10% 5%
1%
4%
5%
5%
1%
4%
1%
4%
1%
4%
1%
4%
1%
4%
6%
3% 5% 5% 5%
9%
7%
11%
11%
issues from 2011 – to mid 2012 would be
Implementation
Closure 4%
10% 15% 15% 15% 5%
2% 5%
5% 10% 2%
5%
5% 5% 10% 10%
5% 5% 5%
10% 10% 10% 15% 18% 18% 15% 1%
5%
2% 2% 2% 8%
1%
3%
1%
~2000 issues. However, only 591 issues have
Team Management
Reporting & Communication
10%
10% 5%
5%
4% 7%
5%
5% 3%
5%
5% 2% 5% 2% 2% 5%
5%
5%
1%
2%
4%
2%
been registered in HelpDesk application. This
Client Relationship
Management
7% 5% 4% 3% 5% 3% 5% 5% 1% 3% creates difficulties in monitoring utilization of
Finance Management &
Department Admin
2% 0.1% 2% Help Desk employees time and investigation of
Risk Management 3% 0.1% 2% root cause for reoccurring incidents.
Governance 7% 3% 0.4% 2%
Other
FTEs 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
100%
1
4%
27
1%
• Event Monitoring tool is configured based on
IT Specialists personal knowledge of process.

• 4 FTEs time is spent on development of reports


2.1 B
Configuration management is performed on ad hoc basis

Key observations

• There are no established change
management and configuration
management policies and procedures

• Bank has not implemented automated
configuration tool for tracking changes to
critical systems and applications, as well as
equipment.

• Development, testing, and move to
production are performed by the same IT
employees without proper segregation of
duties .

• Responsibility for IT asset management is
not assigned. Server equipment is within
the responsibility of IT department, while
network equipment in branches is within the
responsibility of business units.

• Legal ownership of IT assets is not
established for employees of the Bank


2.1 C
Existing infrastructure has significant spare capacity

FlexCube
Avg. system
# Name Of Server Purpose Hardware Best practice Difference
load
Key observations
1 kapaps1 Application Server hw ia64 hp server rx8620 50% 70% -20%

2 kapaps2 Application Server hw ia64 hp server rx8620 50% 70% -20% • Average CPU load of 6 servers
(kapaps1, kapaps2, kccmsdb1, kccmsdb2, kctw
db1, kctwdb2) is 33%, while the best practice
3 kapdbs1 Database Server hw ia64 hp server rx8620 80% 70% 10% standard is 70%

• Lack of business requirements on capacity and
availability leads to potential overspend on
purchased hardware.
4 kapdbs2 Database Server hw ia64 hp server rx8620 80% 70% 10%

• Specific KPI‟s on availability of server and
network equipment are not established .
Compass Plus
• Availability prioritization of provided business
Avg. system
# Name Of Server Purpose Hardware Best practice Difference services is not performed.
load
1 kccmsdb1 CMS DB Server ia64 hp server rx7640 20% 70% -50%
• Lack of criticality assessment of applications for
2 kccmsdb2 CMS DB Server ia64 hp server rx7640 20% 70% -50%
business continuity leads to reservation of all IT
3 kctw db1 TWO DB Server ia64 hp server rx6600 30% 70% -40% infrastructure elements irrespective of business
needs
4 kctw db2 TWO DB Server ia64 hp server rx6600 30% 70% -40%

AVERAGE LOAD 45% 70% -25%


2.2 A
4 modules of Flexcube are implemented but not used
Key observations

Utility Payments Plastic cards issuance Internal Payments • Flexcube has been heavily customized by
vendor during the implementation and by
Azercell
Kapitalcard Xəzri internal developers afterwards
TranzWare
(decentralization of customer master
Bakcell
External file, organization of branches as separate
Payments
TranzWare
Online
CMS FIMI E-Commerce Card Factory entities).This will complicate support and
Azerfon
Western Union implementation of the modifications.
Internet Mobile Fraud Messaging
Interchange
Catel
Banking Banking Analyzer Gate Private Money
• The Bank is using Oracle FlexCube
Bistraya application version 7.1 (the latest version is
Pochta
Data Plus
11.2), official support of which will be
Blizko discontinued by vendor by the end of 2012.
Azeriqaz
Automated Banking System
Contact • 4 out of 14 implemented FlexCube modules
Azersu Flexcube
currently are not being used.
Zolotaya
Korona

Elektrik Baki Core
Loans & Enhanced Signature
Electronic • There is no data warehouse system. Data
(ICCF Messaging
CASA)
Deposits MIS verification
System External is stored in different systems and is
Elektrik Payments decentralized.
Sumqayit Payments
Funds Branch / Utility Foreign
and Kredftp
Transfer Teller Payments Exchange
Emlak
Collections
• No business process reengineering was
Money LC-s and Bills and Nostro
Komwin performed during the implementation of the
Agent pay
Market Guarantees Collection Reconciliation Flexcube. The system was adapted to the
Son nezeret
bank requirements, which will cause
Conval
significant problems during migration to the
SWIFT / AZIPS Business objects XOHKS / Komis newer version of the Flexcube.

• 48% of key business processes are
currently automated

2.2 B
Business requests and technical specifications are not formalized

Key observations

• Requests sent to IT Department
are not clearly defined There are
no clear prioritization procedures
for assigning priorities to different
business requests.

• Implementation of back office
module for card management
system was performed without
formal technical design and
technical specifications.


2.3 A
Security vulnerabilities in IT infrastructure were discovered during
physical and logical security assessment

Key observations

• Comparing with local banks IT infrastructure of
the Bank is reasonably secure and
technologically advanced. The Bank has
passed through PCI DSS assessment
successfully and no significant findings were
identified.

• The server room entrance is protected by a
glass door, which does not correspond to best
practices.

• We observed that Banks uses CISCO security
appliance (ASA 5540) which had unlicensed
iOS software version 8.2(2) installed at the time
of audit. This software version has several
security vulnerabilities which allow remote
attackers cause Denial of Service.

• Some PCs had unlicensed Microsoft software
installed on them.


2.3 B
User access security testing identified users with excessive privileges
on 4 servers and key applications
Approval
Sw ift Issues
Key observations
• There is user account in SWIFT (account “SUPER”, profile
# Operator ID Name Active profile Enable state Last changed Last sign-on CV CA VOEM AOEM AOVM GA FIN noted
state
22/06/09 User (Y/N)?
1 AALIYEV AALIYEV Enabled Approved 19/06/09 11:08:14 15:17:05 N Y N N N Y +7__ N

“SUPER”) that has excessive access permissions, such as
2 EMAMEDOV SADR Enabled Approved 18/04/12 14:50:45 05/11/2012 17:00 N
Unapprove Y N N N Y - N
3 EMIR SWIFT_ADM Disabled d 12/12/2011 10:31 12/12/2011 9:35 n/a n/a n/a n/a n/a n/a N
4 FARXAD VAL_OPER Enabled Approved 03/01/2012 14:14 05/11/2012 14:44 Y N N N N N - N
5 KAMRAN
6 LALA
L/C_OPER
OPER_MAN
Enabled
Enabled
Approved 23/01/12 12:24:01 05/11/2012 15:15 Y
Approved 13/02/12 10:36:02 05/11/2012 17:11 n/a
N
n/a
Y
n/a
N
n/a
N
n/a
N
n/a
- N
N "Verify own entered messages", "Authorize own entered
7 MHDD1 MHDD1 Enabled Approved 20/04/12 15:01:32 05/11/2012 16:41 N Y N N N Y - N
8 OPERMAN
9 R5.0_Oper R5.0_Oper
R5.0_MsgEntry
R5.0_Operator
Disabled
Disabled
Approved 27/09/04 10:27:02 n/a
Approved 27/09/04 10:27:07 n/a
Y
n/a
N
n/a
N
n/a
N
n/a
N
n/a
N
n/a
- N
N
message", "Authorize own verified message", and "Group
10 R5.0_Super
11 R5.5_Oper
R5.0_Super R5.0_Supervisor
R5.5_Oper R5.5_Operator
Disabled
Enabled
Approved 27/09/04 10:27:15 n/a
Approved n/a
Y
n/a
Y
n/a
N
n/a
N
n/a
N
n/a
N
n/a
- N
N authorize". There is a risk that unauthorized transaction in SWIFT
12 R5.5_Super R5.5_Super R5.5_Supervisor Enabled Approved n/a Y Y N N N N - N
13 R6.0_Oper
14 R6.0_Super
R6.0_Oper R6.0_OperatorEXIT _FU N CT IONU SER _ID
28
R6.0_Super R6.0_Supervisor
Enabled Approved ST AR T _D AT E U SER _N AME
Enabled BO110VAU
Approved
n/a
23/11/2007 Vault user for 110
n/a
n/a ST AT U S_CH AN GED _ONn/a _SIGN ED _ONU SER _ST AT U S EN D _D AT E PW D _CH AN GED _ON
Y
n/a
Y
n/a
N
n/a
N
L AST
n/a
02/19/2010 17:20:02 E
N N -
N
N 31/12/2012 02/01/2010 08:52:41
may be performed.
38 BO113VAU 30/11/2007 Vault user for 113 12/25/2009 09:16:42 05/19/2010 18:44:04 E 31/12/2012 04/13/2010 14:22:22
15 R7.0_Oper R7.0_Oper R7.0_Operator
44 Enabled Approved
BO191SUP n/a n/a
19/11/2007 Super user for 191 branch n/a 11/20/2007 14:43:16 n/a
n/a n/a n/a
10/20/2009 17:48:13 E N 31/12/2012 10/14/2009 17:07:19
16 R7.0_Super 45
R7.0_Super R7.0_Supervisor Enabled BO191VAU
Approved 19/11/2007 Vault user for 191
n/a Y Y N N 10/19/2009 20:04:51 E
N N - N 31/12/2012 10/08/2009 10:33:06
97 B0120SUP 25/01/2008 Super user for 120 branch E 31/12/2012 01/25/2008 22:35:39

• There are branch employees, which use non-personal accounts
17 RMAAdmin1 BKEtoRMAOperator
98 Enabled Approved
BO120VAU 10/06/2008 18:09 10/06/2008 18:08 n/a
25/01/2008 Vault user for 120 n/a n/a n/a n/a n/a
05/19/2010 17:43:04 E N 31/12/2012 04/02/2010 09:49:24
104 BO115SUP 01/02/2008 Super user for 115 branch 10/14/2009 18:31:20 05/11/2010 18:18:06 E 31/12/2012 04/13/2010 09:17:15
18 RMAOper1 BKEtoRMAOperator Enabled Approved 10/06/2008 18:06 10/06/2008 18:05 n/a n/a n/a n/a n/a n/a N
19 RUSLAN 123
VAL_OPER Enabled BO102VAU
Approved 04/04/2012 9:05 30/12/10 10215:02 Y
07/05/2007 Vault user for
05/11/2012 N 01/11/2010 10:16:16
N N 08/23/2010 18:27:07 E
N N - N 31/12/2012 07/12/2010 09:04:25

in Flexcube system, such as “Super user for 196 branch” and
126 HO000VAU 07/05/2007 Vault user for HO 02/16/2010 18:16:20 E 31/12/2012 02/15/2010 09:35:06
20 SED SED 141 Disabled Approved
BO118SUP
25/04/11 16:48:59 15:20:52 118 branch
26/10/2007 Super user for
14/12/11 N Y N N
04/13/2012 10:27:58
N Y +7__
05/10/2012 10:16:34 E
N 31/12/2013 04/13/2012 10:30:14
21 SHIRALIYEV 142
MSHIRALIYEV Enabled BO118VAU
Approved 14/12/11 13:26:26 15:30:13 118
26/10/2007 Vault user for N Y N N 05/10/2012 09:36:23 E
N Y - N 31/12/2012 04/30/2012 11:56:23
474 BO103VAU
20/04/10
28/09/2007 Vault user for 103 07/15/2011 17:21:54 E 31/12/2012 07/12/2011 14:13:56
22 SONA SONA 492 Enabled Approved 20/04/10 12:27:49 14:18:04 111 branch Y Y N N N Y - N

“Vault user for 193”. This poses a risk of unauthorized changes to
BO111SUP 08/10/2007 Super user for 05/03/2010 11:25:18 01/26/2012 16:57:28 E 31/12/2012 01/26/2012 16:48:39
23 SUPER SUPER 493 Enabled BO111VAU
Approved 08/10/2007 Vault user for 111
29/03/12 09:26:18 05/11/2012 17:36 Y Y Y Y 02/17/2010 17:54:18 E
Y Y - Y 31/12/2012 02/02/2010 09:07:01
494 BO190SUP 16/10/2007 Super user for 190 branch 06/21/2010 17:42:07 E 31/12/2012 06/12/2010 09:05:37
24 VALYUTA VAL.SHOBE
495 Enabled Approved
BO190VAU 14/02/12 16:02:47 05/11/2012 17:27 N
16/10/2007 Vault user for 190 Y N N N Y -
06/18/2010 17:40:13 E N 31/12/2012 06/12/2010 09:07:25
500 BO105SUP 19/10/2007 Super user for 105 branch 01/18/2010 18:23:12 07/27/2010 17:46:06 E 31/12/2012 07/21/2010 10:38:18
25 VUSALE SWIFT_ADM Enabled Approved 04/10/2012 9:04 05/11/2012 9:15 n/a n/a n/a n/a n/a n/a N
501
536
598
BO105VAU
BO107VAU
BO165VAU
12/03/2007 14:43:36
11/25/2008 17:50:22
07/27/2010 09:04:28 E
07/30/2010 18:01:44 E
05/11/2010 17:50:13 E
31/12/2012
31/12/2012
31/12/2012
06/04/2010 09:31:09
06/01/2010 10:19:14
04/05/2010 09:14:17
financial transactions.
623 BO141VAU 24/07/2009 Vault user for 141 05/13/2010 09:50:59 E 31/12/2012 03/29/2010 08:29:39

• On 2 servers (kccmsdb1, kccmsdb2) administrators didn‟t use
743
744
776
BO180SUP
BO180VAU
BO139VAU
10/07/2009 Super user for 180 branch
03/16/2010 18:21:22 E
03/16/2010 18:20:00 E
05/13/2010 16:55:44 E
31/12/2012
31/12/2012
31/12/2012
02/12/2010 10:25:23
03/12/2010 09:35:33
03/15/2010 09:24:08
personal accounts to logon to the OS, as there was only one
779
801
BO106VAU
BO122SUP
02/05/2008 Super user for 122 branch 10/14/2009 18:52:53
02/02/2010 17:46:14 E
06/04/2010 20:00:38 E
31/12/2012
31/12/2012
12/15/2009 09:13:38
04/13/2010 09:26:41 administrator account in the OS: root.

• There are 4 root accounts: dima, root, sbi, shamil on two other
servers (kapdbs1, kapdbs2). Account sbi belonged to the
Department of Works with Structural Units, the administrators of
which didn‟t use personal user accounts to logon to OS. The
reason for provision of root access to this department is not clear
and does not correspond to best practices.

• There are no formal access management procedures

• Minimum passwords length setting on FlexCube servers
(kapaps1, kapaps2, kapdbs1, kapdbs2) and Compass Plus
servers (kccmsdb1, kccmsdb2, kctwdb1, kctwdb2) is configured
to 7 characters which does not comply with the best practices.

Appendices
1. IT Organization and Capacity, Budgeting
and Planning
2. IT Project Management
3. Support & Maintenance
4. Application Architecture
5. IT Process Assessment


Data collection phase – Key inputs
The findings are based on 15 interviews and review of a wide range of documents.

Interviews with following employees were held:

IT Director Developers System Administrators IS Security division
Ali Akhundov

Lead Programmer Network Administrator IS Specialist
Yusif Aliyev Rauf Aliyev Emir Ramazanov
Deputy Director
Hamza Naghiyev
Lead Programmer
System Administrator IS Specialist
Dostukhanim
Information Systems Shamil Abudov Hasan
Nurmammadova
Management
Adil Salehov
Programmer
Ramiz Rzayev SWIFT Administrator
Network Management and Vusala Bakirova
Innovation
Dmitriy Bakhishev

Technical administration
Asif Abbasov

Following data was analysed:

• IT Policies • DBA's
• Network Diagram • ABS admins
• IT Organizational Structure • Walk-through/observation for Day Closing procedures
• Antivirus system and version • Unix Environment (admins, running services, configurations, file
• Physical access security tools permissions, patch management)
• Helpdesk procedures related to issue/incident/problem management • Windows Environment (patch management)
• SWIFT configurations • Firewall settings
• ABS (users and password settings) • Observation of server rooms


Appendix 1 – IT
Organization and
Capacity, Budgeting and
Planning


“As is” Organizational Structure of IT Department

GENERAL MEETING OF SHAREHOLDERS
Key actions to be performed

SUPERVISORY BOARD • Review of roles and responsibilities within
department:
IT Committee
 there are employees that are not
MANAGEMENT BOARD
relevant to IT)
Dep. Dep. Dep.
 Some employees of IT Department
Chairman Member might have positions, but perform
Ch. Ch. Ch.
different job

• Decrease dependency on key personnel in
IT Department
Security Department 39 IT Department 28 • Provide interchangeability (in IT Department
there is limited number of employees to
allow proper development
• IT Security 5
• IT Support 6
• Review organizational chart (In IT is not
• Information Systems 4 following best practices)
Management
5
• Network Management and
Innovation 3
• Technical administration 8
• ATM support

# of FTEs per department
# of FTEs per division


“To be” Organizational Structure of IT Department (option 1) Key changes in the
organisation structure

Key changes
1 Remove Development division
from IT Department and
SUPERVISORY BOARD
outsource development services
IT Committee
MANAGEMENT BOARD 2 Creation of a Risk and
Compliance department based
CEO, COO, CFO, CRO, CCO on the existing department

Chief Operating Officer Chief Risk Officer

Processing Risk & Compliance
IT Department BA Department
Department department

Architecture & Analytics &
Processing
Infrastructure Reporting

• ATM/POS • Architecture • Business • Risk & Internal
management planning analytics Control including IT
& support • Infrastructure • Reporting Security
• Application monitoring • Methodology /
development Organization
& support • Compliance
• Call center

Operations Management

• OS • Project
• Network management
• DBMS & BI • Strategic
• BCP & backup planning
• User support • Vendor
management


“To be” Organizational Structure of IT Department (option 2) Key changes in the
organisation structure

Key changes
1 Remove Development division
from IT Department and
SUPERVISORY BOARD
outsource development services
IT Committee
MANAGEMENT BOARD 2 Creation of a Risk and
Compliance department based
CEO, COO, CFO, CRO, CCO on the existing department

Chief Operating Officer Chief Risk Officer

Risk & Compliance
IT Department
department

Architecture & Analytics &
Development
Infrastructure Reporting

• Core banking • Architecture • Business • Risk & Internal
• Processing planning analytics Control including IT
applications • Infrastructure • Reporting Security
• Support monitoring • Methodology /
applications • ATM/POS Organization
management • Compliance

Operations Management

• OS • Project
• Network management
• DBMS & BI • Strategic
• BCP & backup planning
• User support • Vendor
management


Appendix 2 – IT Project
Management


Program and Project Management
Main identified risks

№ Name of project # of FTEs Load Period Duration (days) FTE 1
function is
1 Миграция филиалов на АБС «Flexcube» 4 35% 01.11-06.11 42 0.6
2 Проект по PCI DSS 5 25% 01.11-12.11 60 1.0
2 • Project management
3 Call Center 2 40% 02.11-05.11 32 0.2
levels seem low for a
4 Проект «Клиент-Банк» 3 60% 02.11-07.11 72 0.7
project heavy IT
5 Проект по миграции на IBAN 3 35% 04.11-02.12 77 0.8
department. Little effort –
6 Разработка интерфейса по подключению «Smart Telecom», «BakiElektrikSebeke», «AzerSu», «PortManat» по «e-commerce» 3 30% 03.11-04.12 84 0.8
only less than 1 %
7 Миграция ПО «SWIFT» на версию 7.0 4 25% 06.11-01.12 35 0.5
seems to be spend on
Проект по построению резервного центра в г. Ширван (анализ оборудования, решения по подготовке коммуникационных узлов, энергообеспечение
8 6 25% 04.11 - present 75 1.5 managing projects
центра и филиала в целом, охлаждение, пожаротушение, безопасность и др. задачи)
9 Настройка и запуск услуги «SMS-банкинг» для клиентов компании «Bakcell» 2 40% 06.11-07.11 16 0.1
3 • Emphasis on monitoring
10 Настройка и запуск услуги «Mobile-банкинг» 4 60% 11.11-02.12 48 0.6 and service desk might
11 Разработка интерфейса по осуществлению платежей по системе «KOMIS» 3 40% 07.11-08.11 16 0.2 reflect a long lead time to
12 Разработка системы формирования сложных отчетов 3 90% 01.11-11.11 198 2.0 respond to business
13 Разработка ПО по автоматической загрузки проводок в АБС «Flexcube» 2 45% 09.11-10.11 18 0.1 needs
14 Тестирование и установка новой версии ПО банкоматов «Wincor» 2 40% 02.12-05.12 32 0.2
15 Разработка сценарий по безкарточным платежам 2 40% 01.12-03.12 24 0.2
4 • A low level of build for an
16 Проведение тестов по резервированию канала связи филиалов по технологии 3G с компаниями «Azercell», «Bakcell» 1 40% 02.12-04.12 24 0.1
IT department with its
17 Проект по запуску ПО HR, Payroll, Основные средства, E-Learning 2 50% 01.12 - present 60 0.4
own developers –
18 Проект по запуску системы денежных переводов «XAZRI» в Украине (согласно техническим требованиям) 2 45% 01.12-05.12 45 0.3
possible that effort is
Анализ и выбор терминалов (банкоматов внутренних и внешних, киосков, пос терминалов, оборудования купле-продажи валюты согласно бизнес
19
требованиям банка)
2 40% 03.12-05.12 24 0.2 diverted to application
20 Проект по подключению филиалов (последней мили) по оптическим каналам 2 50% 01.12 - present 60 0.4 maintenance?
21 Обучение сотрудников новой версии «Flexcube v.11» 4 60% 09.11-09.11 12 0.2
22 Создание и параметризация бонусных программ 2 40% 02.11-04.11 24 0.2
5 • All 5 Divisions of IT are
23 Проект по интеграции с системой приема платежей «GoldenPay» 3 50% 10.11-11.11 30 0.3
involved in application
24 Проект по резервированию канала связи с платежной системой VISA (спутниковый канал) 2 60% 10.11-12.11 36 0.2
build , testing and
25 Проект по резервированию каналов связи с Головным офисом банка 2 50% 04.11-06.11 30 0.2
implementation
26 Запуск в промышленную эксплуатацию систем денежных переводов «Contact» и пр. 3 45% 02.11-04.11 27 0.3
27 Миграция серверов на новую платформу «Windows Server 2008», Exchange Server 2010. 3 40% 01.12 - present 48 0.5

6 • Is strategy development
28 Проект по разработка бэкофисного карточного интерфейса (CMS) 4 35% 11.11 - present 56 0.7
29 Разработка ПО по Финансовому мониторингу 2 35% 01.12 - present 42 0.3 an important activity for
30 Cash By Code 3 45% 01.12-04.12 27 0.3 project managers?
31 Автоматизация потребительских кредитов 3 50% 02.12-05.12 40 0.4
32 Ежегодная профилактика терминальной (банкоматы) сети 4 35% 11.11-02.12 28 0.4
33 Проект по выдаче разовых индивидуальных выплат вкладчикам Азербайджана 4 40% 03.12 - present 32 0.4 7 • Technical Administration
34 Обновление ПО модулей процессингового центра 4 30% regular 6 0.1
Division try to do
35 Сертификация MasterCard (TIP) 2 30% 01.11-08.11 54 0.4 everything themselves.
36 Сертификация VISA Fast Funds Acquiring 2 30% 01.12-03.12 24 0.2 None seem to leverage
37 Проект по созданию «Intranet» 1 40% 11.11-03.12 40 0.1 specialist skills from
38 Разработка языкового пакета интерфейса банкоматов 2 60% 02.12-03.12 24 0.2 elsewhere.
TOTAL 43% 01.11 - 06.12 1.5 years 16.0


Appendix 3 – Support &
Maintenance


53% of IT Staff time is expended on monitoring
and service desk Main identified risks

• Significant effort - 53% is
1
spent on
Inform ation
incident, problem and

Manage Netw ork Managem ent Technical release
m ent and Innovation adm inistration management, monitoring
Managem ent
, maintenance and

Abbasov Asif, Head
Employee name

Mammadova Rahila
Aliyev Yusif, Head

Aliyev Mahammad,
Bakhishev Dmitry,
Hamza Naghiyev

Umbayev Rahim,
Quliyev Rahman

Bakirova Vusala
Nurmammadova

Head of division

Head of division

Shabanov Majid
Bagirov Jeyhun

Arnautov Denis

Quliyev Orkhan

Rafiyeva Farah
service desk activities

Abudov Shamil

Total
Nabiyev Namiq
Rzayev Ramiz

Aliyev Chingiz

Sorokin Anton

Quliyev Vugar
Ali Akhundov

Sadiqov Zaur
Adil Salehov

Head of unit
Aliyev Rauf
Dostuxanim

Xairov Emil
Rahmanov
of division

of division

Alexander
while the Global
Benchmark is 21%

Process name 2 levels seem low for a
Incident Management 4% 5% 5% 5% 5% 7% 10% 10% 10% 15% 10% 10% 15% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% 9% 6% project heavy IT
Problem Management 7% 6% 10% 5% 10% 15% 10% 10% 12% 20% 10% 10% 10% 10% 10% 6% 4% department. Little effort –
Release Management 5% 4% 5% 5% 15% 10% 10% 10% 5% 5% 5% 3% 2%
only 0.2 % seems to be
15% 10% 20% 30% 15% 6% 40% 30% 15% 30% 30% 30% 30% 30% 10% 10% 10% 10% 14% 2%
spend on managing
Monitoring & Alerting
Supplier Management 2% 3% 5% 5% 1% 1%
projects
Configuration Management 7% 15% 15% 5% 6% 10% 15% 8% 3% 2%
• Emphasis on monitoring
3
Security Management 5% 5% 5% 5% 5% 5% 1% 1% and service desk might
Business Continuity 3% 3% 4% 3% 3% 3% 1% 1% reflect a long lead time to
Application Maintenance 10% 5% 3% 4% 5% 3% 3% 3% 1% 2% respond to business
needs
Service Desk 5% 58% 8% 7% 5% 35% 5% 35% 35% 35% 35% 35% 30% 58% 58% 58% 19% 5%
Project Management 2% 2% 0.2% 12%
4 • A low level of build for an
Change Management 7% 0.3% 3%
IT department with its
Planning & Estimation 7% 0.3% 6% own developers –
Analysis & Design 7% 20% 20% 20% 20% 10% 5% 10% 5% 3% 10% 10% 5% 6% 9% possible that effort is
Build 4% 35% 40% 40% 40% 9% 10% 10% 10% 8% 10% 1% 5% 1% 1% 1% 1% 1% 6% 9% 11% diverted to application
Testing 7% 15% 20% 20% 20% 10% 10% 6% 5% 5% 10% 5% 4% 5% 4% 4% 4% 4% 4% 3% 5% 5% 5% 7% 11% maintenance?
Implementation 10% 15% 15% 15% 5% 5% 10% 2% 5% 5% 10% 10% 10% 10% 10% 15% 18% 18% 15% 1% 2% 2% 2% 8% 3%
Closure 4% 2% 5% 5% 5% 5% 5% 5% 1% 1% • All 5 Divisions of IT are
5
Team Management 10% 5% 5% 5% 5% 1% 4% involved in application
Reporting & Communication 10% 5% 4% 7% 5% 3% 5% 2% 5% 2% 2% 5% 5% 2% 2% build , testing and
Client Relationship implementation
7% 5% 4% 3% 5% 3% 5% 5% 1% 3%
Management
Finance Management & 6 • Is strategy development
2% 0.1% 2% an important activity for
Department Admin
project managers?
Risk Management 3% 0.1% 2%
7 • Technical Administration
Governance 7% 3% 0.4% 2% Division try to do
Other 100% 4% 1% everything themselves.
FTEs 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 27 None seem to leverage
specialist skills from
elsewhere.

6 Servers are underutilized in current IT Infrastructure

• CPU load of 6 servers
1
(kapaps1, kapaps2, kcc
msdb1, kccmsdb2, kctwd
b1, kctwdb2) is 33%
while the best practice
Flexcube
standard is 70%
Appliation/DB Avg. system
# Name Of Server Purpose Hardware OS Application/DB Name Best practice Difference • At the time of Audit
Version load 2
business requirements
1 kapaps1 Application Server hw ia64 hp server rx8620 hp-ux B.11.23 oracle application server 10g 50% 70% -20% definition regarding
needed availability was
2 kapaps2 Application Server hw ia64 hp server rx8620 hp-ux B.11.23 oracle application server 10g 50% 70% -20% not specific. This leads to
potential overspend while
choosing hardware to
purchase.
3 kapdbs1 Database Server hw ia64 hp server rx8620 hp-ux B.11.23 fcc 10.1.0.4 80% 70% 10%

3 • As there is no
prioritization of provided
business services,
optimization of availability
demand is not
4 kapdbs2 Database Server hw ia64 hp server rx8620 hp-ux B.11.23 fcc 10.1.0.4 80% 70% 10% performed.

4 • Criticality of applications
for business continuity is
not assessed which
Compass Plus leads to the fact that all
IT infrastructure elements
Appliation/DB Avg. system are duplexed irrespective
# Name Of Server Purpose Hardware OS Application/DB Name Best practice Difference of business needs
Version load
1 kccmsdb1 CMS DB Server ia64 hp server rx7640 hp-ux B.11.23 cms11s 11/01/2007 20% 70% -50%

2 kccmsdb2 CMS DB Server ia64 hp server rx7640 hp-ux B.11.23 cms11p 11/01/2007 20% 70% -50%

3 kctw db1 TWO DB Server ia64 hp server rx6600 hp-ux B.11.23 tw o11g 11/01/2007 30% 70% -40%

4 kctw db2 TWO DB Server ia64 hp server rx6600 hp-ux B.11.23 tw o11g 11/01/2007 30% 70% -40%

AVERAGE LOAD 45% 70% -25%


Appendix 4 – Application
Architecture


Business application map

• There are employees in
Utility Payments Plastic cards issuance Internal Payments 1
IT Department which are
not relevant to IT
Kapitalcard Xəzri • Too many utility payment
Azercell 2
systems and interfaces
TranzWare exist in current IT
infrastructure
Bakcell External Payments
TranzWare
CMS FIMI E-Commerce Card Factory
Online • The Bank is using Oracle
3
Western Union Flexcube application
Azerfon
version which not up-to-
Interchange Internet Banking Mobile Banking Fraud Analyzer Messaging Gate date
Private Money
Catel • Legacy payment
4
Bistraya Pochta interfaces exist in some
Branches of the Bank
Data Plus
Blizko • Some FlexCube
5 modules such as
Azeriqaz Branch/Teller are not
Automated Banking System being used
Contact

Azersu Flexcube • FlexCube modules such
Zolotaya Korona 6 as Loan Origination have
not been
purchased/deployed
Elektrik Baki Core Loans & Signature Electronic
Enhanced MIS
(ICCF CASA) Deposits verification Messaging System
External Payments
Elektrik Sumqayit
Payments and Utility
Funds Transfer Branch / Teller Foreign Exchange Kredftp
Collections Payments
Emlak
Komwin
LC-s and Bills and Nostro
Money Market
Guarantees Collection Reconciliation
Agent pay Son nezeret

Conval
SWIFT / AZIPS Business objects XOHKS / Komis


Appendix 5 – IT Process
Assessment


Existing processes have maturity level of 1.36 of 5 (1/2)

Non-existent

Repeatable

Optimised
Managed
Defined
Initial
Capability
6.1. Business relationship management
6.1.1. Business relationship management  
6.2. Customer relationship management
6.2.1. Customer relationship management  
6.3. IT strategy and business alignment
6.3.1. IT strategy development  
6.3.2. Service strategy development  
6.3.3. IT innovation management  
6.3.4. IT annual budget and planning  
6.4. Investment portfolio management
6.4.1. Demand management  
6.4.2. Resource management  
6.5. Architecture management
6.5.1. Enterprise architecture planning  
6.5.2. Architecture standards management  
6.6. Service portfolio management
6.6.1. Service catalogue management  
6.6.2. Service level management  
6.7. Project portfolio control / assurance
6.7.1. Project delivery management  
6.8. Programme and project management
6.8.1. Programme / project management  
6.9. Solution development
6.9.1. Requirements management  
6.9.2. Solution design  
6.9.3. Service design  
6.9.4. Solution build and configure  
6.9.5. Solution test   We performed IT capability analysis using proprietary
6.10. Service transition Process Maturity Assessment Tool by Deloitte. The
6.10.1. Change management   evaluation was made on 17 processes. Current maturity
6.10.2. Configuration and asset management   level of processes was defined in the result of
6.10.3. Service testing and acceptance  
benchmarking. Target stage for each of the processes
6.10.4. Release and deployment management  
6.10.5. Knowledge management  
was defined based on the Bank management
Current level  expectations and our analysis of best practices at the
Target level or if current = target  Retail Banks in Europe and CIS

Existing processes have maturity level of 1.36 of 5 (2/2)

Non-existent

Repeatable

Optimised
Managed
Defined
Initial
Capability
6.11. Service operation
6.11.1. Event management  
6.11.2. Incident management  
6.11.3. Availability management  
6.11.4. Security management  
6.11.5. Service continuity management  
6.11.6. Access management  
6.11.7. Problem management  
6.11.8. Service reporting  
6.11.9. Request fulfilment  
6.11.10. Capacity management  
6.12. Sourcing and procurement management
6.12.1. Supplier selection  
6.12.2. Contract management  
6.12.3. Sourcing strategy management  
6.13. Vendor relationship management
6.13.1. Supplier relationship management  
6.14. Workforce management
6.14.1. People performance management  
6.14.2. Talent management  
6.15. Technology and infrastructure management
6.15.1. Technology operations  
6.15.2. Application management  
6.16. Quality and assurance management
6.16.1. Compliance management   We performed IT capability analysis using proprietary
6.16.2.Assurance management   Process Maturity Assessment Tool by Deloitte. The
6.16.3. Continual service improvement  
evaluation was made on 17 processes. Current maturity
6.17. Financial management
6.17.1. IT financial management  
level of processes was defined in the result of
6.17.2. IT service charging   benchmarking. Target stage for each of the processes
was defined based on the Bank management
Current level  expectations and our analysis of best practices at the
Target level or if current = target  Retail Banks in Europe and CIS


Current state maturity by Deloitte IT Capability tool

• Customer relationships
1
management process is
not defined and
The model covers all key operating model dimensions including governance, processes and measurement of
customer satisfaction is
not in place
organisation and identifies 17 process areas and 47 key processes. 2 • Lack of defined IT
Services Catalogue
Business custom ers End-users 3 • No defined software
Manage business and custom er relationships Manage and control development processes
Business relationship management Customer relationship management
 Business relationship management  Customer relationship management
4 • Project portfolio delivery
Workforce management is undefined. Projects
Plan Build Transition Run  People performance management
managed on “reactive”
IT strategy & business alignment  Service catalogue management Service portfolio management  Service level management  Talent management
basis
 IT strategy development
Project portfolio control / assurance Service transition Service operation Technology & infrastructure management
 Service strategy development  Porfolio delivery management  Change management  Event management  Technology operations • Lack of preventative
5 maintenance and
 IT innovation management Programme & project management  Configuration & asset management  Incident management  Application management

 IT annual budget & planning  Programme / project management  Service testing & acceptance  Availability management
proactive problem
Quality & assurance management
 Release & deployment management  Security management  Compliance management
management processes
Investment portfolio management Solution development
 Demand management  Requirements management  Know ledge management  Service continuity management  Assurance management
6 • No central database to
 Resource management  Solution design  Access management  Continual service improvement
record and categorise
Architecture management  Service design  Problem management Financial management Banks‟ assets
 Enterprise architecture planning  Solution build & configure  Service reporting  IT financial management

 Architecture standards management  Solution test  Request fulfilment  IT service charging • No formal process to
 Capacity management
7 request
enhancements/modificati
Manage supplier and vendor relationships
Sourcing and procurement management Vendor relationship
ons to software
 Supplier selection  Contract management  Sourcing strategy management  Supplier relationship management
• Lack of process to
Suppliers Vendors 8 approve quality of
software submitted for
Capability key: Icon key:
release
 Non-existent Not Outsourced

 Initial 75% Insourced 25% Outsourced

 Repeatable 50% Insourced 50% Outsourced 9 • Undefined knowledge
 Defined 25% Insourced 75% Outsourced management process
 Managed Fully Outsourced
 Optimised • No SLA/OLA framework /
10
governance mechanism

12 • Performance Mgt. not
designed for employee
motivation
• Lack of mechanism for IT
13
service charging


IT Process maturity assessment
0 1 2 3 4 5 0 1 2 3 4 5

Business relationship management Event management

Customer relationship management Incident management

IT strategy development Availability management

Service strategy development Security management

IT innovation management Service continuity management

IT annual budget & planning Access management

Demand management Problem management

Resource management Service reporting

Enterprise architecture planning Request fulfilment

Architecture standards management Capacity management

Service catalogue/level management Supplier selection

Portfolio delivery management Contract management

Programme / project management Sourcing strategy management

Requirements management Supplier relationship management

Solution design People performance management

Service design Talent management

Solution build & configure Technology operations

Solution test Application management

Change management Compliance management

Configuration & asset management Assurance management

Service testing & acceptance Continual service improvement

Release & deployment management IT financial management

Knowledge management IT service charging


5.1. Business relationship management 6.1
Business relationship
management
START END
Business unit

Sends request 1 • Requests sent to IT
1 Department from
via e-mail or
hard copy business users are not
clearly defined
document
2 • There are no clear
prioritization procedures
for assigning priorities to
different business
requests
Reviews the
request and 3 • There is no prioritisation
prepares of issues. IT solves
proposal requests based on
urgency of request to
IT

3 solve it first, rather than
No Significant No Starts making focusing on priority of
New
change of requests
request? changes
HEAD OFFICE

project?

Yes

Yes
Curator

No
Approved?

Yes

2
Discuss the
request
IT Committee

Yes
Approved?

No

5.2. Customer relationship management 6.2
Customer relationship
management
START END
CUSTOMER

Business unit

1
1 • There is a lack of
Contacts Call customer feedback for
Center with Call Center operators
issue

2 • The are no Customer
Relationship
leaders/owners in place
2
to focusing on tactical
Classifies the functions along with
issue Customer Relationship
team

Prepares
Call Center

appropriate
documents

No Transferred to
HEAD OFFICE

IT related? related business
unit

Yes

Problem Yes 6.11.7. Problem
Management? Management
IT Support

No

6.11.2. Incident
Management


5.3. IT annual budget and planning 6.3
IT strategy and
business alignment
START END
Business unit

Consults with Main identified risks
ITD, prepares IT
Provides list of
related budget 1 • IT budget preparation
is not aligned with
requests
overall IT development
and innovation strategy
Finance Department

2 • IT Budget allocation
criteria is unclear. In
2012 IT budget is 95%
Request other
Receives allocated to purchase
recurring, non- of equipment/hardware
Excel file
recurring fees
3 • 95% of IT capex
budget forecast is
allocated to hardware
and only remaining 5%
are allocated to
IT Committee

1 2
software purchase.
Discusses and
HEAD OFFICE

Authorized While the Bank has
prioritises Starts acquired and
?
projects Yes monitoring implemented
infrastructure that
No corresponds to industry
practices, there are
significant opportunities
Yes for further improvement
and optimization of
software & application
Curator

No landscape.
Approved?
IT Director

Reviews, 3
Prepares budget
prepares high-
breakdown, adds
level project
running costs,
specification
sub-contractor
and estimate


5.4. Architecture standards management 6.5
Architecture
Management
Data flow diagram: Card issuance process Main identified risks
PENSION FUND

START END
Application in SPF

1 1 • In SPF Application there
STATE

Yes is no double validation of
Operator enters data on pensioners in
New card request? customer records
special application

2 • In Kapitalkard there is no
No Send file to HO double validation of
customer records
Operator enters data on
BRANCHES

3 • Migration to CMS is done
transaction
Kapitalkard

via DBF and there is
Operator enters data on clients possibility of data
2 manipulation
Send file to HO
4 • Migration to Application
for Embosser is done via
3 file transfer and there is
Several times a day information is migrated to CMS by transactions via file
Kapitalkard

transfer: possibility of data
• Card Order • SMS banking
manipulation
• Card prolongation • Internet banking
•
5 • There is no reconciliation
Transfer / withdrawal
between balances of
accounts on FlexCube
TranzWare /

No application and balances
CMS

New card request? of accounts on
KapitalKart application
6 • Card information, such
Yes
4 as Card holder
TranzWare / Card

name, can be altered
HEAD OFFICE

Information on:
• PAN when a card is sent to
Factory

• Card holder name embosser
• Expiry date
• CSC
is sent to embosser

Consolidated information
Flexcube

by branch is migrated

5
Authorization
Application for

6
embosser on

Data printed on card is reconciled with
OS/2

Encrypted PIN Encrypted Card is printed information in Card Factory (PAN,
identification number PIN block is CSC only)
is generated generated


5.5. Architecture standards management 6.5
Architecture
Management
Data flow diagram: Payment processing Main identified risks
START
END
• The is a risk of
1
inaccurate MT file
Is Amount is generated in payment
Enter/register No No
International more than No system
transaction Payment? 40000AZN? 2 • Checksums verification
is not deployed for
Yes Yes Message verification
between FlexCube and
Flexcube

other systems
Enter payment
3 • Excessive privileges
such as “authorize own
entered
Authorized? Rejected message”, “verify own
No entered message”, and
“create message” exist
Yes for account “SUPER”in
1 SWIFT system
HEAD OFFICE

MT file generated
and sent

MT file received in
secure folder
SWIFT/AZIPS

3
Pulls MT file , and
transfers through
the system

Receives MT file
XOHKS

and transfers
through the system


5.6. Project delivery management 6.8
Programme and project
END
management
START
Business unit

1 1 • Project Management
practice and processes
Prepares business Makes a decision on are not formalized and
requirements vendor selection documented. There is
no Project
Management Office to
coordinate and
manage the Projects
Analyses business through their lifecycles
IT Department

requirements and 2 • There is no
makes research prioritization of IT
projects. “Reactive”
3 mode to project
Prepares technical delivery has been
Prepares list of vendors design established.
HEAD OFFICE

3 • There are approved IT
Projects which have
been built and
completed by IT
Department, however
Yes No are waiting for
IT Director

Approved? Approved? confirmation from
business unit to go live
No Yes

Solution
Development
Curator

No
Approved?

Yes
IT Committee

2 Yes
Approved?

No


5.7. Solution development 6.9
Solution development
START END

Sends request
via e-mail or Test Yes • Development works in
Business unit

Accepted? 1
hard copy implementation Card Management
document System have no technical
No design or business
requirements specification
Internal
development? 2 • FlexCube Universal
No Banking Solution system
implementation period
Yes was 6 years (2005–2011)
Significant No
changes? 3 • No methodology or
Curator and
IT Director

requirements exist for
HEAD OFFICE

Yes working on IT Projects
with 3rd parties
Internal Yes
development?

No
IT Committee

No
Approved?
Technical Administration

Implement
changes Yes
division

1 3
Prepares No
Verified?
solution design
Development
3rd PARTY

2
External

Implement
Party

changes


5.8. Change Management 6.10
Service transition
START END
2
VENDO

External

Sends request
Perty

via e-mail or
R

hard copy
document 1 • Bank has not
implemented change
management tool for
Administration division

tracking changes to critical
2 1 systems and applications
Sends request
Technical

via e-mail or Configure Document in
hard copy changes excel file 2 • The Change Management
document process and roles are not
formalized and
documented
Business

Sends request 2
Users

via e-mail or
hard copy
HEAD OFFICE

document

Significant No
changes?
IT Director

Yes

No Reviews and
Vendor
assigns to related
involved?
IT division

Yes
IT Committee

Yes No
Approved?

Yes
Development
3rd PARTY
External

Configure
Party

changes


5.9. Configuration and asset management
Network Management and
6.10
Service transition
START END
Innovation division

1 2
Prepares configuration Implements
Change 1 • There is a lack of
files and a model of IT configuration settings
Management documented procedures
assets and sends via CD for configuration
management in IT
department

2 • Unified database with all
IT assets and
Analyzes configurations listed
configuration does not exist
files Stores
IS Division

configuration
CD‟s

No
HEAD OFFICE

Approved?

Yes
IT Director

Stores
No
configuration
Approved? CD‟s

Yes
Curator

No
Approved?

Yes


5.10. Event management 6.11
Service operation
END
Information

START
Security
Division Analyses of logs;
Provide requirements on system Monitoring of Main identified risks
security security events

1 • Monitoring tool is
configured based on
Director

Provide requirements on system
personal knowledge of
IT

uptime and performance
monitoring process

Configure operating system in 2 • No proper segregation of
Network Management and Innovation

duties between IS and IT
accordance with requirements
Department staff for event
System Administrator

1 management process.
Configure data log to retrieve
Both IT Department and
information automatically
IS Division have access to
division /

Log Management System
Yes
Security logs?
3 • Log Backup retention
No period is short, 3 months
Start monitoring in centralized
2 No only
HEAD OFFICE

Incident?
application

Configure network in accordance
with requirements Yes
Network Administrator

1
information automatically
division /

Yes
Security logs?

No
application

Configure database in
accordance with requirements
6.11.2.
Database Administrator

1 Incident
information automatically Management
division /

Yes
Security logs?

No 2
application


5.11. Incident management 6.11
Service operation
START END

6.11.1. Event
Management • Not all requests are
1
registered in the Help
Desk system, due to that
Business User

fact it‟s complicated to
Log of a call, or verbal
control utilization of Help
communication Desk employees
2 • There is no
documentation of
1 2
incidents occurred which
Via Helpdesk No have been requested and
app? solved outside of
Helpdesk application
3 • There is no formal
Yes
categorization or
prioritization of IT
Receives open issue
incidents that have taken
Receives call or e-mail place
HEAD OFFICE

in application
IT Support division

Yes
Can resolve? Resolve incident

No
Relevant IT
Division

Yes
Small scale? Resolve incident

No
IT Director

3
6.11.7.
Prioritizes incidents Problem
Management


5.12. Availability management 6.11
Service operation
Network Management and Innovation division / END
START
Sets up Oracle Performance
Management System

• There are no specific
1 2 No 1
Monitors uptime of databases on Issues KPI‟s to manage
daily basis noted? availability of
Checks request with Oracle servers, network etc.
Yes
PM report 2 • Monitoring tool is
configured based on
personal knowledge of IT
Matches with No
Specialist
request?
Yes 3 • Not all IT requests are
Improvement of registered through the
availability Helpdesk system

Sets up What‟s up through
Checks request with What‟s up

SNMP2 protocol
report
Network Administrator

Monitors uptime of servers, 1 2
connections, lines, network on No
HEAD OFFICE

Matches with
daily basis
division /

request?

Yes

Improvement of
Yes No availability
Issues
noted?
Business

Sends issue request via e-mail or 3
unit

hard copy document

Assesses level of occurrence of
incident
6.10.2. Conf. and
Yes asset Management
Periodically
occurs?
IT Director

No
6.11.2. Incident
Reviews issue Management

Yes 6.11.7.
Incident?
Problem
No Management


5.13. Security management 6.11
Service operation
START END

1
Prepares policies and procedures • Information Security policy
1
is not prepared in
Security Department

accordance with best
3 4 practice standards on IS
Distributes policies and
management, such as ISO
procedures to related Starts monitoring logs
27099, etc.
departments including ITD
2 • Department of Work with
Structural Units has
No access to the system
Configures devices in information Issues noted?
logging and software (Unix
security network perimeter servers)
Yes 3 • There are no policies and
procedures on increase of
user awareness on
information security issues
HEAD OFFICE

Management

No Yes
4 • No clear segregation of
Board

Approved?
duties (security
management and
administration) between IT
department and Security
department. Some
security related settings
5
are configured by ITD
Configures devices in IT network
Starts resolving the issue (Unix etc.), some by
perimeter
Information Security
Division. There is access
2 to all systems of both ITD
IT Department

Provides access to Security Changing No and ISD.
Department employees configuration 5 • There is lack of qualified
required?
specialists in IT Security
Yes Department for proper
administration and
monitoring of systems
6.10.2. Conf.
and asset
Management

6.11.2. Incident
Management


5.14. Security management (continued from previous) 6.11
Service operation
END
START
1 2
Administrator sets up software, 1 • Information security is
configures hardware or network
configured by IT, whereas
in accordance with appropriate
IT Department

IS Division only monitor
documentation
the logs.
(recommendations)
2 • Ultimate responsibility for
administration of Active
Directory server is not
given to specific
Informs IS division on
configuration/changes done
department. Both IT and
IS Division have super
HEAD OFFICE

user access to the system

3 • Information Security or IT
administrator can change
configurations of log
management and changes
are not logged in order to
Information Security Division

follow later.
3
Starts reviewing logs and
providing access management


5.15. Service continuity management 6.11
Service operation
START END

1
Prepares policies and procedures 1 • There is no Business
Continuity Plan to
Security Department

assist the Bank to
3 enable continuous
Distributes policies and
procedures to related Starts monitoring logs provision of reliable
departments including ITD IT services

2 • Reserve Center is
No not LIVE yet
Configures devices in information Issues noted?
security network perimeter
3 • No clear procedures
Yes exist for restoration of
IT services and
prepare the Bank for
disruptive events
Management
HEAD OFFICE

Yes
Board

Approved?

No

Configures devices in IT network
Starts resolving the issue
perimeter

2
IT Department

Provides access to Security Changing No
Department employees configuration
required?

Yes

6.10.2. Conf.
and asset
Management


5.16. Access management 6.11
Service operation

New employee access granting process Main identified risks
START END
Employee

• Lack of periodic review
1
of user accounts in
FlexCube and
HEAD OFFICE

KapitalCard/CMS

2 • Lack of periodic review
of active user
roles/privileges in
Department
Manager

critical systems
New user access
3 • Excessive access
request rights granted in
FlexCube system to
users

4 • Application Access
granting is performed
Branch Manager
BRANCHES

New user access based on personal
request knowledge of
administrator
Yes
HR department

1
Head Office
employee?

No
HEAD OFFICE

1 2 3 4
ABS Admin

Review based on Grant access
his knowledge of to ABS
positions/roles software
division

1 2 4
System
Admin

Review based on Grant access
his knowledge of in AD, and
positions/roles email account

5.17. Access management 6.11
Service operation

Employee access withdrawal process Main identified risks
HEAD OFFICE

START END 1 • Lack of periodic review
Department

of terminated user‟s
Manager

Prepares & account in FlexCube
validate access and KapitalCard/CMS
withdrawal applications
request
• User accounts are not
2 deleted, They are kept
and later used for
Branch Manager

Yes
BRANCHES

granting access to new
Validate access employees under new
withdrawal name.
request • Lack of periodic review of
3 transferred/terminated
users‟ roles/privileges in
critical systems
HR department

Head Office
employee?
HEAD OFFICE

No

1 2
ABS Admin

Review based on Deactivate user

his knowledge of access to ABS
positions/roles software
division

3
System

Review based on Deactivate user
Admin

his knowledge of access in AD, and
positions/roles email account


5.18. Problem management 6.11
Service operation
START END


6.11.2. Incident No N/A
Approved?
management
IT Director

Yes

Assigns employees to
Incident classified as problem
resolve the problem
HEAD OFFICE

Network Management and Innovation division /

Checks request with
appropriate reports

Prepares action plan 6.9. Solution
development


5.19. Request fulfilment 6.11
Service operation
START END
Business units

1 2 • Not all requests are
1
Sends request via Helpdesk registered in the Help
system or other type of Desk system, thus it‟s
communication complicated to control
utilization of Help Desk
employees
• Low computer skills of
2
business users lead to
BRANCH

high amount of repetitive
Resolve an issue
requests
Support Team

Request Yes
resolved?

No

Help to resolve the issue
IT Support division
HEAD OFFICE

Remote
access is Issue resolved
needed?

Yes

6.11.2. Incident
Management


5.20. Capacity management 6.11
Service operation
START END
Business unit

1 • Business requirements
1
are not formalized, leading
Define system requirements to non-clarity and
misalignment between
business and IT
2 • Hardware and Software
thresholds are subjective
and lead to overcapacity
Network Management and Innovation division

of IT infrastructure
BRANCH

Continuous monitoring of
Configure systems or capacity 3 • Best practice for CPU
network in line with usage is 70%, actual CPU
requirements usage is below 50%.
Overcapacity of servers
leads to low cost
efficiency

Threshold No
2 3
reached?
Define capacity threshold

Yes

6.10.2. Conf. and
asset
Management
HEAD OFFICE

IT Director

Yes
Approved?

No


5.21. Supplier selection and contract management 6.12 Sourcing and
procurement
management
START END Main identified risks
Business unit

1 • No supply contingency
1 3 planning exists.
2 Supplier selection is
Contract terms
Prepares request sometimes based on
are negotiated
and signed historical or personal
relationships, or
selected during a
simple quotation
process

2 • No formal negotiation
No
Curator

strategy is set for
Approved? Rejected negotiating contracts
with suppliers
Yes
• Limited or no
3
awareness of existing
HEAD OFFICE

contracts across
organization exists. No
consistency or
knowledge transfer
around contract
IT Committee

negotiation exists.
No
Approved? Rejected Selects supplier

Yes
IT Department

Prepares technical
Acquires
specifications for
preliminary
preliminary contact
proposals
with suppliers


5.22. Application management 6.15 Technology and
infrastructure
management
START END Main identified risks

1 • Applications are fixed
on ad hoc basis by
1 2 developers, no Change
Continues monitoring
Fixes bug Advisory Board exists
system bugs
for decision-making on
change management

2 • No Application Release
IS Support Division

Testing in test Plan or Application
Roadmap exist in IT
environment
Department

3 • Testing and production
3 environment is not
No No
Bugs Issues Transfers to production segregated. Head of IS
identified? identified? environment support division tests
HEAD OFFICE

changes and submit
them into production
Yes Yes environment.
IT Director

Yes Sends to vendor for
Approved?
fixing

No
Vendor

Yes No
Issues fixed?


Appendix 6 – Universe of
Recommendations


1. Loans - Observations and recommendations 1/11
Reference and title Observations Recommendations Expected Benefits

1 Incomplete loan files • Several cases of incomplete / • Assign Loan specialist responsible for customer file • Standardize process
unauthorized loan files prepared by the completeness verification. Develop a checklist for • Increase efficiency of credit committee
branch and applications approvals have requested documents attached to every customer file. • Increase quality of loan files
been noted. Analysis of such cases • At the branch and Credit Committee level prohibit approval • Increase awareness of staff in the
reflects most frequent cases relate to: no of incomplete files, increase process ownership branches on quality
proof of collateral value (process side), no
financial situation documents (customer
side)
No incentive/penalty • There is no determined KPI for the • Provide incentives based on number of loans granted (in • Motivate credit specialists to perform
2
program based on assessment of loan specialists based on compliance with credit requirements) and find new customers
loan performance the performance of the loans that they • Measure evolution of loans (reimbursement) • Increase awareness among credit
grant. This results in a high percentage of • Change mentality - implement process and risk ownership specialist on loans performance
non-performing loans as credit specialists at each staff level • Better measure productivity and
do not feel responsible for this process performance
Unreliable client risk • Unreliable credit risk criteria are allocated • Set up risk-based approach based on reliable and • Increase awareness of credit staff
3 profile assessment to client on the application form. There is measurable risk criteria, e.g.: • Reduce risk of customer base
no analysis of the application form based - Customer's income • Reduce number of applications
on the credit risk rating (can be 1, 2 or 3) - Customer's profession • Reduce NPL levels
as currently based on unharmonised and - Customer's amount of monthly charges
subjective approach, with limited grounds - etc.
on predefined criteria • Application risk rating should validate the customer
situation and ability to repay the loan and provide fair
grounds to issue/reject a loan. Such rating should be a
basis for further application review by Credit Committee
No limit monitoring • Flexcube has no system settings to • Enable limit functionality in the system for set up, control • Increase efficiency of limit monitoring
4
embedded in system specify, control and monitor credit limits and monitoring • Increase level of control on branches
per branch. Monitoring is manually • Implement system check to ensure that the branch can • Reduction of risk
performed by Credit Monitoring division in exceed the established limit only after additional
an Excel file authorization from the Head Office
No monitoring of • For issued loans there's no on-going • Within Loans Department assign on-going/regular • Better monitoring of client base
5 clients financial monitoring of customer's financial monitoring activity to trace customer profile, reliability of • Reduction of risks related to situation
health or loan file situation, collateral existence and validity documents, existence of collateral, etc. of customer
completeness of provided documents • Improve compliance with regulatory
requirements (to have a complete
validated file available)

Source: Kapital Bank, interviews, Deloitte analysis


6 No system approvals • Loans could be issued without approval of • Put system control in place to ensure that editions/terms • Better monitoring of loan requests
of credit committee Credit Committee or deviate from approved by Credit Committee (e.g.. Loan amount, • Increase control over loans granted
decisions conditions/terms approved by Credit collateral, signatures) are respected and performance
Committee (e.g.. Loan amount, collateral, • E.g. assign an independent employee to tick loans • Reduction of NPL
signatures) approved by Committee. This will block terms of loan and
• Decision on loan issue are currently enable issue of those loans approved by Committee
documented in Credit Committee minutes. decision and in the system.
• Further monitoring on actual conditions in • This control will also maintain centralized register on loans
contract with a customer is not performed requests.
by operational department
- 418 loans out of total 489 none
collateralized loans are approved by the
committee.
- 167 loans out of total 991 approved loans
by Credit Committee are without proper
documentation (Documents are not
provided to legal and risk department for
reference, or credit department did not
consider the case expedient
- 77% of overall loan portfolio represents
non-performing loans
Prolongation of • The Bank's branches can manually • Segregate duties and system access rights to allow loan • Better control the amount of expected
7
loans prolong loans without approval from Credit prolongation by Bank's branches only after approval by interest income
Committee. Credit Committee • Better monitoring of loan portfolio
• Prolongations are not subject to a system • Standardize the process of loan prolongation - consider • Reduction of risks related to data
authorization at Head office level, there is the authorized limits for branches to give them authority to manipulation
no monitoring of loan prolongations prolong loans up to certain amount only and loans
exceeding this amount only after Head Office/Credit
Committee
Inefficient • Monitoring Department prepares • Establish monitoring procedure on problematic loans on • Increase efficiency in portfolio
8 problematic loan monitoring report on loan portfolio on a case by case basis in collaboration with other functional monitoring
monitoring monthly basis. departments (e.g.. Legal). • Better control on portfolio status and
• There is no particular focus and monitoring • Develop and agree on monitoring KPIs identification of issues
for problematic loans. • Enable detailed status of portfolio loan in Flexcube
• The data in report is consolidated for the
whole loan portfolio, notifies on portfolio
status on aggregate basis only.
Business loan • Register on rejected business loans is • Collect detailed statistical information on clients and • Better monitoring of rejected loans
9 monitoring manually maintained in Excel since implement additional controls to verify customers or • Increase level of control
October 2011 only pledged assets.
• Implement document management system to automate
loan application process.



10 No system • Loan contract is not directly generated • Automate contract generation in Flexcube directly based • Increase efficiency
generation of loan from the system. Some data should be on the terms of the loan • Reduction of risks related to data
contract copied to Excel/Word template to generate manipulation
a contract. That leads to cases of violation
the rule to issue the loan without the
contract as a legal evidence
No system • New loans could be issued to guarantors • Create a consolidated client database to see potential • Increase efficiency
11 identification of or NPL customers, there is no client profile and avoid a risk of credit shopping • Reduction of risks related to
guarantors or NPL control/check in place to avoid this • Implement a control on client profile in he system duplication
customers
Loan • Loans are partially or fully not • Develop system control to block the deposit amount on • Increase monitoring
12
collateralization collateralized customer account to guarantee collateral receipt. Other • Improve level of control
types of collateral (property) should be monitored by • Reduction of risks related to non
dedicated employee within Monitoring Department collateralization of assets
13 No control on usage • The purpose of the loan is not properly • Enforce monitoring responsibilities within Monitoring • Better monitoring of loans
of loan monitored vs. its usage- thus, e.g. Car department - include monitoring of the purpose of the loan • Increase completeness of credit files
loans can be spent for other individual in their functional activities (consider this condition in the
purchases contract) e.g. for car loans, ensure that the bank received
the purchase contract
14 No centralization of • No consolidated client register. Same • Centralize client register for all clients into head office • Increase efficiency
client information client can be created in different branches • Assign an unique Client ID to each customer of the Bank, • Reduction of risks related to
as a new one with a reference to the without primary reference to the branches duplication
branch. • Increase monitoring capabilities
• No system check on Client ID based on
unique ID document
15 Loan contract input • Free text fields to fill in for contracts, no • Implement system check to ensure the contracts cannot • Increase efficiency
in system system control on completeness of be authorized if all required fields are not filled in • Reduction of risks related to data
required fields • Determine mandatory settings for each products that manipulation
cannot be overridden unless authorization of HO • Better monitoring of products
Lack of credit • Insufficient level of expertise in branches • Develop personnel training programs to increase • Build expertise and sharing of
16
specialist expertise to validate business loan application, no qualification and expertise in branches. knowledge
in Branches risk perspective analysis. Additional loan Review adequacy of jobs description and requirements • "Standardize" processes regarding
request analysis required in Head office in • Training for credit specialist must be performed - creation credit analysis among branches and
most cases. of a special "credit trainers" task force that would go to all circulated procedures
branches to provide trainings on procedures to apply and
on loan request analysis
• Consider personnel rotation to ensure branch employees
gain experience and vision of the whole loan process
• Implement clear checklists as to the different steps to
follow and as to the different documentation that client
needs to provide
• Ensure that clear criteria are defined to assess the level of
risk associated to each credit request



17 Contract date issues • Open contract date has been used for • Disable system functionality to enter contracts on previous • Better monitoring of contracts
data migration dates used for data migration reduction of risks related to
• Preventive control at place: the date of miscalculation of allowance
contract input can not be changed
No system control • No system control on manually input of • Normal status on allowance should be automatically • Increase efficiency
18 on status field status field for allowance accrual on the assigned to newly issued loans. Risk-free option in case of • Reduction of fraud and risks related to
contract collateralized deposit should be additionally authorized manual interventions
• Manual change and recalculation of dates, after automated check on sufficiency of deposit amount. • Reduction of allowance
payment periods, amounts is possible in • Implement system check to prevent withdrawal of miscalculations
the system collateralized deposit and any input without
• For origination a contract in the system the authorization/validation
status field is filled in manually. Normal
level as a default option generates
allowance of 2%, option of 0% is available
for loans collateralized by deposits, other
options are also in compliance with CB
regulations (10%, 30%, 60%, 100%, no
interest accrual)
Manual calculation of • Loan parameters including interest rates • Interest rate should be assigned automatically depending • Increase correctness of allowance
19 interest income in are manually input into Flexcube on the loan product type. Non-standard interest rates calculations
Excel • Loan Portfolio Management Division should be approved by Credit Committee and authorized • Reductions of risks related to
calculates the amount of interest income in the system. allowance miscalculations
and principal outstanding manually in • Loans should automatically change their status to NPL in
Excel and presents calculation for Credit case of late or partial repayment.
Committee approval. After reception of • Monitor loan criteria on a monthly basis, i.e. collect
approval, Management Committee reviews information from all branches and ensure that limits
calculations followed by authorization in outside standard thresholds are documented and correctly
the branch. assigned
• In case the loan falls into the NPL
category, branches manually have to
change its status to NPL in Flexcube.
• To reflect partial repayment for non-
performing loans branches have to change
'NPL' status in Flexcube to 'PL' to reflect
cash receipt in the system. After
accounting for cash receipt from a
customer branches change the status of
the loan back to 'NPL' manually. This
operation is connected to accounting
principles which do not allow to book cash
receipt for non-performing loan to balance
accounts (as long as NPL are accounted
on off-balance accounts)



20 Repayment schemes • Repayment schemes have been • Repayment schedules for all loans in Flexcube should be • Increase data transparency and
introduced into Flexcube after October, automated completeness
17th 2011 to classify new products. For • Increase quality and updated
former/existing customers and products information for actual loan
(before that date) repayment schemes performance monitoring and
have not been presupposed. Repayment allowance calculation
schemes are necessary for loan
performance simulations and calculation of
required parameters.
Allowance • Old products loans become overdue after • Enable system to automatically calculate allowance for all • Increase monitoring
21 calculation the contract end date only and are loans • Improve level of control
monitored manually in Excel
Allowance is accounted for loans which
have repayment schemes in the system
only. No automated calculation of
allowance for loans on old products
Repayment schemes • Repayment schedule can be changed so • Enable system to detect any changes to the repayment • Reduction of risks related
22 - principal vs. that interest is repaid monthly, but the schedules and force 2nd level of authorization manipulation
Interests principle to be paid at the end of the • Increase level of control
contract only. The system calculates loan
repayment for both interest and principle
from the beginning of the contract.
• Changes can be manually made by the
operator without 2nd level approval. This is
not detected
Default exposure • Default exposure category field • Automate default option of exposure category - • Increase efficiency
23 field („GENERAL‟ is the only option) is not predetermine 'General' for any new contract being input in • Reduction of risks related to "no
automatically populated. If left blank, the the system allowance" calculation whereas it is
field will lead to null allowance accrual. • Determine standard settings for each product required and data manipulation
This will cause understatement of
regulatory required accrual and unreliable
financial statements
No procedure on • There is no formalized procedure on bank • Develop internal procedure on bank guarantee issue to • Increase efficiency of process
24 bank guarantee guarantee as a product formalize rules and put controls in place. Configure system • Guarantee compliance with applicable
issue according to internal regulations regulations
• Increase controls and monitoring of
bank guarantee process
Client risk • Lack of standardized risk-based approach • Set up risk-based approach based on reliable and • Improve profiling of customer base
25
assessment for bank guarantees in respect to measurable risk criteria, e.g.: • Reduction of risks related to risk client
evaluation of customer - Customer's income base
- Customer's profession • Increase efficiency (no time wasted on
- Customer's amount of monthly charges ineligible clients)
- etc.
• Application risk rating should validate the customer
situation and ability to repay the loan and provide fair
173 Kapital Bank Process Efficiency and Organization Review grounds to issue/reject a loan. Such rating should be a © 2012 Deloitte Tax & Consulting S.à r.l.
Source: Kapital Bank, interviews, Deloitte analysis basis for further application review by Credit Committee


26 Loan • The system does not currently allow to • Configure system settings to allow the system to block the • Improvement and standardization of
collateralization block the amount on the customer's amount of guarantee on the customer's account the process of guarantees issuance
account (used as collateral) to guarantee • Ensure availability of guaranteed
loan repayment resulting in funds
uncollateralized guarantees. An audit • Reduction of risks related to overdue
review identified approx. 96-98% of loans
guarantees are not collateralized.
In case of Bank‟s liability to settle
guarantee obligation, it issues loan on the
customer‟s name in the system
The guarantees amount to 264mln AZN, of
which only 6mln AZN are collateralized.
Collateral field • Collateral parameter even if required by • Review system settings to prohibit 'no collateral' option for • Improve monitoring of collateral
27 product settings can be avoided by products with collateral requirements • Reduction or risks related to non-
selecting 'no collateral' option while filling collateralized assets
at customer contract level
Collateral monitoring • No regular formalized monitoring review on • Enforce monitoring responsibilities within Monitoring • Improve monitoring of collateral
28 the status, ownership and existence of department - include monitoring of collateral in functional • Reduction or risks related to non-
collateral. Only mortgage loans are activities collateralized assets
monitored on bi-annual basis • Develop and agree on monitoring KPIs
• No regular review of consolidated
collateral list to revaluate it (not applicable
to mortgage loans only)
Collateral monitoring • There is no monitoring review on the • Enforce monitoring responsibilities within Monitoring • Improve monitoring of loans
29 status, ownership and existence of department - include monitoring of collateral in functional • Reduction of risks related to "bad"
collateral. E.g. car loans collateral can be activities collateralization
transferred to 3rd party.
Cash reception in the • No authorization of cash reception • Cashier should confirm receipt of cash from / /payment to • Improve level of control
30 system embedded in the system customer using unique Customer ID in Flexcube • Reduction of fraud

Reception of • No system check on reception of • Implement system check to control the completeness of • Better monitoring of outstanding loans
31 payment in the insufficient payment (less than scheduled) amount for changing status of NPL
system as the contract for old products is
automatically settled by the contract end
date
Direct debit • System settings functionally allow to • Enable direct debit functionality in the system • Increase efficiency - reduction of
32 functionality execute direct debit but is currently not Analyze loans for which direct debit could be set up manual payments at branch
used. Reduction of Non Performing Loans



33 Credit recovery • Legal Department is not involved directly • Re-position the credit recovering activity either to the Legal • Enable the Bank to proceed in
process in the credit recovery process - decisions department which should be the first department informed compliance with the law and to
are taken at the level of work with by the Credit department that an incidents of payment gradually ensure payment of credit
structural units department after several occurred with a client or create a dedicated problematic • Faster issue resolution process
unsuccessful attempts of recovery loan division in charge of monitoring and reporting to Legal • Increase implication and expertise of
department for final resolution Legal Department
The role of the Legal department would be afterwards to
proceed according to the law
Problematic loans • There is no owner assigned to problematic • Assign ownership of problematic loans to branches • Improve monitoring of NPL
34 ownership loans, no penalty program in place for non- responsible for issuing • Decrease volume of NPL
performing loans • Set up a penalty program for non-performing loans granted • Increase awareness of staff on
by credit specialists possible "unhealthy customers"
• Strictly monitor status of NPL including last actions taken
Recovery process • Problematic loan department may take the • Assign clear ownership and procedure for bad debt • Improve monitoring of NPL
35 collateral from client before court decision recovery process (see previous recommendation) • Decrease volume of NPL
• Strictly monitor status of NPL including last actions taken • Increase awareness of staff on
possible "unhealthy customers"
Interest calculation • Overdue interest might not be calculated • Enable functionality in the system to allow automated • Reduction of loss related to
36 for all overdue loans calculation of allowance for all loans miscalculation of interests
• Improve efficiency of process as no
control required on calculations
Overdue status • The status of an overdue loan does not • Status on allowance should be automatically changed • Increase efficiency as no more manual
37 change to "overdue" after partial based on predetermined conditions and legal requirements intervention
repayment of overdue amount • Enable / enhance system functionality • Reduction of potential loss related to
automatically. It needs to be manually interests
updated
Credit performance • Credit performance is monitored only • Review criteria for credit performance assessment • Better monitoring of credit
38
assessment based on overdue/timing parameters performance
Other factors, such as financial situation of • Increase awareness of staff in clients
the customer, market trends, etc. are not and ' assessment
taken into consideration during analysis
Credit performance • No system tool to monitor performance • Enhance Flexcube to allow analytics to monitor loan • Better monitoring of credit
39 assessment's (manual analysis through built-in excel performance based on historical data performance
system macros to simulate actual loan • Better monitoring and maintenance of
performance and calculate amount of loan products
allowance) • Increase efficiency and performance
• Historical loan performance is not of product range
supported by the system
• Loan Portfolio Management Division
applies built-in excel macros to simulate
actual loan performance and calculate
amount of allowance



40 Calculation of • Overdue calculation in Flexcube is not • Enhance Flexcube to allow correct and automated • Increase efficiency related to
allowance accurate, manual calculations are calculation of allowance automated calculation of allowance
performed in Excel • Reduction of risks related to manual
• Risk of inaccurate or incomplete intervention and wrong estimate
calculation of allowance
Calculation of • Flexcube is not automatically calculating • Overdue interest should be automatically calculated based • Increase efficiency due to automation
accrued overdue accrued overdue interest for loans with on predetermined conditions and legal requirements of interest calculation
41
interests manual overdue status change • Enhance Flexcube to restrict manual change of the status • Reduction of risks related to correct
of the loan calculation of interests
Product • No effective product management analysis • Develop and validate formal procedure for loan product • Increase efficiency of product range
42 management (e.g. “cost” / “price” of the product, target development Better monitoring of performance of
customers and market for this product, • Specify analysis stage which required market research, loan products
future cash flow, its profitability, product evaluation of product parameters, analysis of profitability
life, appropriateness of the product from and further product monitoring
market perspective, consumer satisfaction • Assess and monitor historical performance of loan
and etc.) at the product development products to identify non-performing products
stage. This leads to non-competitive offers
for good clients and attracting clients
indifferent to product terms due to no
intention to repay loans
Loan product • There's no formal procedure for loan • Develop and validate formal procedure for loan product • Increase efficiency
development product development specifying all development • Facilitate tracking and monitoring
43
dimensions to be considered and risks to • Implement specific system requirements, controls and • Uniform the procedure
be avoided approvals. Configure system in line with formal procedure
• The Bank is in the process of developing • Limit business loans issue only to branches with
commercial (business) loan issue performing business loans. Re-launch business loans after
procedures. Currently common loan full procedures and system controls set-up. Consider
product (with possibility to edit repayment amendment of criteria to issue this type of loan
schedule). The product set up process is All procedures must be prepared by relevant departments
not formalized (i.e. Credit Department prepares its own procedures) but
all of them should be reviewed and approved by
"Compliance department" currently not existing as such
Number of products • Exhaustive amount of developed products • Rationalize the number of products • Increase efficiency
44 (110). Products are linked to the Charter of • Consider linking products to customer type (risk level of • Better maintenance and monitoring of
accounts, not to the customers the customer will determine the product which could be loan products
offered)
Charges settings • Charges settings are not set-up and • Review system settings in respect to automatic charges • Decrease manual operations and
45 automated in the system due to lack of related to the product and automate custom product operational errors
awareness on its parameters parameters • Increase efficiency related to
• Conduct required trainings for Flexcube users automation of charges
• Better monitoring of charges



46 Interest rate input • Interest rate can be manually input by • Assign specific interest rates to loan product types • Decrease manual operations and
front-office specialist and offer possibilities • Non-standard interest rates should be approved by Credit operational errors
for modifying it within a specific range Committee and authorized in the system to • Increase efficiency related to
automation of interest rates
• Better monitoring of rates
Contract generation • Customer contracts are not automatically • Review system functional and build-in option to print • Ensure data correctness
generated from the system based on the contract based on parameters entered in the system • Avoid manipulation with approved
47
approved request. Contract templates product parameters for a customer
have to be filled in Excel based on the • Increased efficiency as no manual
data from the system generation of contracts
48 Documentation for • In some cases, for loan application • In case of loan application from pensioner 1 of 2 • Ensure loan request file completeness
loan request file pensioners must submit life insurance and documents are enough as cover the same risk: life • Increase efficiency and
indicate guarantor on the loan amount. insurance or guarantor only standardization of process and
However both documents cover the same Review the set of documents required for loan request file procedures
risk Harmonize procedure throughout the branches
Principal and • Manual loan repayment receipt allocation • Implement system functionality for automated allocation of • Increase efficiency
49 interest amount between interest and principle amount payment to interest and principle amounts • Reduce risks related to the wrong
payment • Loan specialist manually allocated amount calculation of allowance and/or
received from the customer to interest due interest
and then principle amount repayment • Reduce risks related manual
intervention
Cash Receipt for • Loan specialist prints out repayment • Implement system control on transaction • Increase efficiency
50 loan repayment is memo. Memo represents 3 copies of posting/authorization after cash receipt. • Reduce risks related to potential fraud
not automated repayment evidence: one copy for loan Transaction consists of 2 parts: loan specialist accrues • Reduce risks related manual
specialist, one copy for cashier and one for loan repayment, cashier reflects cash receipt for the loan. intervention
customer. Loan specialist checks the
amount due in Excel file and reflects loan
repayment after additional confirmation
with cashier (no system check) or
customer. In some cases repayment can
be reflected before validation with cashier.
Repayment authorization is performed by
Chief accountant
Loan limit • No loan limits assignment at system level, • All limits should be centralized and kept at system level • Increase efficiency
51 maintenance and limits are kept and maintained in an Excel • Reduce risks related to potential fraud
monitoring file • Reduce risks related manual
intervention



52 Loan limit set up and • There is no systematic approach on • Establish and formalize clear criteria for limits • Increase efficiency
maintenance assignment of loan limits. The limits are establishment(could be set up in accordance with the • Reduce risks related to potential fraud
assigned for each product and branch following information e.g.: • Better monitoring of branches activity
individually. • 1. Number of loans granted
• Those limits are kept in an Excel file and • 2. Number of customers
not entered in the system • 3. % of non-performing loans
• Exceeding set threshold (3K AZN for • 4. Level of seniority of Credit Specialists
consumer lending and up to 20k AZN for • 5. etc.
car loans) required approval by Credit
Committee. Below this amount all loans
can be approved and issued by the
Branch
Product set up and • There are no approved risk appetite for • Determine and validate Risk-Appetite for the whole bank • Increase bank's attractiveness related
53 objectives each loan product and by products o its product range
• Rationalize product range based on performance and
bank's strategy
Credit line • There is no centralized client register with • The Bank (especially Branches) should be able to validate • Enable the bank to approve loans
54 monitoring all loans issued the Bank, especially for the client in internal database to have all data about within capacity of its customers
loans below the branch limit (up to 20k current accounts, loans issued, guarantees, etc. • Reinforce the position of the credit
AZN). This may lead to low quality of loan • Validate the client in Central Database for loans department within the credit approval
portfolio and increasing NPL rates • Assign customer control to the Credit department to process especially in case of a
guarantee independency of the control and quality check accumulation of small credits (i.e.
below the mentioned threshold).
Miscalculation of • Understatement of provisions for non- • The amount of provisions should be calculated based on • Compliance with regulatory
55
provisioning performing loans due to excluding partly all overdue loans, including overdue principal and interest requirements
repaid loans from calculation by system amount. • Reduction of risk as better
algorithm • Enhance/correct system to allow the identification of provisioning
• Based on Central Bank requirements "unpaid"/overdue amounts to allow an automatic provision • Increase efficiency and monitoring of
there's a system build-in provisions calculation provisioning process
calculation scale (2%, 10%, 50%, 100%)
for non-performing loans. Currently
provisions for non-performing loans is ca.
64mln AZN whereas it should be ca.
214mln AZN (TBC). This difference is
mainly due to the fact that the system
considers any payment of the loan,
whether it is partial (principal or interest) or
complete (principal + interest) as a
payment. i.e. the customer repays less
than the monthly amount due but the
system does not identify it as such for
provisions



56 Interest rates • Loans issued at higher rates when • Review system to apply 5% interest rate increase for • Better control and monitoring the
increase when overdue automatically decrease to overdue loans and develop control reporting to ensure amount of expected interest income
overdue standard overdue rates correct rates are applied and reflect correct amount due
• Loans issued at higher rates (e.g. 30% • Reduction of risks and losses related
while standard rate is 20-25%) when to wrong calculations
overdue automatically decrease to
standard 25-30% overdue rates
ca. 560 loans are involved
Product • Any analysis requires consolidation of data • Estimate requirements for consolidated functionality to • Better monitoring and maintenance of
57 competitiveness and requested from various departments. The perform comparative analysis, product or initiatives product range
rationalization process of data receipt is not formalized, performance and be able to export required reports • Increase attractiveness or loan
thus, could be time-consuming products

Collateral monitoring • Branch might not notify the head office • Restrict collateral removal in the system - any change has • Better monitoring of collateral
58 and restrictions while replacing or removing the collateral. to go though Head Office for approval • Reduction of risks related to
uncollateralized accounts

Bank guarantees • Bank guarantees are issued without legal • Centralize bank guarantees issue • Better monitoring of guarantees
59 review review Limit process of guarantees to Head office • Reduction of risks related to multiple
guarantees granted


2. Plastic Cards - Observations and recommendations 1/4

1 Dependency on • Kapkart is a legacy system with limited • Decommission Kapkart for a more used system or • Reduction of key dependencies on a
Kapkard experts functionality Train workforce dedicated to maintenance and limited number of staff
(initially developed to manage 200 cards administration of Kapkart • Ease recruitment process if new
and is maintained by 1 employee) system is more widely used
Plastic card clients' • The plastic cards requests interface • The data exchange should be performed via encrypted • Increase efficiency as no more manual
2 name transmission between branches and Head Office and files to exclude any opportunity of data manipulation intervention
between responsible departments in Head • Reduction of potential fraud
Office (plastic cards issue and PIN codes
generation) is done via text file which can
be changed by branch or HO employee for
his own benefit
• Data exchange with CMS is performed via
unencrypted text files (DBF) which can be
altered
Risk due to lack of • Within Division of cards and PIN issue the • Segregate duties and access rights between employees of • Reduce risks related to potential fraud
3 segregation of duties number employees amounts to 5 in total. different activities within one process
in User Access The principle of segregation of duties • In case of need to replace an employee provide those
Rights functionally separates cards issue and rights which can not lead to risk of fraud or manipulation
PIN code issue. In case of someone's due to extensive access to information
absence the segregation of duties can be
neglected and same employees can be
involved in related sub process
Arrange for earlier • Late renewal of vendor vertificate may • Implement system alerts to allow appropriate time for • Increase efficiency related to
4 vendor contract lead to inability to issue plastic cards renewal of vendor certificates automation of activity
renewal

Plastic card validity • The Ministry imposed limit for maximum • Estimate and budget extra costs related to decreased • Better monitoring of budget
5 period plastic cards validity. New plastic cards plastic card validity. Consider technical capacity and • Better forecasting
should be issued for 1 year. That initiative delivery to execute plastic cards issue
aims to decrease potential fraud with
plastic cards and help monitor status on
actual cardholders.
Same representative • Authorized representative(s) on behalf of • Separate receipt of new plastic cards and PIN codes in • Reduction of risks related to potential
6 administering PIN the branch receives ordered plastic cards time by the same person to avoid risk of fraud (option: fraud
codes and cards and PIN codes to these cards the same consider activation of cards on distribution to the customer
day. All the cards and codes are to diminish risk of fraud)
concentrated within the hands of the same
person
Cards distribution by • Within new regulations from the Ministry all • Ensure strong plastic cards distribution process at place , • Reduction of risks related to potential
7 branches plastic card distribution function will be ensure controls on identification of the client, ensure fraud
performed by banks to diminish fraud process ownership and availability and awareness of
inside organizations (for salary cards and personnel

process efficiency review

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