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Banks invest in KM

This article appears in the issue July/August 2008, [Vol 17, Issue 7]
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Banks and other financial services firms (mortgage lenders, brokerages, etc.) are using knowledge management to monitor the competition and are starting to share knowledge throughout the enterprise, although they still have a way to go, according to analysts.

RockBridge Commercial Bank is a $220 million financial institution that opened its doors in Atlanta in November 2006. Like other banks, it relies on net interest margin—the difference between the interest rate it charges to borrowers and the interest rate it receives on investments minus the interest rate it pays for funds—for a substantial portion of its income. But the rates on the loans tend to be fixed for a longer period of time than interest rates on the funds it borrows to make the loans, explains Dick Cheatham, the bank’s CFO and marketing director. So bank earnings tend to get squeezed in falling interest rate environments, like the one that’s existed since the Federal Reserve started cutting rates in September 2007.

When Cheatham joined the bank earlier this year, he saw that the bank had most of its cash on hand invested in extremely low-rate overnight funds, rather than having some in higher paying investments, which were only a little less liquid (convertible to cash). Cheatham thought the investment mix could be improved, but had to convince bank superiors that he was recommending a prudent course of action that wouldn’t subject the bank to too much risk.

So he turned to BancIntelligence, which provides market and financial analysis of financial institutions, enabling banks such as RockBridge Commercial to compare their financial performance in a variety of categories against their peers.

"I’ve been at three different banks in the last six years and they’ve all used BancIntelligence," Cheatham says. "I wanted to see if other banks were doing the same thing [with investments] or if this was unique to us."

The BancIntelligence application indicated that similar small commercial banks were investing substantial portions of their funds in government-backed securities, which paid more than the overnight funds. He took that information to executives, who approved a change in the bank’s investments, achieving a higher rate of return as a result.

More recently, the bank started using the BancIntelligence marketing feature to help develop a campaign aimed at medical professionals. "We have a number of hospitals and other medical services within a three-mile radius of the bank," Cheatham explains.

The BancIntelligence marketing feature provided RockBridge executives with names, office phone numbers, addresses and other pertinent information on the approximately 160 medical professionals within that target area. In March, the bank began using the BancIntelligence information to produce and send targeted direct mail to those prospects. Cheatham is hopeful the bank will land 10 percent of those as new customers within the next six months.

"We’re just scratching the surface of what this application can do," he says.

Global reach

While RockBridge concentrates its business and its knowledge management on a small geographic territory, the World Bank works across the globe, with professionals in far-flung locations in developing and developed countries. With international support, the organization provides loans to developing countries for development programs—bridges, roads, schools, etc.—toward the goal of reducing poverty. The bank handles billions of dollars annually and wants to ensure that the money is spent where it will do the most good, a determination that requires leveraging the knowledge within the organization, according to Jan Weetjens, who heads the World Bank’s knowledge and learning office.

"Today there are food crises worldwide," Weetjens says. "This year, we will increase our support from $4 billion to $6 billion. But we need to know what to do with that money. We need to make sure we have the right people available. Even if you have the smartest people, you have to know how to leverage them. Time is a non-renewable resource."

So the World Bank is experimenting with a number of collaboration tools designed to help capture the knowledge in the organization so that it can be shared from group to group and from country to country. The process started in Latin America, where World Bank executives used technology to capture procurement information in such a way that it met the transparency guidelines (all information about it is open and freely available) increasingly desired by regulators, governments and funding sources. The same process is now being used to provide transparent information for funding in Thailand.

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