POSB Bank: Applying Six Sigma to Reduce Debt Collection Delays

This report examines the issue of delayed debt collection at POSB Bank, a subsidiary of DBS Bank Limited. It utilizes the Enterprise Singapore Business Excellence Framework to identify strengths and weaknesses, particularly in relation to debt recovery. The report proposes the application of Six Sigma methodologies to address key issues such as reducing accounts receivable aging and improving customer response time. It outlines the use of various Lean Six Sigma techniques, including process mapping, fishbone diagrams, and Pareto charts, to analyze the problem and develop strategies for improvement. The analysis highlights the importance of thorough customer verification, credit risk assessment, and efficient debt disbursement processes to mitigate financial risks and enhance revenue generation. The report concludes by emphasizing the need for restructuring customer verification policies and improving communication to enhance customer relations and expedite debt recovery.

Delay in debt collection at POSB
Bank

About POSB Bank
 POSB Bank is a bank based in Singapore and subsidiary to the
Singaporean multinational bank DBS Bank Limited. The bank operates
under the leadership of Peter Seah Lim Huat as its chairman and
Piyush Gupta as its CEO. The operations of the POSB Bank range of
selling of a wide variety of financial products both of liability and asset
categories.

Self-assessment tool based on the Enterprise Singapore
Business Excellence Framework(1c)
 The Enterprise
Singapore Business
Excellence Framework is
a framework as shown
below is a framework
which enables the
business organisations
align their strategies
and goals to their
business objectives so
as to gain sustainability
in the market. It can be
justified that POSB can
use the framework to
recognise its strengths
and weaknesses. The
bank can then form
strategies to deal with
the weaknesses like
delay in recovering of
debts.
S/N Statement 5 4 3 2 1 Justification for the rating
Counter-
measure
s
1
Leadership:
Senior leaders have
developed a clear vision
and mission which are
clearly communicated to
its stakehoklders 5
The bank in spite of being
subsidiary to DBS Bank has
succeeded in capture high
position in the banking
market in Sinagore which
shows that strong
leadership qualities of the
apex management
X
2 Strategy:
The organisation
develops strategies to
achieve organisational
goals 4
The bank in spite of being
subsidiary to DBS Bank has
succeeded in capture high
position in the banking
market in Sinagore which
shows the strategy making
power of the apex
management
X
3
People:
The organisation
develops and aligns
human resource plans to
achieve organisational
goals 5
High employee retention
and market position of the
bank
X
4
Knowledge:
The organisation uses
benchmarking to
improve organisational
performance 5
High profits and market
position X

Self-assessment tool based on the Enterprise Singapore
Business Excellence Framework(1c) contd…
 The companies in
Singapore use the
framework to recognise
their strengths and
identify their weaknesses
on which they can
improve.

Two issues (2a)
 POSB can use six sigma to improve quality on two areas of business
operations namely, reduce accounts receivable ageing and
improve customer response time.

Two issues contd…
 Reduce accounts receivable ageing: POSB in order to reduce
the accounts receivable ageing should form a strategy which would
enable the bank to recover the loans from customers faster.
 Improve customer response time: POSB should take steps to
improve customer response time.

Two issues contd…
 Reduce accounts receivable ageing: POSB in order to reduce
the money it should receive from customers late should form a
strategy which would enable the bank to recover the loans from
customers faster.
 The bank in order to provide loans to appropriate customers. Moreover,
ageing debts reduces the liquidity in the bank causing cash crunch.
Thus, it is evident that the management of POSB Bank should take
steps to reduce ageing debts by using six sigma.

Two issues contd…
 Improve customer response time: POSB should take steps to
improve time customers take to respond to sales call from the bank.
 Prompt customer response enables banks to sell products to customers
and generate higher revenue. However, it can be pointed out that
banking personnel dealing with the customers often do not maintain
strong communication with customers.
 This results in customers developing negative image about the bank
which in turn prolongs the response time. Thus, it is clear that POBS
has to implement six sigma in order to reduce or improve customer
response time.

Project chart-Quality problem (2b)
 POBS should use total quality management as the six sigma to evaluate
the application of project charter. The problem identified is ageing
accounts receivables from the borrowers of loan.
 Delay in recovery of loan often results in bad debts which reduces the
revenue generation of the bank. The problem defined in this case as per the
DMAIC(define, measure, analyse, improve and control) would loss which POBS
incurs due to either late or non-recovery of the amounts due on loans.
 The business case would be ’Banks incur credit risks due to late
recovery of loans and bad debts.’ The goal statement would be to use six
sigma technique, namely, total quality management to ensure quicker
recovery of amount lent as loans to debtors. The project scope would include
the two asset products banks offer to customers namely, loans and credits.

Three lean six sigma techniques(2c)
 Process mapping: The
process mapping enables
business organisations to
map the steps or processes
which lead to marketing
goods and services in the
market.
 As far as POBS is concerned,
the bank can use process
mapping to view all the
steps which go into
providing loans and credit
cards to customers as well
as recovering them. The
management should
consider each step and
identify the areas of
weaknesses in which it can
bring about improvement.

Three lean six sigma techniques contd…
 Fishbone diagram: The companies
should use fish bone diagram to analyse
the problem(s) identified using the process
mapping shown above. For example, the
management of the POBS Bank identifies
that background verification of many
previous loan cases were faulty.
 The customers who were allowed loans
and credit cards could not pay back the
debts to the bank owing to bankruptcy.
Thus, in this case the management should
restructure its customer verification
policies.
 The bank can also adopt the strategy of
sending higher officials with more
experience of customer verifications and
carrying on multiple verifications in order
to proceed to the next step to disbursing
the loan or credits.
Poor imbursement of debts
outstanding on loans and
credit cards
Defective verification of
documents
Defective physical
verification of clients
Lack of proper customer
credit risk analysis
Lack of assessment of
financial capability of
customers

Three lean six sigma techniques contd…
 Pareto chart: Pareto chart can
be used to ranking the problems
which would lead to outlining
appropriate strategies to deal
with the issue(s). For example,
the bank identifies the two
issues namely bank’s analysis of
documents before loan and
credit disbursement if faulty and
secondly, the verification
process is faulty. The bank then
identify the cases in which each
of the faults have happened. It
then take steps to deal with
those faults, thus applying six
sigma.
Issue No of issues Cummulative (%)
0
10
20
30
40
50
60
70
94
96
98
100
102
104
106
108
110
112
Pareto chart showing issues faced by
POBS Bank
Series1 Series2 Series3