Andranik Akopov – Professor, Department of Business Analytics, Faculty of Business Informatics, National Research University Higher School of Economics.
Address: 20, Myasnitskaya str., Moscow, 101000, Russian Federation.
E-mail: aakopov@hse.ru

Modeling of strategic development of a banking group using system dynamics approach provides the solution of many tasks, in particular, strategic decision making based on key performance indicators (KPIs) within different scenario conditions and restrictions.

The purpose of the paper is development of an integrated strategic simulation of a banking group, using system dynamics methods. In the paper a new approach to development of long-term strategy of banking group using methods of system dynamics is presented. This approach is based on a mathematical model of management by key performance indicators (KPIs) of a banking group. The model is realized using Powersim Studio simulation software. The system is successfully implemented in several large Russian banking groups and is used for supporting of strategic decisions.

Main features of the system are: taking into consideration internal (including direct and feedback) links between characteristics of different business segments of a banking group; possibility of KPI values assessment under different scenario conditions ("What, if" analysis); possibility of management of characteristics of a banking group by the allocation and optimization of values of key control parameters (for example, growth rates of loans, deposits, etc.); possibility of carrying out ‘stress testing’ using Monte-Carlo methods and Powersim simulation software. The simulation model deals with ‘business drivers’ (growth rate of the loans, growth rate of deposits, effective interest rates, reservation rates, etc.), estimating their influence on KPIs, such as net profit, assets and liabilities, capital, net profit margin, etc. The system was applied in practice for assessment of KPIs relying on real statistical data obtained from the official reporting.

Practical application of such system allows to increase quality of strategic decisions, to minimize time required for formulation and analysis of banking group development scenarios,  to expand the range of evaluated scenarios and to determine the best values of banking business drivers.