The whole bank is essentially managed ‘bottom up’ with a focus on monthly P&L and the benchmarking of key ratios. The local manager is responsible for developing a business plan and makes all key decisions including staffing, competence profiles, customer selection, product mix and pricing. And importantly the responsibility for marketing is also held by the branch - it selects customers, is close to their needs and hence the focus is on customer profitability - not product profitability. This has resulted in 98% of credit decisions being made at branch level and a subsequential lower bad credit rating than many of its peers. This local and simple philosophy has carried over into its approach to internet banking. Each branch has its own website and email address. With high penetration rates of 40% in consumer space and over 70% in the corporate market, a tremendous reduction of workload and increase in overall efficiency has been consequently achieved.

To highlight how different Handelsbanken is, it is useful to compare it with the ‘standard’ approach taken by the large international retailers: Handelsbanken is decentralised and flat whereas its competitors tend to be centralised and hierarchical. It also focuses on returns and relationships, not volumes and products.

But what has been the effect on overall performance? Return on shareholders’ equity during the period 1973-2005 exceeded the weighted average of comparable listed banks for each year. Handelsbanken is also able to manage the seemingly incompatible goals of a better service with a lower cost and having, for example, the most satisfied customers in its markets. In terms of cost-effectiveness it was shown to be the best performing bank in a recent study of European universal banks: with a cost / income ratio of 40.5% Handelsbanken is certainly efficient.

Another of Handelsbanken’s unique features is its focus on low credit losses, achieved through a unique credit granting process requiring a commitment in terms of both competence and processing times: customers are chosen selectively, analysis is done close to customers and money cannot be borrowed unless approved by the branch; this leads to high quality borrowers and long-term customer relationships. Innovation at Handelsbanken really is a case of ‘Back to the Future’ through using appropriate technology to support trusted and highly efficient relationship-based banking. As the full extent of the credit crunch becomes apparent it may be that others will follow.

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