Decision-making guide

Copyright© Cesim Oy 2000-2024

1. Simulation platform introduction

1.1. General user interface options
1.2. Home
1.3. Decision checklist
1.4. Decisions
1.5. Results
1.6. Schedule
1.7. Teams
1.8. Readings
1.9. Forums
2. Market outlook and market monitor
2.1. Market outlook
2.2. Market monitor
3. Consumer banking
3.1. Deposits
3.1.1. Deposit services
3.1.2. Credit Creation
3.1.3. Decision-making logic
3.2. Credit Products
3.2.1. Mortgage loans
3.2.2. Consumer loans
3.2.3. Point-of-sale credit
3.2.4. Credit cards
3.2.5. Cash Credit
3.2.6. Credit impairments
3.2.7. Decision-making logic
3.3. Sales channel management
4. Businesses banking
4.1. SME banking
4.1.1. Decision-making logic
5. Investments
5.1. Investment services
5.1.1. Decision-making logic
5.2. Investment products
5.2.1. Decision-making logic
6. Personnel
6.1. Decision-making logic
7. Systems & processes
7.1. Decision-making logic
8. Risk management
9. Treasury
9.1. Capital market funding
9.2. Profit distribution
9.3. Interbank market
9.4. Central bank operations
10. Results
 10.1. Winning criterion
10.2. Summary
10.3. Investments
10.4. Personnel
10.5. Stakeholders
10.6. Risk management
10.7. Financial
10.8. Banking sector
11. Calculation of key financial ratios
1. Simulation platform introduction

1.1. General user interface options

1. Profile - Here you can change your email, password and add a personal
picture to be displayed on various parts of the user interface. You can also
change your account's language and time zone, and determine the
automated email notifications you wish to receive. Please enter a valid email
address to avoid missing out on important information from your instructor or
teammates. You will also need it should you require the "Forgot my
password" feature.
2. Help - Here you can reach the Cesim Support team if you run into problems
or issues relating to in-game functionality. For any content-related questions,
contact your instructor.
3. Logout - Use this button to log out.
1.2. Home

1. Results summary - These graphs show your performance in relation to

the competition. You will see this after the completion of Round 1 (or
Practice round 1, if present).
2. Activity - This section shows you recent activities, including the history of
decisions submitted and the rounds' deadlines.
3. Tasks - If your instructor has assigned a quiz or a peer evaluation to your
course, you will find it here. Should you be required to submit
document(s) to the platform, the link will be shown in this section.
4. Messages - Forum posts will be shown here.

1.3. Decision checklist

The Decision checklist displays all decisions made in the game. It shows
both a Team Decision Area and the individual Student Decision Areas.
Each team member has a decision-making area, where they can input any
figures and see the effects they have on the projected results. By default,
the students always start with their own Student Decision Area when
logging in to the game. When the deadline passes, the round results will be
calculated based only on the Team Decision Area.

The Decision checklist offers several tools to manage the decision-making

process:
1. Round-based drop-down menu - Use the drop-down menu to select the
desired round. You may select previous rounds in order to review the
decisions made during those rounds, although modifications will be
disabled. By doing this, you can also access the previous market
outlooks.
2. Legend - The different colours of the cells will help you to identify the
active decision area and whether a change has been made to the
decisions.
3. Go - This button allows a player to view another teammate’s Student
Decision Area, or the Team Decision Area. Any modifications will be
automatically recorded in their respective area. Any modifications made
in the Team Decision Area will be used as final decisions when the round
ends, should no further actions be taken. Be careful about relying on
direct modifications to the Team Decision Area. If any team member
overwrites (copy as team’s decisions) existing decisions in the Team
Decision Area with their own, there is no backup for the overwritten
decisions. Making plans on your personal Student Decision Area ensures
the decisions are safe, as your teammates cannot overwrite decisions in
your own area with a single click.
4. Copy as team's decisions - This button copies a player’s decisions from
the Student Decision area to the Team Decision Area. Once copied, the
previous set of decisions cannot be recovered. Decisions can be copied
from the Student Decision Area to the Team Decision Area as many
times as needed prior to the round deadline. If decisions are made
directly into the Team Decision Area, then no additional steps need to be
taken, as they will be automatically used to calculate the results when the
round ends.
5. Import - This button transfers the decisions made in a Team- or other
player’s Student Decision Area to the importing player’s own Student
Decision Area. Once imported, the original decisions of the importing
player cannot be recovered.
1.4. Decisions
The Decisions are split into sub-categories (e.g. Demand, Production, etc.).
Some areas should be filled in first, as they affect other areas.

There are two general types of input fields:

1. Decision cells - The decision cells can appear as input cells, drop-down
menus, checkboxes or buttons.
2. Estimation cells - Estimation cells are where you can enter sales estimates,
personnel turnover, etc. These estimations act as a basis for the budgets
shown in the system.
The system automatically updates the budgets and calculations as you make
decisions and/or estimations.
1.5. Results
The round results are calculated as the deadline passes, using the
decision sets in each team’s decision area. The results from previous
rounds, including possible practice rounds, are accessible and you may
also download the results as presented in an Excel file or as a slideshow
of main indicators.

1. Universe-based drop-down menu - This allows you to choose any

universe in the course. A universe is a group of competing teams
affecting each other’s results.
2. Round-based drop-down menu - This allows you to choose the desired
round results.
3. Excel - Here you can download an Excel file showing the results of the
chosen round.
4. Print - This button allows you to print the results of the round.
5. Slideshow - This button will allow you to view a slideshow of the key
indicators of the round.
1.6. Schedule

The Schedule page displays a timetable of the rounds’ deadlines. The results
are calculated as soon as the deadline of the round passes. Unless otherwise
restricted, decisions can be made on each round as soon as the previous
round’s deadline passes.

An instructor can choose to have up to three practice rounds for a course.

Once the practice round(s) are over, the game will reset to the initial market
situation. The initial decisions for the first actual game round are imported
from the first practice round. Other than that, the practice rounds have no
effect on the results of the actual game rounds.

1.7. Teams
 The Teams page contains the teams' compositions across all the
universes of the course. On this page, you may also edit your own team’s
information, such as the team name, slogan and/or team description.

At the start, when no deadlines have passed, you can join any team that
has an empty slot. Simply click the Join Team button. After the first
deadline has passed, only the instructor can move participants between
teams.

1.8. Readings

This section contains documentation that participants need to read and

comprehend in order to enjoy the game. The generic reading materials
include this decision-making guide and a case description. Instructors can
also upload additional materials here.

The case description gives information regarding the business case that is
being played on the course. It gives a general understanding of the
company, industry, trends and challenges.
1.9. Forums

The forums are a great place for players to contact their instructors or fellow
players, especially in situations where face-to-face time is limited.

There is a Team Forum, a Universe Forum and a Course Forum. The Team
Forum allows your team members to see posts and reply to them. The
Universe forum only exists if multiple universes feature on the course, and can
be seen by all players in the respective universes. The Course Forum is
available for every player registered on the course.

Instructors can view and reply to forum posts in the three sections. As such,
the Course Forum is a good place to ask questions that everyone on the
course can benefit from, while the Team Forum is the ideal place to discuss
sensitive team-related issues.

Players will be notified by email whenever something is posted on their team

forum area (unless they choose to disable this function in the Profile section).
2. Market outlook and market monitor

2.1. Market outlook

1. It is essential to read the market outlooks before you start to make

decisions. They contain important information regarding current market
trends and possible future developments. Nevertheless, it is important to
be aware that future trends and events are not guaranteed to materialize
exactly as forecasted. The market outlooks are best understood as
documents that collate the best knowledge available to you at the
beginning of a business year, but they do not account for your
competitors' future actions.
2. At the top of the page you'll find the "Projections" button. Here you can
find your projected results: by selecting any of the tabs that include the
income statement, balance sheet, segmented income statement, and
loan book, a corresponding budget will be overlaid on top of the open
page. Budgets are continuously updated while you make decisions. A
selection of relevant parameters that complement the information given
in the outlooks is also available. Parameters are fairly accurate for the
round as they are unaffected by your competitors' actions, and at least
ensure some control over matters such as the base level of costs etc.
2.2. Market monitor

The market monitor provides a single view in which the participants can easily
analyze almost any part of their course's results information with a number of
customization options. The market monitor is located under the 'Outlook'
page.
Chart types
There are two basic charts available: a multi-series stacked column +
line chart and a multi-series line chart. The former allows for a maximum
of three side-by-side columns with a maximum of five stacks in one
column and one additional variable as a line on the other axis. The latter
chart allows for twelve different variables to be compared at the same
time on the same axis.
Team
The team selector allows the participants to analyze their team across all
rounds, all competing teams side-by-side for one specific round or the
total market across all rounds.
Compare with
When analyzing your own team's performance, the comparison with the
selector can be used to make a quick and direct comparison between
your team and the chosen competitor.
Team order
When comparing all of the competing teams (by choosing ‘All teams’ in
‘Team’, it is possible to use the team order selector to quickly arrange the
teams into descending or ascending order. The arrangement is always
based on the sum of the data series selected in the first column.
Round
When using the chart to compare the performance of all teams (by
choosing ‘All teams’ in ‘Team’) side-by-side, you can use the round
selector to select any of the previous rounds under review. This selector
is always set by default at the previous round. Furthermore, in case you
have chosen the line chart from the chart type selector, you can pick the
time series option in the round selector. With this option, you can
construct a time series chart that uses one variable to compare all teams
across all played rounds.
Unit
The unit selector allows the participant to alter how the underlying data
series is measured and displayed. By default, the chart shows the
absolute value of the data series in question. The participant can change
this to be absolute value change from the previous round, absolute value
change from the initial round, cumulative total, relative change from the
previous round, or average relative change from the initial round.
3. Consumer banking
Consumer banking includes the basic bank services and products offered to
households such as deposit services and different credit products.

3.1. Deposits

3.1.1. Deposit services

 1. Demand deposits
Demand deposits can be withdrawn from the bank at any time and as
such are potentially risky sources of funding for the bank. The
participants decide the interest rate based on the average balance for the
segment in question.
The central bank demands a minimum level of reserves against all short-
term liabilities, of which demand deposits form the most important part.
This implies that there is a cost associated with demand deposits, since
they force the bank to use its own capital to finance zero income-earning
reserves.
2. Fixed-term deposits
Fixed-term deposits are available in short and long periods. An individual
decision has to be made regarding the interest paid on each product's
average balance. The higher the interest, the more customers shift funds
from demand deposit accounts into fixed-term deposits.

3.1.2. Credit Creation

When a bank gives a new loan, the amount is added to the borrower's
account. Consequently, the bank can issue new loans based on the new
deposit and so on—as long as that money is in the account. This iterative
process is called credit creation. From the perspective of the banking
system as a whole, credit creation is restricted by the percentage of new
deposits that need to be kept at the central bank as minimum reserves.
Mathematically, the total amount of new deposits created equals a
multiplier value based on the newly issued loans. In the simulation,
however, the multiplier value is much smaller than the theoretical value
since the participants play the role of individual banks in a far larger
market. Participants can assume a fixed multiplier by analyzing historical
decisions and results.

3.1.3. Decision-making logic

The key factors that drive the amount of deposits include:

Demand: The fundamental deposit demand changes according to the
economic conditions. The net increase in loans in a round, however, also
contributes to the increase in deposits due to credit creation.
Product offering: Banks use product offerings to compete against one
another and gain market share. Customers are mostly concerned about
interest offerings. Bank image, sales, marketing, and IT systems also have
some impact. By comparing the historical results of different teams and
estimating the effects of new decisions, participants can project the amount
of deposits the bank would get in the round.
It is important to understand the impact that deposits have to ensure all key
decisions are compatible and aligned with the overall strategy:

Income statement: Deposits will incur interest costs. Participants need to

consider their profitability together with income from interest on credit
products, to estimate the net interest income. Regarding benefits, the
deposits business will generate non-interest income from account fees.
Balance sheet: Deposits form the bulk of a bank's liabilities. Deposits are the
largest source of capital for lending products (asset side). Deposits also
affect treasury decisions (capital markets).
Regulation and risk: The central bank sets the requirements for the amount
of reserves relative to deposits. The deposit amount also influences a bank's
liquidity.
3.2. Credit Products

Credit products are the major sources of revenue in commercial banking.

Participants need to make decisions regarding interest pricing, lending
terms, and make estimates about growth and impairments.

3.2.1. Mortgage loans

Mortgage loans are granted to households looking to purchase real estate

or an apartment. These loans are always collateralized. There are two
types of mortgages offered to customers: Adjustable-rate mortgages
(ARM) of which the interest rate is adjusted annually (12-month reference
rate + margin), and Hybrid ARMs of which the interest rate is fixed for the
first 5 rounds (5-year reference rate + margin), with subsequent
adjustments annualized (12-month reference rate + margin). The
simulation uses the fictional Cesibor (Cesim Interbank Offered Rate) as
the reference rate.
 Pricing decisions are the same as other credit products. As for lending terms,
the maximum maturity determines the length of maturity the bank is willing to
grant in loans to customers; maximum expense to income is determined as
the share of household pre-tax income dedicated to servicing debt. Loan to
value is the value of the loan divided by the price of the real estate.

3.2.2. Consumer loans

Consumer loans are extended to households for purposes other than

purchasing real estate or apartments. Some of these loans may include
collateral, and their maturities are evenly distributed over either three or five
years. Aside from the interest margin decisions, participants need to decide
upon the maximum expense to income for lending terms.

3.2.3. Point-of-sale credit

Point-of-sale credits are identical to consumer loans except that they are
granted through a network of partner retailers. The bank can use large
cashback payments to attract new partners. These payments are
subsequently deducted from the interest payment the bank receives from
POS credit customers. Aside from the interest margin decisions, participants
need to decide upon the maximum expense to income for the lending terms.
Point-of-sale credits have maturities which are evenly distributed over either
three or five years.

3.2.4. Credit cards

The credit card business consists of granting credit cards to the bank's
customer base. Decisions have to be made regarding the salary multiple that
governs the assumed credit risk, and the interest charged on the average
outstanding credit balance. All credit card customers also pay a
predetermined fee to the bank for the use of their credit card(s).

3.2.5. Cash Credit

Cash credits are short maturity and small loan principal credit products that
are granted with less scrutiny of the loan application. They typically carry a
higher interest rate, incur more credit losses, and do not carry any collateral.

3.2.6. Credit impairments

Due to credit defaults, banks cannot always collect the full amount of lending
at maturity. Such incidents will incur impairment losses. Banks are required to
disclose the information regarding credit impairments every year. The major
items include a loan loss provision, loan loss reserve, and net charge-off. The
simulation will automatically calculate the loan loss reserves. Please note that
the inputs here are merely estimates and the ultimate amount of both loan
loss provisions and net charge-offs are determined irrespective of participant
estimations.
 Loan loss provision is a non-cash expense in the income statement and is
deducted from current round profits. It consists of two parts: the estimated
amount of uncollectable new credit issued in this round and the
adjustments to previous loan loss estimations. The former part is
influenced by new credit growth, lending terms, and risk management
policy. The latter part is predominantly influenced by the economic
conditions of the current round.

A charge-off is made when a certain percentage of loans is deemed

uncollectable during the round. At that time, both the loan account and the
loan loss reserve account are reduced according to the amount of
uncollectable loans. The estimation of net charge-off should be based on
the net charge-off in the last round, as well as the economic conditions in
this round.

Loan loss reserve is a negative contra-asset account on the asset side of

the balance sheet. It consists of the accumulation of loan loss provisions
from the beginning of the simulation. Banks can estimate the net value of
loans that need to be collected by deducting the loan loss reserve from the
book value of loans. The estimated loan loss reserve is automatically
calculated based on the following factors: the loan loss reserve at the
beginning of the round; your estimated loan loss provision; and your
estimated net charge-off.

3.2.7. Decision-making logic

The decision-making page for credit products includes: pricing and lending
terms; estimates of the amount of credit; and impairments. The key factors
determining the amount of credit issued include:
Demand: Economic conditions determine the fundamental market demand
for credit products.
Product offering: Banks compete against one another to gain market shares.
Pricing and lending terms have the most influence over customers' choices,
although bank image, sales & marketing, and IT systems also have an
impact.
Supply: Deposits are the major source of the bank's lending. Banks can also
borrow money from the interbank market and the central bank, or raise
money from the capital markets. Related decisions can be found on the
treasury page.
It is important to understand the impact of credit product decisions to make
sure they are compatible and in line with the overall strategy:

Income statement: Participants can estimate the net interest income by

combining the estimations of interest income from credit products with the
cost of interest from deposits. Credit products will also generate service fees
(non-interest income), such as credit card fees. However, the provision for
loan losses will reduce the final profit.
Balance sheet: Credit products are the major part of a bank's assets, and as
such will affect liability and equity.

Food for thought

When deciding upon, and comparing, the interest rates of deposits to

those of credit products, it is important to understand the different
ways in which interest rates are expressed. Interest rates for deposits
are fixed. Floating interest rates are used for credit products and they
are expressed as a basic reference rate— which will fluctuate along
with economic conditions—plus a margin decided upon by
participants.

It is often useful to jump back and forth between different decision

pages such as deposits, credit products, risk management, and
treasury. Since they are closely connected, any decision changes will
be immediately reflected in related pages. For example, if the bank is
estimated to issue significantly more credits than deposits, participants
can consider using additional funding options on the treasury page or
increase the interest offering in their deposits decision. This should
attract more deposits.
3.3. Sales channel management

Sales channels consist of the point-of-sale retailer network and the bank's
branches.This network can be expanded by instructing retail personnel to
contact new retailers and foster existing relationships, as well as by
offering attractive cash-back terms for the credit. In the bank's branches,
participants can affect the distribution of the sales effort on a product-by-
product basis.

The total sales time is based on the time the retail personnel has
available, excluding what is allocated to immediate customer services and
other mandatory tasks.
4. Businesses banking

4.1. SME banking

SME is the second banking segment in the simulation and is organized under
'Businesses'. It consists of conventional banking services such as loans,
deposits, and other services to small- and medium-sized enterprise
customers. Customers are mainly categorized according to their credit rating.

As with consumer banking, participants need to make decisions about the

pricing and lending terms of SME loans and estimate growth as well as
making provisions for loan losses.
1. SME deposits: SME banking takes deposits from customers in a similar
way to consumer banking, although these deposits are put in current
accounts due to the simulation assuming SME companies prioritize
liquidity.
2. SME loans: In SME banking, interest rates are separately determined for
each class of credit rating. The credit rating is a comprehensive measure
of the customer's creditworthiness, and they remain the same across all
rounds and teams for the duration of the simulation. Customers in higher
classes are always more creditworthy than those in the lower classes. To
compensate for the risk, higher margins are usually required from those
customers that are perceived as higher-risk. The final price paid by the
customer consists of the reference rate (5-year Cesibor), which is reset
on each round, and the margin, which is decided by the bank. It is also
possible to entirely refrain from lending to customers with certain credit
rating by assigning a margin of 0 for such a credit rating. Please note that
if competing teams refuse to lend to customers with certain credit ratings,
all such customers will take their loan applications to the banks that do at
least quote some kind of price.
3. In addition to interest rates, participants need to decide upon a policy for
their terms of lending which collectively captures other lending terms
including personal guarantees, collateral, positive and negative
covenants, and debtor follow-up.
4. The SME customer credits include a similar credit impairment process as
consumer credit products. There are separate loan loss estimates for
each credit rating class as well as one net charge-off estimation for the
entire loan portfolio. These are merely estimates, and the ultimate
amounts of both loan loss provisions and net charge-offs are determined
independently of the estimations made by participants.
5. Sector targeting: Your bank may adjust its sector targeting by choosing a
more specialized servicing approach towards domestic firms or exporting
firms. An emphasis on either sector leads to an increased competence in
serving their specialized needs and to increased credit exposure.
Economic outlooks should be considered when making this decision.
6. SME products: There is a multitude of services for SME customers other
than current account deposits and customer loans. These services are
handled collectively within the "SME products" decision. These services
and products include trade credit, factoring, inventory credit, advisory,
etc. This decision is made regarding the extent of the bank's additional
services offerings. At a minimum, the bank may choose to limit its
product and service offering to nothing but deposits and loans. However,
you may also extend your offering to cover all the possible needs that
SME customers might have. Offering a broader set of services and
products yields additional income and attracts more customers,
particularly if they have more complex needs. More product coverage
incurs higher costs.
7. The competitive position bubble chart plots your team's position against
that of your competitors in terms of sector targeting and SME product
policy. Both policies have five options; for sector targeting, a value of 5
represents export firm targeting. An SME product policy value of 5
represents broad and innovative solutions. The size of the bubble
represents the size of the SME loan portfolio.
4.1.1. Decision-making logic
5. Investments

5.1. Investment services

 1. Portfolio management
Portfolio management involves the customer giving the bank full discretion
over the management of their funds. This service is offered to private
customer segments and the bank may choose the management fee. The
customer segment is further divided into three tiers of customers according
to their wealth. The bank needs to choose which type of customer it wishes
to target; covering all potential customers by setting minimum required
assets at a very low level enables a large potential customer base, but
potential higher-tier clients are more inclined to choose specialized service
providers. Furthermore, the bank offers more advanced advisory services to
private customers in areas of tax advisory, estate planning, legal advisory,
investment strategy formulation, etc. These services are not covered by the
retail banking function.
2. Assets under management, fees, and expenses
The assets under management (AUM) section allows the participant to
observe and estimate the growth of assets under management for all
relevant products. The estimates for each investment fund are made on the
investment products page and estimated sums are automatically allocated to
each customer segment on the services page. The allocation is based on
the proportion of each segment's AUM from the last round. There is a
detailed breakdown of fees for the different services/products in each
segment. These fees are based on the pricing decisions and customer
demand estimates you make. The expenses section covers marketing,
which is detailed in the section below, as well as a breakdown of operating
and personnel costs.
3. Marketing
Marketing is divided into two different segments: media & advertising, and
personal selling & events. The different customer segments have differing
responses to the two alternate means of marketing. Media & advertising
includes channels such as TV, Internet, newspapers, and magazines, which
are useful when targeting a larger demographic, whereas personal selling &
events includes matters such as reserving personal advisory sessions and
arranging closed meetings for smaller-group potential customers to meet
with the bank's advisers and outside speakers.

5.1.1. Decision-making logic

The logic for the investment management service is shown in the image
below. Participants need to pay attention to the different segmentations and
 choose a proper strategy. Please also note that the Assets Under
Management (AUM) are not included in the bank's balance sheet.

5.2. Investment products

 Investment products are sold to separate customer segments through
investment services.

1. In-house investment funds

For each in-house fund, you need to set the management fees
that are charged depending on the fund's assets, and whether
or not its management is outsourced. Outsourcing can be useful
if the fund targets a highly exotic market because the best
possible partner is always chosen to be the third-party asset
manager. In the case of outsourcing, management fees are
divided equally between the bank and the third party.

Fund market: All investment funds including equity and bond

funds compete directly against one another i.e. customers look
at all the funds on the marketplace, weigh the pros and cons
and then decide which funds to invest in. Fund demand factors
include: the fund's expected return; management fees; subclass
trends; geographical target market trends; marketing efforts; and
the potential outsourcing boost for exotic funds that are
outsourced to specialized local asset managers.

2. Partnership investment funds

Your bank may form partnerships with external investment
managers who have broad ranges of readily available
investment funds. Some startup costs are involved, but the
partner will then be able to start paying fees to the bank in return
for it acting as a sales channel to the partner's products.
Forming partnerships enables the bank to rapidly improve the
attractiveness of its offering, but it might impair the sales of its
funds. Ending a partnership will not incur any costs.

5.2.1. Decision-making logic

6. Personnel
Personnel management covers the management of all human resources
issues such as hiring, layoffs, compensation, personnel training, and the
improvement of employee and management relations.
1. Number of personnel
The number of personnel is decided separately for each
department.The personnel decision is definitive; the number of
allocated personnel will always be available for the ongoing
round. You may lay off employees by inserting a figure lower
than last year's personnel count, or you may hire more
employees by inserting a larger figure. Layoffs and hiring always
incur costs whereas the employees that leave of their own
accord do not incur any layoff charges.

The optimal amount of personnel is dependent on balancing

personnel costs and time allocated to various value-adding
activities such as customer prospecting and relationship
management. These value-adding activities are done if the
employees have extra time after customer service, training and
other required work tasks. On the other hand, an insufficient
workforce causes overtime in all departments except retail,
where it leads to unfinished customer service work. The result of
having an insufficient workforce is harmful to the bank's
performance in both cases.

2. Personnel turnover
Personnel turnover is inevitable as some of the workforce will
leave your bank for various reasons. This number can be
estimated in the "Turnover, %" cells on the personnel
management page. You can view the turnover rates for the
previous round. The effects of the turnover come into effect with
a one-round delay.

3. Compensation policies
Compensation is determined as the result of three decisions:
compensation policy, performance pay policy, and profit share.
The compensation policy allows the bank to determine the basic
level of compensation relative to the minimum level. The exact
figure for wages cannot be determined by the teams.
Performance pay can be added on top of basic compensation to
incentivize employees to work harder. Performance policy can
be set in one of four ways: based on profit share; robust
profitability; modest profitability; or with no basis at all.
Performance compensation based on profit share also requires
teams to explicitly set how profits are distributed to employees.

4. Training program
The bank's training program is administered with two sets of
decisions: training time, which is measured in days and differs
for new and old employees respectively; and training program
priorities that consist of sales, product expertise, internal
processes, and regulatory compliance.

The more time the bank allocates for training, the more
competent the employees will be in key areas. Training days do
carry an additional cost though, and all time that is dedicated to
 training reduces the time that could be spent on sales
prospecting and customer relationship management.

Training priority areas:

Sales development improves the impact of sales time

Products & Services improve customer satisfaction
Internal processes reduce administration costs and
operational risk
Regulatory compliance improves regulatory perception
Priority decisions can be used to address problem areas or
key concerns the bank might have. The more priorities there
are, the lesser the effect. Prioritizing all is the equivalent of
having no priorities.

5. Management relations and HR development policy

Management relations and general HR development policy
is decided by choosing one of five levels of engagement for
your bank. The lowest levels may see your bank leaving
things as they are with few, if any, resources allocated to
developing management and personnel relations or any
other aspect of human resources in any explicit manner. At
the highest level, your bank may select management
relations and HR development to be a cornerstone of the
bank's strategy and key drivers to increase competitiveness
for personnel and customers alike.

Choosing a more engaging and active policy yields more

costs and requires more time resources from management
and personnel in each department. This time is taken away
from other possible value-adding activities such as
prospecting for customers. A more active policy does
however lead to improved relations in the workplace and
higher efficiency and employee satisfaction over time. It also
has an effect of reducing operational risks.
6.1. Decision-making logic
As a back-office department, personnel decisions have direct or indirect
effects on all the bank's businesses.
7. Systems & processes
Systems & processes is one of your bank's back-office functions. It
concerns the development and maintenance of all IT resources and the
development of customer service processes within the front office.

1. Customer service and process investments

There are two types of customer service and process
investments: internet banking services, and customer
service processes and experience. Both decisions are based
on development investments. The more you invest, the
higher the quality of results. However, marginal benefits will
decrease over time. Higher levels of competence lead to
higher demand across the bank's services and products due
to improved customer satisfaction.

2. Systems development
Systems development concerns the bank's basic IT
infrastructure and systems. The development decision
affects the pace of adoption of new technology. Tech
bellwethers are fastest at adopting the latest technology
innovations but have to pay the highest cost for them.
Laggards concentrate on observing others and only adopt
proven solutions that yield the most benefits once the costs
have come down. Higher levels of competence and
technology leadership bring down operating costs and
reduce operational risks.
7.1. Decision-making logic
8. Risk management
Risk management is one of your bank's back-office functions. It is a
separate unit responsible for implementing risk management systems,
risk-related reporting to relevant interest parties, and overdue credit
management. The shared back-office personnel resource is responsible
for risk management tasks.
1. Risk management budgeting and overdue credit management
The risk management budget is used to cover all activities relating to risk
management. Together with the personnel cost related to overdue credit
management people allocation, it forms the bulk of the bank's risk
management costs. Allocating more resources to risk management improves
the handling of overdue credit, increases recovery rates for the bank,
reduces credit losses, and improves customer and regulatory perception.
The more extensive the bank's operations, the greater the value of strong
risk management policies.
2. Solvency regulation and risk-weighted assets
The Cesim bank simulation follows the Basel framework for solvency
regulation. With this in mind, the credit risk table details the ongoing round's
risk-weighted assets position as well as the relevant items of capital. Risk-
weighted assets are formed by multiplying the balance sheet values with
individual risk factors. For example, reserves have a risk factor of zero
because there is no risk associated with holding them. On the other hand,
the credit assets which carry a risk factor higher than one indicate a need to
reserve more than the average amount of capital against potential losses.
Furthermore, there are separate capital thresholds for common equity tier 1
capital, tier 1 capital, and total capital. The required ratios are always given
as fractions of risk-weighted assets, rather than total assets.
9. Treasury
The Treasury department forms the last part of the bank's back-office
functions. The treasury page consists of the bank's balance sheet with the
available decisions located close to its relevant sections.

9.1. Capital market funding

The bank can issue debt through two different instruments: long-term
bonds and subordinated bonds. Both instruments have a five-year maturity
and a fixed interest rate. Subordinated debt is considered to be part of Tier
2 capital and therefore bolsters the bank's solvency in regulatory terms.
Other creditors rank senior to subordinated debt holders, however, and
this means there is more risk of holding subordinated debt that is
consequently reflected in the interest rate.

The interest rate on long-term bonds and subordinated bonds is based on

the bank's credit rating. Banks that have the same credit rating issue their
bonds at the same interest rate. There is always a certain level of premium
 in the subordinate bond interest rate when compared to long-term bonds. The
credit rating is based on a multiple factor model.

The bank can also issue new shares to raise equity, consolidate its balance
sheet, and adhere to regulatory requirements on solvency. The decision is
made by inserting a positive figure to the share issue/repurchase cell. The
more shares you wish to issue, the lower the issue price will be.

Additionally, if the participants choose not to voluntarily raise funding despite a

shortfall of capital, that would risk not meeting the regulatory requirements. In
that case, the simulation will automatically force the bank to issue the
subordinated bond instruments in a manner that adheres to the required
capital levels. These forced issues take place at a discounted rate compared
to voluntary issues.

9.2. Profit distribution

There are two different ways to distribute profits from the bank: dividends and
share repurchases. Dividends are presented as the total sum of dividends to
be paid out of the company. A figure for dividend per share is calculated
alongside the dividend decision.

Share repurchases form the second medium for profit distribution. This
decision is taken by choosing how many shares you wish to buy back from the
open market. The more shares you wish to buy, the higher is the repurchase
price. Shares are repurchased by inputting a negative figure into the ‘Share
issue / repurchase’ cell.

Dividend distribution and share repurchasing are restricted by two factors:

retained earnings on the balance sheet and regulatory solvency levels.

9.3. Interbank market

The interbank market operation is twofold. Firstly, teams have the option of
investing their excess reserves in the interbank market to fund other banks.
There is no direct lending between simulation banks. The more the simulation
banks collectively choose to lend to the interbank market, however, the better
access all the banks will have to this type of funding. A small amount of
interest on these funds is paid to interbank lenders.

Secondly, the interbank market forms the first source of funding if there is a
shortfall in cash, although the availability of these funds is limited. Banks with
strong solvency and liquidity ratios have much broader access to this low-cost
funding, and the interest paid to the lender is based on the borrowing bank's
credit rating.

In the real world, the interbank market is the basis for a reference rate. This
effect is neglected in the simulation, however, since the banks controlled by
participants are only regarded as a small fraction of the market. Also in the
real world, while the interbank market is for short-term lending and borrowing
activities, in the simulation the interbank loans are assumed to be for
 maturities of one round and can be renewed in full upon completion of
each round if the team chooses so.

Successfully interbank market decision making requires consideration of

the following key issues:

Mutual benefit: Participating in the interbank market will increase the

sources of funding for all the banks.
Access to funding: Banks with strong solvency and liquidity ratios have
better access.
Interest income and profitability: The interest income from interbank
lending is usually higher than deposits in the central bank but lower than
most other assets. In terms of profitability, these investments should not
be made if the bank's acquisition of funds costs more.

9.4. Central bank operations

The banks deal with a central bank in several ways. Firstly, the central
bank requires the banks to keep minimum reserves deposited in the
central bank at all times. These typically make up around two percent of all
short-term liabilities, which include demand deposits and interbank
liabilities. All excess reserves are also deposited with the central bank
unless they are invested in either longer-term domestic or foreign bonds,
or the interbank market. No interest is paid on minimum reserves whereas
excess reserves may be paid a small interest.

Moreover, the central bank acts as the lender-of-last-resort; if the bank is

not able to fund its assets through equity market, debt capital market, or
interbank market borrowing, the shortfalls will be covered with funding
from the central bank's credit facility. The credit facility is limited in
availability but its interest rate is moderate. If the credit facility does not
cover funding needs, the central bank will extend credit from the
emergency liquidity program with a punitive interest rate. The use of this
funding medium reflects poorly on the bank's public image. Neither of the
central bank funding sources requires collateral.
10. Results

10.1. Winning criterion

The winning criterion of the simulation exercise is cumulative total shareholder
return per annum. This figure is intended to capture all aspects of the
business as well as the present value of all dividends that have been
distributed to the shareholders throughout the simulation exercise.

10.2. Summary
The summary page offers five key statistics for a quick look into the simulated
banking market. All of the charts' data are in descending order, with the
leading team always on the left side of the chart.

10.3. Investments
The investments section gives the teams a detailed look into the profitability of
investment services and products given to the banks' customers.

The “List of funds” page presents a sortable list of investment fund details. By
selecting the titles on the top row, the available funds in the market place can
be arranged into descending or ascending order.

10.4. Personnel
The personnel page covers all basic human resources topics such as
availability of personnel, turnover rates, hiring and layoffs, compensation,
satisfaction, and costs.
10.5. Stakeholders

The stakeholders' section is divided into four sub-sections: bank image,

customer satisfaction, personnel satisfaction, and value creation. Bank
image, customer satisfaction, and personnel satisfaction all depend on
how the different interest groups perceive the bank and its operations.
1. Bank image
Bank image is the broadest measure of how all different
stakeholders view the bank. Most importantly, it incorporates
scores from shareholders, creditors, all different customer
groups, and regulators. The overall score is a weighted average
of the different subscores.

2. Customer satisfaction
Customer satisfaction is based on such factors as service and
product pricing, service personnel sufficiency, quality of internet
banking and service processes, and competence and
satisfaction of the service personnel. The satisfaction scores are
separately calculated for all different customer segments.

3. Personnel satisfaction
Personnel satisfaction is based on such factors as training days,
wage and performance pay policies, bank image, management
relations, the bank's business success, and workload. The
satisfaction score is separately calculated for all different
departments and the overall satisfaction score is a weighted
average of the departmental scores based on headcount.

4. Value creation
The value creation details show how the income statement
items relate to different key interest groups in the bank such as
shareholders and employees.
10.6. Risk management

The risk management section is divided into risk management &

compliance, liquidity, and solvency. Risk management & compliance
provides general information whereas liquidity and solvency pages dive
deeper into examining the constituents of the respective risk classes.
Strong risk management controls are key to carefully managing all types
of risk.
1. Credit risk
Credit risk is determined by lending decisions; the higher the
quality of loan book, the lesser the risk of incurring loan
impairments. Credit risk is measured as risk-weighted assets
and buffered by having enough equity capital and subordinated
debt, which is counted as tier 2 capital and as part of total
capital. Credit risk can be lowered by using stricter lending
decisions, while capital can be raised using either share issues
or subordinated debt issues, or by conserving accumulated
profits.

2. Liquidity risk
Liquidity risk arises from the fact that banks have short-term
liabilities and long-term assets. Banks' over-reliance on short-
term sources of funding increases liquidity risk. On the other
hand, if many of the long-term assets funded use equity and
bonds, it will result in strong liquidity. Liquidity risk can be
affected by having more long-term capital, attracting fixed-term
deposits, and restraining mortgage lending.

3. Interest rate risk

Interest rate risk is based on the gap between the rate sensitive
assets and liabilities. When such a gap exists, variations in the
general level of interest rates either decreases or increases the
bank's cash flow. This risk can be managed with business
lending decisions.

4. Foreign exchange risk

Foreign exchange risk emanates from holding liabilities and
assets in foreign currencies.

5. Market risk
Market risk is based on potential fluctuation in the market pricing
of the various instruments the bank holds on its balance sheet.

6. Operational risk
Operational risk includes factors such as: technical failure and
error; deteriorating systems; human error; fraud; contractual
disputes with employees, customers, and other stakeholders;
natural hazards and accidents, etc. Strong personnel policies
and investments into systems and processes help reduce
operational risk.

7. External reporting
The external reporting score highlights the quality and quantity
of risk-related reporting to external stakeholders. Large risk
management budgets contribute to more robust external
reporting.

8. Regulatory perception
 The regulatory perception score summarizes, in one figure,
the image that bank regulators have of your bank. It is based
on the individual risk component scores.

10.7. Financial
The financial section is divided into the income statement, balance sheet,
ratios, and valuation.

A comprehensive income statement is given as a separate section at the

bottom of the income statement page. This part of the financial statement
recognizes the unrealized fair value gains from available-for-sale
investments. When the value of these investments increases above the
carrying value, such an increase is recognized in the comprehensive
income statement and in a separate item under shareholders' equity on
the balance sheet.

The financial ratios page is further divided into the following sections:
growth, profitability, solvency, and liquidity. The exact formulas for the
calculation of key financial ratios are included at the end of this guide. The
valuation page details the key metrics for the valuation of the bank.

The credit rating of each bank is based on a weighted average multiple

factor model which uses metrics for solvency, liquidity, and profitability. The
twenty-two separate credit rating classes are ranging from AAA to D. Each
rating reflects a certain minimum threshold that the bank's weighted
average score across all metrics must surpass for the bank to be assigned
that rating.

The market capitalization of each bank is based on a weighted average

multiple factor model adjusted for growth expectations, return on capital,
and risk level. In general, different metrics cover the bank's profitability at
different levels and for different periods, as well as the size and quality of
the bank's balance sheet. The valuation model's components, weights,
and adjustment factors have been geared towards best practices and
knowledge from industry and academia.

10.8. Banking sector

The banking sector section provides time-series data for the simulated
banking sector's overall development. The page will be filled with new
 information as the rounds progress. On the right-hand side of the page, you
can see a few key comparison ratios.

1. The first one shows the ratio of the given item compared to either total
income or total assets, for the income statement and balance sheet
respectively.
2. The second item shows the relative change between two previous rounds.
3. The third item details the annualized change since the beginning of the
simulation.
11. Calculation of key financial ratios

Net interest income

Net interest margin, % = × 100%
Average interest-earning assets

Operating expenses
Cost / income ratio, % = × 100%
Total income

Operating profit
Operating prof it, % = × 100%
Total income

Profit for the period

Net margin, % = × 100%
Total income

Profit for the period

Return on equity, % = × 100%
Average shareholders' equity

Operating profit
Return on assets, % = × 100%
Average total assets

Common equity tier 1 = Shareholders' equity − Additional tier 1 capital − Intangible assets

Total capital = Tier 1 capital + Tier 2 capital

Tier 1 capital = Common equity tier 1 + Additional tier 1 capital

Tier 2 capital = Subordinated debt

Net non-interest income = Non-interest income − Operating expenses

Risk weighted assets = Sum of all assets multiplied by their individual risk weights

Rate sensitive assets, RSA = Assets that are vulnerable to changes in interest rates

Rate sensitive liabilities, RSL = Liabilities that are vulnerable to changes in interest rates
 Market capitalization
Price to earnings, P/E =
Profit for the period

Market capitalization
Price to book, P/B =
Shareholders' equity

Dividend per share

Dividend yield, % = × 100%
Share price at the beginning of the round

Share price at the end of the round

Change in share price, % = × 100%
Share price at the beginning of the round

Total shareholder return, % = Dividend yield, % + Change in share price, %

Cumulative total shareholder return, p.a, %

1
Share price + Cumulative dividends per share + Interest for dividends Current period
= 100% × [( ) − 1]
Share price at the beginning

Profit for the period

Earning per share (EPS), INR =
Shares outstanding at the end of the round