Customer Life Time Value (CLTV) for Retail Bank: Mortgage Portfolio Example

Customer Life Time Value (CLTV) have two important aspects which make this metric substantially different and important for the organizations.  First it is at a customer level or customer centric and second encapsulates long term value of the customers.

In a retail banking scenario, the customer may have different number of relationships and also may add different level of value.

Overall Customer Life Time Value (CLTV) for a customer will be

CLTV      = CLTVBank account + CLTVCredit Card +CLTVMortgage +CLTVInsurance + CLTVother relationship

Retail Bank CLTV

Customer Life Time Value for Mortgage

In CLTV computation, we can define income and cost streams.


    • Interest income


    • Cost of Fund
    • Acquisition or Marketing Cost
    • Servicing Cost
    • Credit Cost


    • Only mortgage loan income is considered
    • Acquisition cost is allocated in the first month
    • Net Interest Margin (NIM) is constant  at 1.7% across loan and period
    • Mortgage loan is assumed to have only 3 stage and not part payment or payment misses
    • Servicing Cost is allocated uniformly to all mortgage loan accounts and remain constant over a period
    • Constant discounting factor of 8%
    • Probability of a mortgage loan to be active (99%), default (0.01%) and prepayment (0.99%)

Advanced Statistical Techniques should be used to estimate and predict probability of default and prepay at a mortgage loan level and over the terms of the loan.