Concluding his two-part write up on Bank leadership
Policy makers are generally intervening in the financial market by declaring economic stimulus packages. Economic stimulus packages are targeted mainly for the affected clients of banks. A bank must have internal strategy for these packages so that its clients and the bank itself might optimally benefit out of these. Clients having financial strength and who are unaffected should not be facilitated with these scarce packages for the sake of the quick economic recovery of the country. As a crisis response strategy, policy makers around the globe are following almost a common approach of injecting money in the economy by ensuring greater liquidity with the banks. However, if banks do not respond with proactive approaches and finance the economic agents, national policy goals cannot be attained. Banks must work on strategising financing to support the policy makers in this critical moment and minimise their risks at the same time.
Bank executives engaged in the front-office to offer essential services are confronting contamination risk-- the most serious concern at this moment. Bank must have sufficient arrangement to minimise the risk. The clients visiting bank branches in person may face similar risk or may be the carrier. Banks should be ready to face the longer term challenges associated with corona contamination risk. It is important that banks estimate additional resources needed to address the scenario for three months, six months, one-year or beyond.
Covid-19 is accelerating remarkable workplace transformations. It is time for measures like restricting travel, emphasising workplace hygiene, offering alternative ways of working, and initiating proactive communication. Human Resource (HR) department of banks need to manage employees working in the office and working from home. It is important to use technology to facilitate work-from-home, and probably right time to estimate how this massive transformation will impact the employees and organisation as a whole. Employees should not confront the fear of job-cut, and banks should have the strategy to address their fear, if any. HR may also engage employees with some online capacity development and motivational programmes for better utilisation of time. IT and fin-tech received renewed focus during this Covid-19 situation. Banks' IT team should search for scopes to adopt newer technology to strengthen the necessary online service facilitation. Banks may also start working on the future business strategy in the area of IT and Fin-tech business adaptation.
Banks need to ensure that essential facilities such as cash and deposit services, credit extension and payments are not disrupted or at least less disrupted. In this situation, it becomes important for banks to provide their customers with a comprehensive set of digital tools to ensure non disruptive banking. Maintaining deposit growth is a challenge in the current scenario. Depositors may not have similar level of confidence and trust that they were having before the crisis. However, people may have savings capabilities and interest to transact with banks. Banks may attempt to reach the doorstep of the people who are generally out of the financial access of the banks, and thus may redesign access tools to reach these people to draw deposits for the banks.
Potential impact of business disruption on credit or investment portfolios is expected to be a key concern to the commercial banks. All economic sectors are not equally affected due to corona situation, and credit or investment exposures of banks vary. Thus, status of banks would be different in terms of existing and potential impacts. In case of international trade services, payment obligation might be cause of concern. It is true that comprehensive impact assessment on different sectors cannot be conclusive at this moment, however, these review and assessment exercises would offer indications and hints for future trends and inclinations-- important information for business strategy. It is crucial that management redefines relationship managers' roles for maintaining due connectivity with the clients.
Treasury of banks might be in disarray on the current and forthcoming cash flows and liquidity concerns. Bank should be ready for the potential liquidity crunch in the industry. Bank management needs to change the role of executives engaged in risk management department/activities. They must have action plan to address any forthcoming challenge associated with capital shortfall and solvency issues. Executive contingency team should capture data and monitor the changing trends of the banks' liquidity, capital and solvency status for preparatory actions. A preparatory work by the bank leadership network (board and the top management) would be crucial in these fronts.
Crimes and fraudulent activities may pop-up in a crisis situation in banks, especially when the internal control system is not in full swing. ICC should be given special and redefined responsibility to detect mistakes and non-compliances in the ongoing situation. IT related fraud may be a matter of concern at this situation. With a majority of people working from home and transactions becoming more digital, many regulatory bodies have published warnings on the potential rise of cyber attacks and fraud. In early April, 2020 the Federal Bureau of Investigation of USA warned organisations about the rising incidence of this type of fraud and noted that between 2014 and 2019, it had received complaints of such scams totalling USD2.1 billion, and an increased number of staff working remotely presents an increased opportunity for cyber fraud.
Clarity and sincerity are essential in crises. Banks must be very transparent with the regulator in this critical situation. Regulators must be well informed about the challenges that a bank is or banks are confronting. At this current scenario, these banking challenges may not get priority over 'contamination risk' and 'economic recovery' concerns, however, would help getting recovery support from the regulator in due time. Covid-19 is offering opportunity to support clients and affected communities, thus improve reputation and image of a bank. Meeting commitment and liabilities by banks are crucial for reputation. Especially, international payment liabilities must be met for long term benefits and reputation. Trade service providers must not resort to unethical acts for the short-term gain of the bank. It is important to take care of the reputational risk and country risk for sustainable operation by banks in the post Covid-19 situation.
Strategic communications are critical for addressing moral hazard problems. This is also critical for retention of clients as well. Since people are forced to be isolated under social distancing rules, they are consuming more digital marketing and are also observing the reaction of the businesses. A crucial area of response for the banking institutions in any crisis situation like the ongoing Covid-19 is to respond adequately for avoiding a surging loss of trust and confidence with their customers. At this moment, banks are required to act in accordance with the fact that clients are more inclined to stay with a bank they trust when changes in the market occur, and trust of clients are constructed through effective and regular communication to make them well-informed. Business recovery would really be difficult for banking institutions in the presence of the erosion of trust and confidence during the Covid-19 crisis period.
Alongside supporting business continuity, right kind of leadership efforts and approaches as part of ERM would help banks prepare comprehensive scenario analyses based on concrete facts for the required policy and strategic decisions in the post Covid-19 situation. The exercise may also offer valuable and realistic inputs for future business and portfolio diversification plan of banks.
Dr. Shah Md. Ahsan Habib is Professor and Director, Bangladesh Institute of Bank Management (BIBM).