Fit Focused and Ready to Fight
How banks can get in shape for the battle ahead
As the world recuperates from its recent economic malaise, bankers face a host of challenges as they seek to improve the industry's health and foster long-term growth. Banks must focus on raising capital, improving asset quality and increasing profits. New and proposed regulations all point to higher capital requirements. However, banks access to capital markets is constrained by the weaknesses in their loan portfolios and by the overall decline in public wealth.
With all this in mind, how does the banking industry regain its stride and restore prosperity? We believe the answer involves a significant transformation by banks as they redefine their business models, restore their client relationships and reform the risk management culture.
Banks should realize that business model specialization is a winning theme within the financial ecosystem. As a result, banks should determine their areas of specialization and focus their efforts on those customers, markets, products and distribution channels they can manage effectively and efficiently. To fill gaps in product range, market reach and distribution, they should consider strategic alliances with other banks or suppliers.
While banks in emerging markets are likely to return to historic profit levels through economic growth, banks in mature markets will need to service future growth from radically lower cost structures. These banks should lower operating costs through business model changes that are supported by long-term savings initiatives in areas such as IT, shared services and front/back office integration.
Our research indicates a clear and emerging trust gap between banks and their clients. Clients overwhelmingly believe banks operate primarily in their own interests rather than those of their clients – and, surprisingly enough, many bankers agree! To close this trust gap, banks must gain a deeper understanding of their clients.
In addition to determining how to create new avenues for sustainable revenue growth, banking leaders also need to develop strategies to better manage risk. Silo implementation of risk management techniques and a weak systemic view of risks across the banking ecosystem exacerbate difficulties in making good judgments. To combat this, banks must implement an integrated, enterprise-wide risk management framework.
In their recovery efforts, significant opportunities exist. To seize them, banking executives must begin a transformation today to help make sure they are fit, focused and ready to fight any challenges standing between them and success.