Asian banks, including those headquartered in Singapore and Hong Kong, were among the first to react in a meaningful way to the coronavirus crisis. What they did back in January and February to help mitigate the impact of Covid-19 on their employees, businesses and customers could provide a “valuable template” for banks globally, according to a new report by McKinsey, which also suggests that technology professionals will remain in high demand and that working from home will become more acceptable in Asia in the wake of the virus.
To guide their coronavirus response from the outset, many financial institutions in Asia formed response-management units composed of executive-level, cross-functional teams, according to the report. Critically, banks gave them power to “make key decisions” and communicate Covid-19 responses quickly across the organisation.
McKinsey says Asian bank executives put a lot of effort into deciding which employees could viably work from home (WFH), and considered both the “level of human interaction required for certain tasks and the degree to which work can be segmented and individualised”. For example, contact-center staff don’t require a high level of interaction with coworkers, but banks typically lack the technology needed to make their WFH feasible. By contrast, digital product-development teams are better equipped to work remotely.
“At one Southeast Asian bank, for example, a 125-member product development team moved its work setup completely off-site over the course of two weeks. The team first implemented no-regrets moves, such as reinforcing best practices in handling data, and then defined a clear set of actions across key operating models to enable fully remote work,” says the McKinsey report.
Despite a few cases of Covid-19 in the Singapore finance sector (at DBS in February, for example), McKinsey says Asian banks “quickly took action” to ensure that normal bank operations didn’t contribute to the spread of the virus among employees and customers. While much of these efforts focused on branch staff, head offices were also affected by measures such as temperature screening, while it became common for banks to distribute “aid kits” (e.g. thermometers, hand sanitisers, and masks) to employees.
McKinsey says the pandemic has forced Asian banks to “significantly accelerate their shift to digital channels”. They have not only leaned more heavily on existing digital channels, but have also “accelerated” the move to digitised core-banking processes such as electronic KYC, digital signature collection, and online document submission.
As we reported last month, technology teams at banks in Asia are still busy and many are still hiring – McKinsey’s report appears to suggest that recruitment in tech will remain buoyant. “An increase in IT spending could enhance internal resiliency to future disruptions and provide more flexibility in maintaining operations,” says McKinsey.
Executives and risk professionals at Asian banks have also been busy designing “specific interventions to manage end-to-end credit risk”. Their new credit underwriting strategies may include, for example, a request for a Covid-19 contingency plan from corporate clients at origination. “Similarly, sharper risk identification, monitoring, and measurement approaches can identify clients with higher vulnerability to primary and secondary effects of the Covid-19 outbreak and anticipate deteriorating creditworthiness”, says McKinsey. “Data-and-analytics methodologies” have helped banks reduce the impact of Covid-19 on capital.
McKinsey says while the scale and duration of economic disruption remain uncertain, even the immediate effects of Covid-19 have rendered many of banks’ existing strategies obsolete. After taking action to ride out the initial waves of the pandemic, Asian banks should reassess how they operate in a “post-Covid-19 world”. Emerging consumer trends, for example, include a “greater receptiveness to digital channels”.
Although working from home has traditionally been unpopular in Hong Kong and Singapore, McKinsey says that after the crisis, employees may be more supportive of remote-working arrangements, which will have repercussions on “everything from real-estate costs and planning to IT spending”.
The report says banks could face a prolonged period of lower profits and tighter balance sheets. Worryingly for jobs, McKinsey says that to manage the “future downside risk on revenue, banks should target becoming lower-cost franchisees by considering strategic cost programs that draw on multiple cost-saving strategies”.
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