Bank leadership: Adaptive approach at the time of crisis

June 11, 2020

Shah Md Ahsan Habib | Published: June 03, 2020 21:38:47

Despite the global efforts and the potential timeline for handling the current corona situation, things are still unclear. All we know, economic activities are already severely disrupted in many countries, and others are getting ready for facing the disruption. The situation may be termed a composition of multiple crises: health crisis, real sector recession; policy uncertainty and financial crisis. In the financial sector, banking industry started becoming more exposed and might be in severe distress in the upcoming months, if not handled appropriately.

As a crucial economic agent of an economy, banks have great roles to play in this unprecedented situation. It is not only about supporting banks’ clients and employees, about also supporting policymakers and the society. A bank has also to work to save itself. Thus it is broadly about serving customers i.e., ensuring access to critical services in affordable and comfortable terms;  helping society i.e., supporting affected customers and communities; and  responding to financial difficulty i.e., scenario planning, launching a special credit strategy, and operationalising restructuring capabilities.  There is no doubt that the ongoing working condition of a bank is tough and challenging to adjust with the situation. However, probably the more essential element of banks’ responses is  how the crisis impacts their own clients and, as a result, their ability to generate revenue. It is not easy for a bank to set priorities and extent of activities in such a critical and uncertain situation. A recently published editorial in The Banker considered the situation as a real opportunity to support customers, employees and societies and suggested banks to respond positively. And it adds, banking associations should also step up by coordinating measures where they do not fall foul of competition rules and by putting out an industry message about what is being done. There are different views as well that favour focusing more on banks’ resilience, according to which banks should first protect their employees and service providers through safety measures in branches and essential offices; and that for their affected customers and small businesses they should offer payment extensions or other programmes, but only so far as their balance sheets allow. There is no doubt we need a balance of these. We need to support national goals, we have to support our employees and clients, and we have to save ourselves.

Since the corona outbreak, a number of commercial banks have assumed social responsibility and are engaged in supporting the fight against the outbreak and have resumed normal operation, such as providing preferential credit support and reducing business fees for affected customers, opening green channels, enhancing online financial services, and donating funds and supplies. By the time, globally many banks have also triggered their business continuity plans and are tackling with the immediate impact of the pandemic and innovative ways of working and preparedness for handling post covid-19 business situation. Practically, success and effective enforcements of these special action plans heavily depend upon banks’ leadership approaches. 

It is said that a crisis brings out the best in leaders, and it is time for the bank leadership to demonstrate their best.  As measures for existing risk management and preparation for quick recovery, the banking industry should bank on the integrated approach i.e., Enterprise Risk Management (ERM) where board and top management have critical role to play to lead risk management efforts and crisis preparedness. It is a structured approach that aligns strategy, processes, people, technology and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces; it is a forward looking approach to manage all key business risks and opportunities. Ideally, preparedness and contingency measures should have been automatically active with the upsurge of the crisis in the presence of ERM practices which is not practised in its due shape. In spite of the importance of ERM that received renewed focus following the 2006-08 global financial crisis, it did not receive due impetus with its integrated and preparedness approach in banks. Following ERM approach, the Covid-19 situation is requiring decisive action and collective efforts from board and top management and employees to play their part. Especially, the top leadership network-board and top management, have a great role to play. For banks’ boards, intense involvement in the banking activities or similar way of stepping in may seem unusual, however, there is no option but to play a unique role in this unprecedented situation for handling the current situation effectively and for quick recovery in the post Covid-19 scenario.  It is critical to add value by managing critical oversight and strategic support, engaging key stakeholders, and understanding the areas of interventions. Being in a very sensitive and highly regulated industry like banking, it is however very important to respect boundaries i.e., not stepping into risky territories when providing support.

The sudden Covid-19 outbreak did not allow banks to go for a planned business continuity at their initial phases. It is crucial that their boards understand and judge the current status of business continuity, offer  due guidance and inputs; understand the operational and financial impacts of Covid-19 in the short and long term;  and adapt or change action plan and priorities. Some key banking issues like revenues, cash flows, liquidity, capital, debt obligations, profitability, benefits and dividend payments should be within the close purview of the boards for quick policy and strategic support to the management with the ultimate goal of meeting stakeholders’ interests.  As a more or less common strategy, central banks are lowering interest rates and increasing liquidity in their financial systems through a combination of measures, including lowering capital buffers and reserve requirements, creating temporary lending facilities for banks and businesses, and easing loan terms. An appropriate mechanism should be in place for quick communication to undertake any strategic decision by the executive level, where required.

A Board-level Contingency Team may work to support management at this emergency situation of Covid-19 to attain certain strategic goals.   Obviously, addressing contamination risk of Covid-19 must be at the top in line with national priority. There must also be clear strategy of supporting policy makers by facilitating essential financial services and injecting required liquidity for revitalising the economy and business continuity strategy in the current situation and recovery plan in the post-Covid-19 scenario. At the executive level, bank management is expected to form Contingency Team/Teams with specific tasks to attain the strategic goals. There might be either separate Contingency Teams having an arrangement of strong coordination or a single Contingency Team with clearly allocated jobs to strategise and implement action plans. There should be coordinated arrangement amongst selected focal points/key personnel from major operational departments/units and regions/branches of the bank.

Dr. Shah Md. Ahsan Habib is Professor and Director, Bangladesh Institute of Bank Management (BiBM). [email protected]

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