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Egidio Zarrella

It's time to be hands-on

BY EGIDIO ZARRELLA

It is tough being a CEO in a Financial Institution in these times. It is not that public has a view of bankers which may not help but how does a CEO negotiate these challenging and turbulent times? It is the strategic issues which give many sleepless nights. It does not matter, whether one leads large national, regional or global banks, the issues are similar.

This is a time where many Banking CEOs are faced with setting their strategic directions for the next three to five years and coming up with a way forward which will lead them through these turbulent waters. There is recognition we have a lot yet to go through. Some economies are grappling with large domestic issues. 

Given all of this we recently looked at what some Asia Pacific CEOs were thinking.
Some key questions that Banking CEOs need to consider in their roles now are:
•    What is the new context I am dealing?
•    How should my business model adapt?
•    Where are the new markets?
•    How do I fund my business model?

The Context
Financial Services both globally and regionally has changed dramatically. The landscape has changed where now three of the world’s largest banks are Chinese. We have most of the Western Banks still working through bad loans and toxic assets.  This will take the system a while to work through. The year of 2010 is halfway over and we as yet have not seen a market rebound. 
Some key questions CEO should ask include:
•    Have you altered your business model for a post crisis environment and redefined your strategy in terms of market share and positioning? 
•    Is your business model positioned to withstand a gradual recovery, characterised by continued market austerity and potentially some further economic shocks?
•    Do you understand how your risks have been affected and how the strategies of key customers, suppliers and partners may have changed as a result of the downturn?
Remember in Banking what your customers are feeling should also be looked at as well. These key questions can help assess how their organisations are going to meet its commitments.

The Business Model
This downturn and even post-crisis has given many executives across Asian Financial Institutions time to think about the opportunity to dispose of underperforming, non-core assets and generate cash to support core business. This is a time to strengthen the balance sheet.
Some key questions CEO should ask include:
•    Are different divisions within the bank all working towards a common strategic vision?
•    Have you fully addressed legacy infrastructure issues in the bank, possibly arising from strong growth prior to the financial crisis?
•    Have you considered strategies such as outsourcing as a way to create a lighter and more agile business model?

The Markets
While many global and regional Financial Institutions remain cautious in entering new markets, many do recognise Asia’s continued importance as a region of opportunity that will shape developments in the global economy. Many organisations may wish to shift their strategic focus away from the more developed markets, where growth is likely to be slower than they previously forecasted. I find many Asia Pacific CEOs faced with considerable pressure to grow the top line while managing the costs very tightly.
Some key questions CEO should ask include:
•    Have the Bank used the downturn as an opportunity to take difficult decisions and refocus towards new growths markets?
•    Is your strategy for growth through M&A or JVs based on real strategic parameters or just a quest for market share?
•    Have you a definition of the value of your business in different emerging markets and do you know where the skills and talent that you need for your business to reside?

Funding the business model
Where previously there was ample capital available, now it is critical to consider whether capital is being allocated appropriately, efficiently and competently. In the new environment no Banking CEO can just rely on the CFO or even Finance team to answer this question and should seek to understand capital management issues more thoroughly.
Some key questions CEO should ask include:
•    Does the Bank clearly understand its capital structure and capital management structure and requirements as clearly as your CFO?
•    Are you clear how close you are to regulatory requirements?
•    Are you continuing to instill a culture of responsibility for cash flows and working capital management, even as there are signs of recovery?

Way Forward
Do not assume these questions are common sense or basic. I am always surprised how people can not answer them quickly or even clearly. You can not be hands off in times like these. This requires significant focus and will power to ensure the right vision and disciplines are in place.

This is definitely tough times for a Banking CEO. As we move through this post-crisis the ability of Banking CEOs to hire, motivate and retain good people, including the right local talent, is important to take advantage of the growth opportunities for us in Asia. It also helps maintain a competitive edge over industry peers.

The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Asian Banking & Finance. The author was not remunerated for this article.

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Egidio Zarrella

Egidio Zarrella

Egidio Zarrella is a Clients and Innovation Partner at KPMG Advisory.
 

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