Commentary

It’s fair to say that, at the moment, consumer protection high on the agenda of many national regulators and central banks. The global financial crisis has severely dented consumer trust, with the most recent scandal – the LIBOR rate manipulation – dealing a further blow to consumer confidence.

The game begins when the Federal Reserve System allows commercial banks to create checkbook money out of nothing. When such a loan is placed on the bank's books it is shown as an asset because it is earning interest and, presumably, someday will be paid back.

Erroneous software sometimes play havoc in Capital markets. In 2012, the NASDAQ and other global stock exchanges were affected due to erroneous software not once, but thrice within a period of just three months!

Asian banking operations face increasing exposure from regulators around the world to AML regulations – though the pressure locally is diverse in approaches and lacks enforcement. This is particularly challenging because regulators from different Asian countries have different approaches - principle-based versus rules-based - and maturity in their regulatory oversight.

Resource constraint has already hit the overall global business and society as well. Moreover, on the path to industrialisation we have started neglecting our eco-system threatening the lives of teeming millions in tandem with the global climate change scenario.

The level of Financial Inclusion in the APEC countries is still very low. The Asian banking fraternity has taken various steps in the micro-finance sector especially in Philippines, Bangladesh, Vietnam and Indonesia (which has been an example for more than 25 years).

As I scanned my Insurance Day newsletter in London the day I wrote this article, three articles caught my eye “Market Update: trade credit claims rise in 2012 following 30% jump in 2011;” “Trade credit: uncollectable debts rising in North America;” and, then, “Credit insurers call for banks to ‘behave as they should to end financing gridlock [the International Credit Insurance & Surety Association] points at banking sector’s failure to extend credit as major obstacle to economic growth.” Despite the incongruity these headlines demonstrate the synergy between trade finance and trade credit insurance (TCI).

Asia’s banking and finance sector is still actively hiring – evidence that particular skills are in demand in the region despite the current global economic climate. Christine Wright, Operations Director for Hays in Asia, discusses the trends and current opportunities across the region from the latest Hays Quarterly Report.

We speak of the “global” financial crash of 2008 but in many respects the crash was a trans-Atlantic one; certainly the bank crash was concentrated amongst US and European banks, although the economic impact was transmitted worldwide. If anything, Asian banks had already had their liquidity crisis, back in 1997, and learnt from it. The result was that the conservative liquidity and funding principles currently being laid down under Basel III were already enshrined in Asian banking culture by the time of the Lehman default.

Project financing has been an integral part of financing options for infrastructure projects globally, both in developed and emerging markets.

The global financial crisis of 2008 has taught the financial services industry several lessons: the importance of managing liquidity; the need to strengthen and institutionalize appropriate risk culture; and to always be prepared for the unexpected. Following the crisis, financial institutions were motivated to launch aggressive change programs. Risk governance is perhaps the most significant area of change, as financial institutions made marked enhancements to their risk management structure. Still, much more can be done to fully embed more robust methodologies and processes. Defining risk appetite – a key foundation of the risk management process – remains a pertinent challenge for many financial institutions. Embedding that risk appetite to the business and linking it to day-to-day decisions is even harder to achieve. There is now widespread recognition that creating and embedding an effective risk culture that is supported by a sustainable risk and control framework is a top agenda item for senior management. The changes required to institutionalize a strong risk culture are fundamental and far-reaching. Particularly in economically challenged times, balancing profits and risk becomes even more imperative. Making risk everyone’s business is necessary, and it requires a shift in mindset, policies, procedures, systems as well as long-term commitment and investment. Although many financial institutions have launched initiatives to instill an enterprise- wide risk culture throughout all levels, they face challenges in the execution lead time, as well as difficulty in quantifying the success. Getting it right at the top For risk culture to be truly embedded into an organization, the boards and senior management need to set the tone at the top. To that end, many financial institutions are strengthening the roles and skills of their boards and senior management. Many boards and senior management are becoming more actively engaged in risk matters. According to Ernst & Young’s Making strides in financial services risk management report, survey respondents had highlighted an increase in board oversight of risk in their companies. Many financial institutions have also set up separate board risk committees and increased the amount of time devoted to risk issues. At the same time, they have revisited board member constitutions to upgrade the level of skills and experience in risk management, focusing on key areas including risk appetite, liquidity, culture and compensation. While board members may have become better informed on risk-related issues, they continue to be challenged with too much data and not enough information for decision-making, increasing expectations from regulators and evolving business models. There is also a growing emphasis on the role of the Chief Risk Officer (CRO) in terms of seniority and organizational influence. A strong consensus exists among financial institutions that the CRO and risk teams need to be more aligned with the business, and actively participate in business strategy and planning. This means that the CRO must be involved beyond the traditional areas of credit and market risk to include new product development and strategy. However, for the CRO to competently discharge his duties, he needs the stature and authority to challenge business heads on potential risk issues. The strategic nature of the CRO function thus warrants a direct reporting line to the CEO and the board risk committee. Many financial institutions recognize this. More than half of the respondents from our global survey had indicated that their CROs report to the CEO, while a smaller segment of them have dual reporting to the CEO and the risk committee. Even as financial institutions are reducing headcount to adjust to market pressure, many are aware that they cannot scale down on risk management, and continue to grow bench strength in their risk functions. However, more checkers does not necessarily lead to more effective risk management. Thus, enhancing this bench strength must go hand-in-hand with robust risk management execution, monitoring and reporting. Building more robust models Virtually all the respondents in our report had agreed that financial services institutions need more sophisticated predictive tools that enable the management to challenge critical business and risk assumptions, analyze their potential impact on risks, and assess the implications of market events on and across the organization. They are also making steady progress in updating their forecasting methodologies, models, systems and procedures to identify risks and particularly, measure risk concentration. However, the irony is that the economic capital models that many of them are enhancing could be the same ones that have inadequately assessed the size of risk exposures previously. To adequately measure risk exposure, the emphasis should be on business risks that are not covered in VaR (Value at Risk), combined with more conservative correlations and group-wide measurements. Models that more accurately measure liquidity and counterparty risks, and associated stress-testing all lend towards building more robust risk management models. More financial institutions are seeing the value in enterprise stress-testing. And perhaps what is most significant is the shift in perspective that stress-testing is a strategic management tool that serves more than just compliance purposes. Stress-testing has also been broadened beyond the risk team’s domain to include the board, senior management and heads of business units, who ultimately use the information in their strategic decision-making processes. More, however, can be done to make stress-testing a more flexible tool, in addition to addressing data aggregation and IT issues. Everyone owns risk It is clear that the financial services industry has made significant efforts since the days of the global financial meltdown to embed risk management into core business considerations, and at the highest level. Notwithstanding the positive progress made, there is room to ensure that risk management truly permeates the organization across all functions and levels. Because more often than not, the greatest risk of all is the misconception that risk is not everyone’s business. **This article summarizes complex issues and is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither the author nor the global Ernst & Young organization or any of its member firms can accept any responsibility for loss related to any person acting on the information in this article.**  

Real innovation is happening in most markets. Unfortunately often the development is in a vacuum.

For over 12 years, I have been associated with the development of Internet banking applications. In this article, I would like to share my views on the user experience aspect of Internet Banking applications and its future.

The Banking Sector of 2020 will look vastly different from what it is today – and network service providers have a critical role to play in enabling banks to make the transition to the future. The International Monetary Fund estimates that global banks lost more than $1 trillion on toxic investments following the Great Financial Crisis of 2008 and the on-going Euro Debt crisis. Banks suffered significant reputational harm following the global financial crisis. According to the Edelman Trust Barometer, the Financial Services and Banking industry remains the least trusted in the world. In order to tackle this challenge, the banking sector is becoming more agile, customer focused and tech-savvy. Consequently, network service providers need to scale-up the services they offer to enable banks to connect with their customers where they are and how they want to be engaged with. Making customers a priority The crisis has prompted progressive banks to take a ‘back to basics’ approach by focusing on longer term goals, such as offering customers value for money, satisfaction, and access to their bank and cash 24/7. This ‘return to the roots’ approach will require a significant change in internal behaviours. Rather than rewarding customer-facing staff for sales, the successful banks of the future will develop incentive programmes that reward staff for customer satisfaction, for the fair treatment of customers, and for the fair resolution of complaints. Relationship managers now have new tools and platforms that provide consumers with full information on the products and services relevant to their needs and portfolio. Banks will also need to ramp up on ‘comparison sites’ for customers to evaluate the services offered conveniently, fairly and transparently. A sophisticated customer relationship management process requires intelligent software, enhanced collaboration and communication within bank employees as well as higher compliance standards. Network service providers have to transform the nature of services they offer – from pure connectivity to value added services that enable banks to make this transformation. Go online – and social, and mobile Over the past decade, banks have done a stellar job in delivering the convenience of internet banking to consumers globally. To stay relevant, banks will are now required to step further into cyberspace and fully engage with their consumers over social media and mobile platforms to regain their trust and build lasting customer loyalty. The widespread popularity and importance of social media is mirrored by the rise of mobile smartphones. A PayPal survey found that the value of mobile e-commerce transactions in Singapore jumped more than seven times in 2011 compared to the previous year. Mobile banking is expected to become a key battleground in the retail banking sector. As technology matures, banks will be expected to offer even more banking services on-the-go to increasingly tech-savvy customers. Security is the most important consideration as virtual platforms rapidly replace traditional branch banking behaviours. Assuring the sanctity of every transaction and ensuring that customers are not compromised while using any of the multi-media portals is a key requirement from technology and network service providers serving banks today. However, this is a journey that has to be made – both for the provider and the bank. Banks that successfully integrate their social and mobile platforms to their online and traditional channels will have a greater chance of staying a step ahead of their competition. What about Cloud? While most banks are actively exploring the possibilities that Cloud Computing offers by way of agility and cost-efficiency, they are also treading with caution as they wait for further clarity on cloud computing regulations. The regulatory environment varies widely across geographies. As such, there are no easy answers for financial institutions which will need to leverage their group investments for a cost effective solution that will manage geographical risks as well as comply with the highest standards stemming from among the varied regulations. For some, this may mean implementing cloud solutions that are regionally-based and pegged to the highest regulatory standards required in a specific region. One of the more promising starting points for banks wanting to adopt cloud service is perhaps the “hybrid” cloud model (a cloud computing environment that comprises on-premise private and off-premise private or public cloud implementation). A hybrid cloud offering brings together the flexibility and increased efficiency offered by managed hosting, multi-tenant and private cloud deployments, whilst still protecting certain extremely sensitive data. It enables financial institutions to keep sensitive data confidential while benefitting from reduced cost and complexity. Network service provider partners are being challenged to offer their Banking and Financial Services customers a solution that ensures the integrity of the trusted legacy systems while exploring cloud-based services for less sensitive and newer business areas. They will also need a deep understanding of the regulatory environment and be able to help their banking customers navigate it when developing a cloud strategy. Pursing long term goals The successful bank of 2020 will be driven by longer-term goals, including a relentless focus on giving customers better value and service for money. To boost efficiency and to drive down operational costs, banks are going to have to adopt a much more agile and responsive IT and communications platform. Banks will need technology-agnostic partners that can help them navigate a path to finding an optimal communications and IT model that works for their businesses. Heading towards 2020, the challenge for network service providers is to invest into value-added communications solutions, which are highly secure and compliant while offering their banking customers a fast, responsive and trusted platform to serve their end-consumers effectively.  

Hong Kong and Singapore are popular places to build careers. When my company surveyed financial professionals there, about 80 per cent recommended their cities as places to live. Plenty of people from outside Asia want to break into these markets, too. Recruitment agencies, employers and job boards like mine all report a continued flow of CVs from the West into Asia.

Given the massive funding requirement of infra sector (>$500b in the next decade by some estimates), the domestic banking sector is feeling the constraints in meeting these large debt requirements: