Commercial banking leaders must embrace an agile and forward-thinking strategy to steer this period of turmoil. This guidance is at the heart of Boston Consulting Group’s white paper, A Call to Arms: The Commercial Banking Response to COVID-19.

Commercial banking will be pivotal in Southeast Asia’s economic response to COVID-19. This is the time for the industry to step up and fulfil its key role as an enabler of business. In doing so, commercial banking operators must adapt their own operational models in order to ensure success for the future.

Planning a strategic timeline

COVID-19 will accelerate many existing industry challenges. These include eroding margins, intensifying competition, expanding client demands and increasing digital expectations. At this critical juncture, operators must embrace these challenges as an opportunity to positively evolve servicing offerings while embedding long-term resilience.

The global response to COVID-19 follows the “flatten, fight and future” model. This same roadmap should guide the commercial banking response as the industry steers through the crisis towards the inevitable rebound.

Flatten the immediate challenge by tackling urgent priorities for value protection and client relief and support. Fight through the next 12 months to prepare for the recovery, leveraging opportunities to find advantage in adversity. This includes servicing clients and implementing economic relief measures that position you as an ally to business at this critical time. Develop a sustainable future in the medium term, embedding structural enhancements that build resilience, and prepare your business for the post-COVID-19 reality.

There is no doubt the journey ahead presents a challenging landscape in Southeast Asia. Commercial banking operators will play an essential role in smoothing that journey for others, but in doing so they must embrace four key areas of reform to ensure their own success in this era of crises.

 

Extend liquidity and credit

Commercial banks’ role in ensuring ongoing liquidity and credit will be vital for businesses in the region at this difficult time. Commercial banks must commit to building out the process infrastructure to provide that link between government-pledged support and distressed businesses, regardless of any concerns surrounding funding of these measures.

Commercial banks will have to carefully balance their own credit exposure during this period. That should include a clear strategy for credit portfolios, with the ability to react quickly to a rapidly evolving landscape. Real-time data and visualization tools will provide powerful insight which can help banks monitor and adapt.

This is an unprecedented crisis that connects health, societies and economies. That makes it extremely challenging for commercial banks to apply existing risk models to this landscape. COVID-19 will fundamentally change how Southeast Asia’s industries and supply chains operate. Taking a sector-based lens becomes crucially important as industry supply chains are changing, and risk profiles of companies in different parts of the value chain evolve. Commercial banks need to look closely at how sectors have changed, and how that impacts risk guidelines and offerings to customers in the future. Take for example an increasing adoption of tech/Industry 4.0 principles by traditional sectors to serve their customers — this expands reach, increases spend, but also deteriorates business risk as companies have not built core capabilities to operate in this environment. 

These challenges also highlight the need for commercial banks to comprehensively overhaul credit processes to handle an expected surge in new credit requests, while also working to build out management capabilities and strategies for distressed loans.

Digitize operating models

Lockdowns have provided an unavoidable catalyst for virtual operations. This should be embraced by commercial banks as a valuable opportunity for deeper adoption of digital capabilities.

The most pressing need is to digitize client activities. Reductions in physical interactions are likely to persist in the post-COVID-19 reality. Commercial banks must educate workers and clients on effective use of existing tools, while investing in new digital capabilities for the future.

DBS Bank in Singapore introduced a range of measures to support this virtual customer journey during COVID-19, including “contact-free” trade financing capabilities amongst a raft of other virtual service offerings. DBS also joined the Contour blockchain network and has conducted end-to-end secured LC transactions. 

Transaction banking digitization across payment, trade and cash management will be key in providing a “self-service” experience. Simple, straightforward, digitally-enabled operations were a key desire of many commercial banking clients even prior to COVID-19. The current crisis has smashed historical inertia and provided an opportunity to seize the initiative towards digitizing end-to-end customer journeys. Banks should also work to reimagine the sales journey to leverage fresh enthusiasm for virtual and digital relationship models.

Drive business resilience

Business resilience has come into sharp focus in response to COVID-19. Commercial banks must embed this focus if they wish to succeed in the environment which follows. Adopting an augmented workforce strategy through hiring and upskilling will play a key part. It is likely operators will require fewer sales staff, but more in areas such as workout. It’s important to assess existing talent and train, transfer or hire to fill the gaps.

The particular challenges facing the industry’s sales force must also be addressed. A lack of face-to-face interaction is a radical shift to existing commercial banking operations in the region. Sales staff must be supported with the right tools, infrastructure and incentives to thrive in this changed world. That will require establishing and communicating fit-for-purpose processes and guardrails.

Banks are creating custom-build tools that provide the “Bionic Relationship Manager” with added transparency of clients’ performance, their pipeline and leads and industry insights, allowing higher productivity in a remote and distributed work environment. 

Maintain pricing 

The final piece comes from stabilizing revenues. In an era of near-zero interest rates, and huge demand for payment waivers from clients, that will not be easy. Banks will need to rethink their loan and pricing strategies and take a holistic view on waivers and discounts. In Indonesia, there is high fluctuation in interest rates allowing commercial banks to work on both lending and deposits pricing. By deaveraging the customer base, segregating clients by price sensitivity, and introducing precise offer adjustments, commercial banks can improve RAROC without losing volumes. 

This period of challenge is an opportunity to deepen valuable client relationships and showcase the vital role the industry plays in supporting businesses. Speed matters, but so does direction of travel. In this period of adversity, commercial banking should embrace this unprecedented opportunity for positive transformation.

 

Ernest Saudjana is a managing director & partner at Boston Consulting Group, Jakarta and leader of the Financial Institutions practice area in SEA. Tushar Agarwal is a partner at Boston Consulting Group, Jakarta.