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COVID-19 and UK Banks –Responding and adjusting to seismic change

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COVID-19 and UK Banks –Responding and adjusting to seismic change

By Jonathan Shawcross, MD Banking, Gobeyond Partners. 

COVID-19, and the associated impacts which come with this crisis, have hit the UK banking industry incredibly hard.

The banks are encountering loss of their own people to sickness, loss of their overseas operations to rapid lockdowns, customers desperate to ensure their financial security, Government instructions to give payment holidays, new business lending schemes to implement, branches to remain open despite the lockdown, reduction in interest rates and therefore profitability, and much more… the list goes on.

Having led major incident management for two of the UK’s big four banks, I am no stranger to understanding just how challenging it can be to mobilise large financial organisations in response to major IT failures, financial markets collapse, riots and even terrorist attacks. However, the events of the past few weeks are truly unprecedented. In fact, I think we can even go as far to say that COVID-19 has taken all these previously mentioned incidents and combined them into one ‘meta-crisis’ in terms of the severity of the situation.

Responses to COVID-19 are complex and hard to implement at pace – likewise these responses form another very long list. They include new IT solutions for remote working and new equipment to support this, new processes to implement, new risks to assess and mitigate, financial forecasts and capital requirements to be reassessed, worried investors to manage, scaling operations to meet customer demand at short notice, staff to communicate with and to safeguard, urgent and comforting messaging to be delivered to customers at scale, additional security measures to implement, cash to continue flowing to branches and ATMs, and of course customers and clients all over the world to support through major financial distress.

This crisis represents unique and particular challenges as it is both complex, continuously evolving, and likely to be long lasting. However, history tells us that major incidents which have had similar characteristics, have usually moved through distinct phases from a business perspective. Each of these phases requires its own response; but what are these for banking in the current crisis?

  1. Rapid Crisis Response

 This phase is about avoiding or mitigating customer panic by changing your service delivery model rapidly. We’re a few weeks into this phase, with many organisations focused on enabling customer requests and contacts to be handled effectively through at least a ‘minimum viable service’. Many are promoting increased use of self-serve digital channels and/or automation for both sales and service to reduce the sheer volume into direct contact. The dichotomy here is that in stressed times such as these, sometimes a human voice is what people really need to help them remain calm.  As such, the principal response has been to enable remote working capability for customer operations teams, with the initial shock highlighting the wide variety of capability and robust continuity arrangements which exist. Some banks are still trying to find adequate solutions – which doubtless will provide multiple agenda points in future incident reviews over the coming months.

  1. Take back control 

Government advice tells us that the COVID-19 crisis will start to peak in the UK in about two to three weeks’ time (mid-late April). This will mean higher levels of absence and therefore a challenge to sustain even home-workers at the levels required to meet customer demand. Banks must prepare now for this and have a ‘Plan B’ in place. This may include improving online services; reducing available products (as we have already seen with some mortgage products); increased use of messaging or automation within contact channels or perhaps better still, bringing in additional remote-workers immediately to prepare for this spike in absence. These resources could be supplied directly or through partners.

  1. Business as unusual 

A full set of resources and a simplified and more automated offering will be one thing, but medium to longer term working from home will see a dip in productivity and morale amongst workers who are still being asked to directly support customers. It will be key that there is a plan now for how the banks will lead, manage and motivate a dispersed workforce over a potentially extended period of remote working, when this will be a highly unusual and challenging environment for them.  It will require different management tools, rhythms and leadership approaches to be successful. The trick here is to think about where to place any investment, given that you either need to see a relatively short term return, or it needs to be something you can incorporate into your ‘new normal’ once the tide starts to turn on Covid-19.

  1. Transition to new normal 

Bringing the organisation and customer service back into BAU brings with it several considerations. This will include the re-introduction of services paused during the crisis;  consideration also for a longer-term remote working or outsourcing solution as a feature of the ‘new normal’ – what worked about the new way of working and how could that add value to customers and to firms going forward? How will transformation programmes restart? In an environment where the profitability of the banks will have been severely hit, what new initiatives will be required to more rapidly step-change both improved customer service and reduced cost?

  1. Prepare for next crisis

COVID-19 has taken the world by surprise and been a sobering moment for the economy and our society, as well as business at large. Many organisations are going to need to think very differently about operational resilience and business continuity planning.

Importantly the banks, now more than ever, will need to focus hard on empathising and coping with customer fears. These will be urgent needs of customers to keep their homes and feed their families. How organisations act now will have a long-lasting impact on consumer trust and loyalty.

All of this is a big ask, yet the sympathy from customers and Governments alike is unfortunately thin on the ground. Quite frankly the banks can’t afford to get this wrong – both in terms of their own reputation with their customers, but also to prove the ability of the UK as a collective, to financially negotiate this crisis.

Banking

Banks weigh up home working – the new normal or an aberration?

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Banks weigh up home working - the new normal or an aberration? 1

By Lawrence White, Iain Withers and Muvija M

LONDON (Reuters) – As the finance industry prepares for life post-pandemic, commercial banks are moving quickly to harness working from home to cut costs, while investment banks are keen to get traders and advisers back to the office.

HSBC and Lloyds are getting rid of as much as 40% of their office space as an easy way to make savings when bank profits have been crunched by the pandemic.

But there are concerns that remote working does not benefit everyone. Junior staff miss out on socialising and learning opportunities and there are also risks home working can entrench gender inequality.

At investment banks, where long hours in the office were the norm pre-pandemic, bosses say they want most people back where they can see them.

HSBC plans to almost halve office space globally, as it aims to squeeze more use out of the remaining space and increase the number of staff per desk from just over one to closer to two.

Britain’s biggest domestic lender Lloyds plans to shrink its office space by a fifth within three years. Standard Chartered will cut a third of its space within four years, while Metro Bank said it would cut some 40% and make more use of branches.

“We’ve had a period where flexible working has been tested in full, with about three quarters of people not based in offices as we used to call them, and the business has performed remarkably well,” Andy Halford, Standard Chartered CFO, said.

But major investment banks take a different view, with Goldman Sachs Chief Executive David Solomon pouring cold water on the potential of remote working.

“It’s not a new normal. It’s an aberration that we’re going to correct as soon as possible,” he told a Credit Suisse conference on Wednesday.

Barclays CEO Jes Staley, who last year said he thought the days of 7,000 employees trudging into its Canary Wharf headquarters were numbered, is also unwilling to commit for now to large office closures.

The Barclays boss has said the bank had “no plan” to make a major real estate move as Britain’s prolonged third lockdown had shown the strains of working from home.

Nick Fahy, CEO of online lender Cynergy Bank, said working over screens often could not compete. “You might have a disagreement on this, that or the other but actually over the coffee machine or over a glass of wine or a bit of lunch, issues can be resolved.”

UNINTENDED CONSEQUENCES

Some banks have acted quickly because they are used to flexing workforces in line with economic cycles, particularly in investment banks, Oliver Wyman principal Jessica Marlborough said.

But some are waiting on analysis of staff productivity changes before making final decisions, while others were mindful junior staff may still prefer going into offices, she said.

Banks are also concerned women may lose out from the shift to remote working.

“We thought the pandemic would be a big leveller for women. But actually what we’re starting to see is it’s extremely challenging to get women to move jobs in a pandemic,” Marlborough said.

“Banks were making progress in hiring a more balanced workforce in terms of gender and other metrics, but they’re actually struggling now (as banks are finding) they (women) are less likely to seek out a new job.”

Union leaders said part of the reason was that some women are juggling more childcare responsibilities during the pandemic.

Dominic Hook, national officer for UK union Unite, said banks must ensure working from home is voluntary, use of surveillance tools is limited, and employers respect staff hours so work does not spill into evenings and weekends.

“Our concern is that it won’t actually be a choice and that banks will pressure staff to work from home,” Hook said.

There are also concerns hybrid working will favour employees who visit the office more regularly, as they can spend more time in person with colleagues and managers, said Richard Benson, managing director at Accenture Interactive.

The staff most likely to go back to the office are traders, bank executives said, while back-office functions such as finance, risk management and IT will spend more time working remotely.

In Germany, Deutsche Bank said it had been challenging to adapt home office spaces for traders and expected many will want to return, but not all.

“We will pay more attention to the personal circumstances at home. Dealers also have children or parents in need of care. We have become more sensitive,” said Kristian Snellman, Deutsche Bank’s head of investment banking transformation for Germany and EMEA.

The trend to shed offices predated the pandemic as many banks made cuts after the 2007-09 financial crisis. Some have already made moves as a result of the pandemic, such as NatWest, which shut its tech hub in north London last summer.

Retained offices are being remodelled, with desks removed to make way for collaboration and break space such as coffee areas, gardens and libraries, property consultancy Arcadis said.

“It’s not just about adding a ping pong table and table football and hoping it will work, it’s about making sure people get downtime,” said Sarah-Jane Osborne, head of workscape at Arcadis.

David Duffy, CEO of Virgin Money, said the bank is among those planning to strip out office cubicles.

“The world of large-scale populations returning to a tall skyscraper building to come in and do their e-mail in the office doesn’t make any sense,” he said.

(Reporting By Lawrence White and Iain Withers in London and Muvija M in Bengaluru, Additional reporting by Patricia Uhlig in Frankfurt. Editing by Rachel Armstrong and Jane Merriman)

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Banking

Bank of England’s Haldane warns inflation “tiger” is prowling

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Bank of England's Haldane warns inflation "tiger" is prowling 2

By Andy Bruce

LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, adding that central banks may need to respond.

In a clear break from other members of the Monetary Policy Committee who are more relaxed about the outlook for inflation, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.

“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online.

“But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”

Haldane’s comments prompted British government bond prices to fall and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation.

“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.

(Editing by David Milliken)

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BOJ to highlight climate risks as key theme of bank tests this year – sources

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BOJ to highlight climate risks as key theme of bank tests this year - sources 3

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) – The Bank of Japan will for the first time highlight climate change risks as among key themes in its bank examinations this year, sources said, joining major peers moving to gain research clout on the effects of global warming.

In guidelines on the examinations due next month, the BOJ will clarify its readiness to coordinate with Japan’s banking regulator in analysing the impact of climate risks on financial institutions, said three sources familiar with the matter.

The central bank will also beef up cooperation with the regulator, the Financial Services Agency (FSA), in studying European examples and specific ways to measure financial risks associated with climate change, they said.

The moves are part of Japan’s efforts to follow in the footsteps of an increasing number of countries working on or considering stress-testing financial institutions on climate risks.

“For the BOJ, green QE is still off the radar. The more approachable and near-term focus is to assess climate change risks on the financial system,” one of the sources said, a view echoed by two other sources.

“Climate change is a key theme for the BOJ this year,” another source said, adding that stress-testing climate risks on financial institutions is “not imminent, but something Japan needs to aim for in the future.”

The BOJ conducts hearing and on-site monitoring in voluntary examinations on financial institutions. But it does not have regulatory authority, which falls under the FSA. Neither the BOJ nor the FSA stress-tests banks on climate risks.

Officials of the two institutions have been discussing climate change as among topics that could affect Japan’s banking system. But progress toward stress-testing financial institutions has been slow because of a lack of data and models.

The BOJ began to gear up efforts on climate change after Prime Minister Yoshihide Suga last year pledged to make “green” investment a key pillar of his growth strategy.

The Biden administration’s focus on battling climate change, and the Federal Reserve’s decision in December to join an international central banks’ group focused on climate risks, also prodded the BOJ to engage more, the sources said.

But actual roll-out of stress tests will take at least another year as policymakers work out guidelines and details, including whether they will ask banks to conduct a “self-assessment,” the sources said.

(Reporting by Leika Kihara and Takahiko Wada. Editing by Gerry Doyle; Editing by Chang-Ran Kim)

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