By Joakim Lundquist, Head of Italy, Switzerland and Austria, Comprend
As banks continue to struggle with the consequences of the financial crisis and a lack of transparency over events such as Libor rigging and tax avoidance become ever more ingrained in the public’s conscience, the importance of clear and transparent communication has never been greater.
It is clear that the web, blogs and social media are now people’s impulse port of call for information and explanation. While the interactive world of social media can seem a daunting place for large corporations, there is one channel they still command: the corporate website. But, to be effective, it is key that companies use this tool to respond to external pressures.
At Comprend we have been measuring the performance of corporate websites for 18 years through our annual Webranking survey, a comprehensive study that evaluates corporate websites based on feedback provided by 500 financial journalists, analysts and investors in Europe and globally. The answers are used to refine a 140-part protocol that ranks everything from the availability of financial and non-financial information such as debt, investment strategy, risk management and CSR, to the quality of information about executives and board members.
Webranking works like a transparency “stress test”: the stresses in this case originate on the one hand from the demands of the most critical, time pressed audiences and on the other hand from the need to gain competitive advantage with respect to their peers. The banks that pass this test demonstrate a minimum ability to govern their reputation in digital channels: they create an opportunity to build a “premium” status with key stakeholders, which can facilitate access to capital markets and translate into higher trust among customers, the ability to attract the best talent or to set the agenda on the issues of importance to the sector.
So how do banks perform?
Results from the Webranking surveys over the last year show that investors and analysts need to understand how a company is managed, what investment strategies it applies and what financial results are. Whether the capital markets consider a company a trustworthy investment is partly in the hands of the organisation itself by communicating efficiently and effectively.
This year’s results show that only a handful of the 56 European banks we analysed – including Danske Bank, Swedbank, Credit Suisse and UBS – performed well, with many of their competitors failing to satisfy stakeholders’ most basic online needs. Considering 50 points out of 100 as the threshold at which companies respond adequately to market requirements, less than 1 out of 5 of Europe’s top banks passed the test, with 40% of them failing to present even a minimum of content expected by the market (30 out of 100). In fact, the banking sector is one of the few sectors that saw its average score decline compared to last year.
So why does this matter? In the absence of information, people make negative assumptions, disconnect and head elsewhere. Refraining from being open and transparent enough to give people the information they want, even if it’s not always what the bank wants to stress, undermines trust.With analysts, investors and journalists revealing that easy access to decision critical information is crucial in order to make informed decisions, this is clearly in need of improvement.
Key areas of strength and weakness
A particular weak spot for the sector, evidenced by our research, remains in investor relations and corporate governance, where banks lag behind the top 500 European companies in explaining their investment proposition (5% vs. 12%); only 13% of banks convey their financial targets and 9% describe the growth drivers of their business. With the banks constantly plagued by a number of issues, including regulation and capital weakness, it is surprising that this continues to be a deficiency for European banks.
Most of the banks assessed also do not provide efficient communications towards potential employees, even though more than half (54%) post vacancies on their websites. Only 34% present their pay and benefits structure, although some banks are better than others, with Danish bank Danske Bank a particular standout in this area.
Yet where many of the banks analysed do excel is in the area of corporate social responsibility, with 71% presenting a CSR report, up from 60% the previous year. Banks such as UBS, Intesa Sanpolo and Nordea Bank lead the pack in this area as they provide ample information on the subject. Considering how corporate responsibility tends to presuppose a long-term view of the business, it is encouraging to see that more than two thirds of the banks examined are taking this seriously.
A need to transform with the times
Hand-in-hand with the issue of transparency is that of remaining competitive. Banks risk being outflanked by innovative new players who are disrupting areas such as payment transactions and private banking. As more users interact with banks’ digital ecosystems, it is imperative to be able to communicate with a broad range of stakeholders on corporate as well as commercial matters. The Webranking survey is a barometer of this digital readiness and has evidenced key areas that are critical for major banks in understanding how they are positioned.
For example, the survey shows that being able to adapt to mobile is a key priority, and with Google recently changing its algorithm to prioritize mobile web pages, it is crucial that banks move to a more adaptable screen resolution for different devices, to allow their customers the digital experience they are after. Progress on this front is still gradual, with the percentage of responsive websites climbing to 14% from 6% in last year’s survey.
With a PR or reputation crisis now taking place at the speed of digital, and new players continuously entering the market, more needs to be done to get these banks digitally ready. For instance, 83% of journalists say they use social media to find information about companies, yet only 50% of the examined banks indicate their corporate social media accounts and only one in four integrate their social media activity into their corporate websites.
This is not good enough, as it shows European banks are poorly positioned in terms of their digital corporate presence and that there is a substantial gap between the expectation of key stakeholders and the banks’ response. With the digital world constantly evolving, this should be seen as an opportunity for banks to grab digital by the horns and reinvent themselves in order to satisfy their customers’ and stakeholders’ growing needs.
Keeping an eye out on next year’s Webranking survey will reveal if they have done just that.
A quarter of banking customers noted an improvement in customer service over lockdown, research shows
SAS research reveals that banks offered an improved customer experience during lockdown
This represents some good news for banks in an extremely challenging time, with 59% of customers also saying they’d pay more to buy or use products and services from any company that provided them with a good customer experience over lockdown.
The improvement in customer experience also coincides with a rise in the number of digital customers. Since the pandemic started, the number of banking customers using a digital service or app has grown by 11%, adding to an existing 58% who were already digital customers. Over half (53%) of new users plan to continue using these digital services permanently moving forward.
Brian Holden, Director, Financial Services at SAS UK & Ireland, said:
“It’s notable that in times of need customers value being able to communicate with their bank and place an even higher value on good customer service. A rise in the number of digital customers means banks can now reach a wider audience online, leveraging AI and analytics to offer a more personalised experience.
“There is work to be done, though. Even greater personalisation is needed if banks are to win over the 12% of customers who felt banking services deteriorated over lockdown. And this personalisation will need to get right down to a segment of one to properly reflect the unique circumstances some individuals now find themselves in due to the pandemic.”
While the number of digital users grew over lockdown, there is still a quarter (24%) of the banking customer base that have chosen not to make the switch to digital services.
Meanwhile, failure to offer a consistently satisfactory customer experience could prove costly for banks, with a third (33%) of customers claiming that they would ditch a company after just one poor experience. This number jumps to 90% for between one and five poor examples of customer service, so this just underlines how much retail banks can win or lose in these difficult times.
For more insight into how other industries across EMEA performed during lockdown, download the full report: Experience 2030: Has COVID-19 created a new kind of customer?
Swedish Bank Stress Tests in Line with Recent Rating Actions
The Swedish Financial Supervisory Authority’s (FSA) latest stress test results show major Swedish banks’ robust ability to absorb credit losses. The results support Fitch Ratings’ view that short-term risks have abated in recent months, and are in line with Fitch’s assessment of major Swedish banks’ capitalisation at ‘aa-‘, which was a factor when Fitch removed the ratings of Handelsbanken, Nordea (not covered by the FSA’s stress test) and SEB from Rating Watch Negative in September.
The FSA estimated about SEK130 billion of credit losses over 2020-2022 for the three largest banks (Swedbank, Handelsbanken and SEB) under its stress test. This represents about 220bp of their loans, or about 70bp annually. However, the banks’ pre-impairment profitability in the stress test could absorb credit losses of up to about 110bp of loans annually. Fitch’s baseline expectation is for credit losses below 20bp of loans in 2020 and 8bp-12bp in 2021.
Capital remained strong under the stress test. The average common equity Tier 1 (CET1) ratio fell by only 2.8pp (1.9pp if banks did not pay dividends) from 17.6% at end-June 2020. The capital decline was not driven by credit losses, which could be absorbed by pre-impairment profitability, but by risk-weighted asset inflation.
The three banks’ 3Q20 results showed that capital has been resilient despite the coronavirus crisis. The banks had a CET1 capital surplus over regulatory minimums, including buffers, of almost SEK100 billion (excluding about SEK33 billion earmarked for dividends). SEB had a CET1 ratio of 19.4% at end-September, Handelsbanken’s was 17.8% and Swedbank’s 16.8%.
The SEK130 billion credit losses under the latest stress test are lower than under the FSA’s spring 2020 stress test (SEK145 billion), which also covered a shorter period of two years. However, they are still larger than the actual losses incurred by the three banks during the 2008-2010 crisis. This is despite tightened underwriting standards by the three banks in recent years, including, in the case of SEB and Swedbank, in the Baltics, the source of most of their loan impairment charges in the previous crisis.
In its baseline economic forecasts, the FSA assumes a harsher shock to Sweden’s GDP in 2020 and 2021 (-6.9% and 1%, respectively) than Fitch’s baseline (-4% and 3.4%), although it assumes a similar recovery by end-2022. It also assumes real estate price corrections, which appears particularly conservative in light of a 11% housing property price increase over January to November 2020.
The ratings of Handelsbanken (AA), Nordea (AA-) and SEB (AA-) are on Negative Outlook due to medium-term risks to our baseline scenario. The rating of Swedbank (A+) is on Stable Outlook, reflecting significant headroom at the current rating level following a one-notch downgrade in April due to shortcomings in anti-money laundering risk controls.
Future success for banks will be driven by balancing physical and digital services
Digital acceleration due to COVID-19 has not eliminated the need for bank branches
Faster service (23%), smaller queues (26%) and longer opening hours (31%) are among customers’ biggest asks of their bank branch, new research from Diebold Nixdorf today reveals. But with 41% consumers saying they would be comfortable to engage with all banking services via an app, it is vital that banks respond to the full spectrum of customer needs – balancing and evolving their offerings on multiple fronts.
A third (35%) of customers say they will always want access to physical, in-branch banking services in some capacity and one in ten (10%) consumers will never bank predominantly online in the future. This demonstrates that there remains an important role for the services a branch provides. This role, however, continues to shift away from purely transactional banking:
A quarter (26%) value face-to-face advice when it comes to their banking needs
One in five (18%) seek advice on different products
17% want to speak to the staff or other customers.
Matt Phillips, Diebold Nixdorf vice president, head of financial services UK & Ireland, said: “The majority of banks have spent the last decade focusing on their digital strategies and investing in improving – or establishing – their online customer experience. However, the data shows that there is still an essential role for physical branches. Banks now increasingly face the challenge of continuing to provide customers with access to a range of physical and as well as digital services, giving them the flexibility to choose the best service for them at any given moment in time.”
When looking beyond the impact of COVID-19, planned branch visits by customers are expected to rebound to 28%, following a dip to 11% during lockdown. And when asked about the new services they’d like to see inside their bank, sixteen percent of respondents said more self-service machines would improve their in-branch experience.
Matt Phillips continues: “In a world that is fast evolving and where the future is digital, there’s no doubt that high street banks must, and are, responding to the needs of highly digital customers. But not every customer requirement is digital. There is still a strong need for physical bank branches and the interaction and services they offer, and striking this balance between physical and digital is where the industry must come together to provide solutions. For example, building a strong, leave-behind strategy is something we’re seeing across the board when banks have to close branches, ensuring customers have access to self-service machines to complete all their transactional needs.”
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