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Banks today face a very real challenge in the light of globalization and market consolidation in the financial industry. Increasingly sophisticated customers and the diverse choices they now have further complicate this. Bankers must adopt a two-pronged approach – i.e. to increase products-per-customer (existing customers) whilst attracting new customers. In order to achieve this, bankers must differentiate themselves from the competition.
The challenge is further exacerbated when we consider regulatory requirements. For instance, the New Basel Capital Accord (also known as Basel II), released by the Basel Committee on Banking Supervision, is targeted for implementation in member countries by year-end 2006. Basel II, which focuses on the capital adequacy framework of financial institutions, is intended to foster a strong emphasis on risk management and to encourage ongoing improvements in banks' risk assessment capabilities. The aim is to closely align banks' capital requirements with prevailing modern risk management practices, and to ensure that this emphasis on risk makes its way into supervisory practices and market discipline through enhanced risk and capital-related disclosures.
Having said that, what should the banker's next course of action encompass?
The three P's.
| People |
Bankers would do well to engineer a paradigm shift in their perception of Basel II, i.e. to view it not just as a regulatory requirement, but rather to embrace it with an accurate perception and understanding of the benefits to be reaped in the successful implementation thereof. In a nutshell, Basel II enables the bank to understand their business in greater detail and to manage the inherent risks at an enterprise-wide level. It is about best practices in performance management and measurement. |
| Processes |
Existing operating procedures must be re-assessed and redesigned to incorporate best practices in risk management. The lending process must be able to categorize, identify and assess potential and actual risks, record and monitor their incidence, and thereafter to collate and report on trends and potential occurrences. Bank employees must be trained at all levels to incorporate these processes. |
| Policies |
From the reports generated, the bank will be able to analyze trends and be better equipped to manage risks. For instance, if the reports show that a certain category of borrowers is more likely to default on payments, the bank will adjust their credit policies accordingly. |
Although risk is inherent in all lending, Integro's SmartLender product suite helps banks to better contain and manage these risks. SmartLender comprises of two modules, SmartLender Corporate and SmartLender Retail.
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