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Managing Business Continuity and Financial Services industry during COVID-19
Bharani Iyer Associate Vice President, FS, ANZ | June 29, 2020
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The COVID-19 pandemic is one of the greatest social, health, economic, and financial shocks of the 21st century. As governments, organizations and individuals grapple with the aftermath, lives, and livelihoods around the world have transformed. The future of economic activity across sectors seems more uncertain than ever before. But while it is going to be hard to predict what’s next, it is crucial for financial service providers to proactively assess their risks and areas of susceptibility from an operational and financial standpoint.

It’s not all doom and gloom

As they say, in the midst of every crisis lies great opportunity. For Financial Services (FS) and banking players,  several high-potential areas can grow substantially during this time. In the 2008 Global Financial Crisis, excessive risk-taking coupled with the mortgage crisis turned balance sheets toxic, wiped out consumer wealth worth trillions of dollars, directly affected capital formation abilities, and caused a widespread economic downturn in the banking sector. Many banks around the world incurred large losses and relied on government support to avoid bankruptcy. As a result, several banks had to dissolve or merge with others to emerge as unified entities. The fallout of the COVID-19 pandemic, however, has had a much broader effect. Lockdown or shelter-in-place measures have resulted in a significant dip in consumer demand as a whole, but the banking industry continues to thrive, and most banks and financial institutions maintain robust liquidity and capital adequacy, at least in the short- to medium-term.

In fact, Italy, one of the hardest-hit countries, decided to reopen its markets and resume free-market consumerism from May 4, 2020. This will have a positive impact on demand and will alleviate financial stress to a significant extent. If one of the worst affected markets is considering getting up and running, it serves as a beacon of hope and resilience. The onus of economic revival across nations lies squarely on the shoulders of their respective governments in concert with enterprises. It is up to government bodies to work closely with the financial sector, its regulators, and the central banks to infuse liquidity into the market. In countries such as Australia, the government is already working with central banking institutions to achieve this. Banks and financial institutions, through a combination of business-friendly policies and customer-centric tactics, will play a pivotal role in getting the economy back on track.

Working in the new paradigm

The key difference, however, will be the modus operandi within the new paradigm. Once the pandemic is contained to a point where most restrictions on public movement are removed or relaxed, physical distancing will still need to be maintained on a social scale. This means, social distancing measures will fundamentally alter how banking and financial services will operate in the post-COVID-19 future. Most organizations will look for digital alternatives for their business continuity plan in order to re-modulate their services accordingly. E-banking, mobile apps, insurance portals, etc., are already widespread and their usage will accelerate further to help consumers. Digitization will not be limited to customers alone. It will need to cater to the entire supply chain and the financing around it, underpinned by solid analytics and seamless execution. 

Social distancing measures will fundamentally alter how banking and financial services will operate in the post-COVID 19 future.

Banks and financial institutions are considered essential services and most branch offices have opted to keep minimal staff at work, while the majority of the workforce works remotely. This has resulted in a significant need to scale capacity to support higher volumes through digital channels.

BCP from a BFS industry perspective

The financial services sector, like many others, cannot be completely immune to the pandemic and its fallout, though it is certainly not a case of doom and gloom. When demand is low and consumers spend less, the economic ecosystem suffers. Banks are no exception. And currently, most are focused on maintaining business continuity rather than achieving high growth. With that context, here are a few operational areas of a business continuity plan that banks and financial organizations can focus on to stay stable and functional:

  • Focus on evaluating short-term liquidity. Organizations must imbibe a short-term cash flow monitoring discipline that allows them to predict cash flow pressures and intervene in a timely manner.

  • Stay connected to clients and employees. The bedrock of the banking sector is trust and resilience. Ensuring service continuity and staying connected with clients, and responding appropriately to their immediate needs, such as loan deferrals, hardship support, etc., would be paramount. Secondly, protecting its people and assets would ensure that the market continues to have faith in the banking system, which is the lifeline of the economy.
  • Respond promptly to financial and operational costs. Organizations must monitor direct cost escalations and their impact on the overall business and product margins. Evaluate and act decisively on any initiatives that enhance enterprise resilience, cyber security, configuring segments/services for future success through, say, Digitalization and Cloud adoption, as well as prudently consider divestment and/or outsourcing opportunities to reduce cost and bring in greater focus on outcomes. Arguably, a growth mindset underpinned by agility is likely to capture disproportionate gains of the recovery trend in the financial services industry. 
  • Run a stress test on financial plans across various scenarios. To unearth the extent of the potential impact on financial performance and the duration of it, organizations should surmount the tendency to predict using traditional models and, instead, evaluate multiple possible future landing states. This will allow organizations to identify potential risks, decipher unknowns within the financial services industry, and use that to incrementally develop a cogent response to the emerging situation and their own business continuity. This necessarily means organizations should be prepared to stay agile and nimble.
  • Beef up BCP. The COVID-19 crisis has clearly exposed the inadequacies of BCP plans and, going forward, requires a more holistic approach to handle global pandemics and events. Aspects of location diversification for shared services, as well as partners, would become highly relevant.  

The bottom line

At this juncture, it’s safe to assume that the entire world will be embroiled in this turmoil for the medium term. However, as with all disasters, I strongly believe that human resilience, intelligent policies, research-based medical efforts, and widespread preventive measures would help us overcome COVID-19 with the passage of time.

The HCL team too has taken a stringent approach of putting the wellbeing of our employees, clients, and partners first. We’re collaborating and cooperating closely with local and international authorities to ensure we are aligned with the global best practices to manage this pandemic. We’re also investing every effort to identify areas where we can lead, contribute, and support the world through what we do best. I am confident that we will get through this together and emerge stronger and wiser.

However, until that day, financial services providers across the spectrum would do well to take cautionary, mitigating measures to cut damages. I would also encourage players to think deeply about the ability of their organization to survive in a changing paradigm. Explore ways in which technology can be harnessed to enable remote engagement and services, and business continuity. This will be the only way to propagate and sustain the business for the future.