Commercial Banks Must Now Focus on Fundamentals

The banking industry faces unprecedented challenges, including the aftermath of the COVID-19 pandemic, supply chain disruptions, and the collapse of high-profile financial institutions. To navigate these uncertainties and thrive in the changing landscape, commercial banks must shift their focus towards strengthening their businesses' fundamentals.

Banks must prioritise tighter control over deposits and payments as the banking industry faces heightened regulatory scrutiny. They should anticipate more stringent banking regulations and proactively address potential audit and operational shortcomings. Banks must swiftly remedy any flaws to avoid relinquishing control of their change agendas. Precise alignment of systems, processes, personnel, risk management, governance, and compliance controls with business strategies and a renewed emphasis on customer deposits is crucial.

Commercial banks must effectively manage capital requirements and operational costs amidst slower economic growth. While deposits may climb, banks need to maintain a tight rein on loans and credit, considering factors such as repricing of commercial real estate, higher vacancy rates, and rising costs of goods and services. Improving efficiency and risk management in treasury functions, back-office operations, and trade finance is essential. Banks can streamline their operations by leveraging new technologies, automation, and real-time data analysis tools and gain a competitive advantage.

Despite the challenges posed by the pandemic and the "Great Resignation," commercial banks have a unique opportunity to secure much-needed development and operations skills. Recent layoffs in the tech industry have added to the talent pool available to banks, and they should capitalise on this to further attract and retain skilled staff. Banks must offer compelling and rewarding career paths across their organisations to entice and retain these individuals.

A potential outcome of the current industry upheaval is a permanent shift in commercial deposits, favouring large banks over mid-sized and regional institutions. Mid-sized and regional banks must aggressively ramp up their capabilities and client offerings to stay competitive. Investing in core digital capabilities and strengthening client relationships will be instrumental in closing the widening gap between these two groups.

Looking ahead, the banking industry is expected to regain its strength, and banks should be prepared for the opportunity to pivot back to investing in their business and technology transformations. Those who prioritise strengthening the fundamentals of their operations, streamlining processes, and improving control will be well-positioned to excel in the post-pandemic era. Commercial banks can ensure long-term success in an evolving financial landscape by devoting resources to regulatory compliance, cost management, talent acquisition, and customer-centric strategies.