From Believer to Sceptic
If you were in a dilemma about leveraging technology at the start of 2020, hopefully a year with COVID has convinced you otherwise. After the initial dust of logistical challenges settled, many in the industry talked about the amazing cost savings that WFH brings.
But despite my own obsession with everything digital, I’m sceptical about what this remote working can achieve, especially for banks. Beyond some savings, there are many costs we may have paid too.
Whats Risk Management got to do with it?
In the era of 1000 variable algo lending, the AI/ML evangelists may want us to believe that everything can be automated. But no matter how much print, ink or bandwidth is used to convince everyone, there are things in banking that need high level of human intervention, at least for some foreseeable future.
In a banker’s parlance there are still many ‘judgemental’ decisions to be taken. Not everything can be parameterised through a scorecard.
Talking about risk management in particular, not everything can be turned into a checklist. Some things are best settled through the chaos of internal debates. Face to face.
While Banks do compartmentalise risks- Credit, Operational, AML etc, the impact of a risk event is felt across the organisation. Mitigating risks, therefore, needs a comprehensive evaluation.
In simple words, plugging risk requires a wholistic view, beyond the department where it may generate. It necessarily requires cross-functional engagement. An accessible example of how this works is seen in Credit risk.
Unless origination (done by Business teams), underwriting (done by Credit Risk managers) and documentary hygiene (done by Ops teams) are tied up tightly, the process will continue to have gaps.
I recall rejecting a large loan to a software services company, despite good balance sheet, good CA balance and lure of insurance cross-sell for the sourcing branch! Along with my credit colleagues, we met the customer 3 times. After each meeting we got together over a cup of filter coffee at the roadside and reached the same conclusion – we don’t understand what this customer was doing. 3 months later a news of fraudulent transaction through another bank vindicated our apprehension. Were we smart? Nah. We met the customer. We discussed face to face. We took a call.
Large ticket loans and project finance, require future gazing and similarly large trade or forex transaction, still need someone to own up the ‘KYC’ and identify ‘UBOs’.
Decisions for most of the marginal cases are taken by walking into each other’s workstation. WFH does away with this nimbleness. Zoom calls, despite their convenience, have limitations. Interactions are now time bound, formal and crisp. All we can do is quote policy and send escalatory mails.
This changes the work culture of the organisation- the ability to come together, celebrate and form a risk management perspective through collaborative decisions. The informality of the interactions within the office space brings that nimbleness, information exchange and a camaraderie, making decision making much more collaborative and response time much quicker. This becomes all the more relevant in the light increasing fraud attempts and ‘smart’ borrowers keeping Bank’s on their toes.
A recent PWC report articulates the impact of WFH on organisational culture – A weaker organisational culture poses problem to efficient collaboration; it makes employee feel less connected to the organisation.
While attrition maybe an obvious fall out of this for HR teams, the ownership of managing or mitigating risk is what worries me more. Banks need to think through the below 3 softer costs
First, assessing credit risk is a serious work, more so in large ticket cases. It requires splitting the hair at times, shuffling through multiple excel sheet and ensuring numbers and projections are accurate. Does the home environment provide the level of concentration that such a work requires? Will it impact quality of work?
Second, if the ’feeling of employee disconnectedness’ is any true, how long does the hitherto brave credit manager, who till now stood ground, say the same thing again and again, on a zoom call or email. Alone at home, does he give up? Is the support structure for business team to escalate or credit to seek support from hierarchy, as easily accessible with WFH?
Third, responding to a fire-fighting situation gets all the more tricky. If you have worked in a bank, you know the relevance of a timely credit and business joint meeting with a stress account borrower. Or for that matter ensuring that small documentary miss-out is corrected pronto by a quick collaboration between business/branch and operations team. Early actions have saved many.
As the theorists write about the savings on office space rental, energy and conveyance costs, the more fundamental challenges may negate the benefit. Do note that risks in banking manifest like an amoeba. They can take any shape.
So how does an organisation overcome this?
There are no short answers and as I write, jury is still out, and experimentation is on. But as bankers we should remember that chaos of escalations, heated debates and grumbling over a rejected proposal or document discrepancy not accepted by operations, are the real nut-bolts of the risk management culture.
Hope we keep in mind the importance of ‘Pounds’ of collective wisdom within the bank while we count the ‘Pennies’ of electricity bills saved.
In case you want to think more about it, read some different views, here are some good links.
Amit Balooni is the Founder of FrankBanker. In his 20 years banking and consulting career, he has worked with leading banks and now advises banks globally on SME, SCF, Credit Risk and Strategy. Through his workshops, he has trained more than 2500 bankers across mid and senior levels. And continues his learning while pursuing a PhD in banking.
Disclaimer: The opinions expressed here are those of the author and does not reflect the views of FrankBanker.com