ECONOMIC UNCERTAINTY
“ The situation is quite similar in Asia , predictions expecting impacts on loan to be moderate , mainly driven by a sharp rebound in activities in China , as the region has not been affected by global banking stresses .”
So , while the impact of global banking uncertainty may differ in extremity from market to market , for Aikman , the clear factor driving falling loan rates is uncertainty itself , “ which is really a euphemism for a more pessimistic outlook for the economy ”.
How banks can mitigate headwinds to reinstall confidence While the impact of economic uncertainty on lending rates is clear , SunTec ’ s Dua feels it ’ s how banks act now that can determine future confidence in the market .
He says : “ Banks must now re-think their deposit strategies and innovate to deliver enduring customer value . The bank of the future requires breaking free from transactional relationships and becoming trusted advisors to customers .”
For Dow Jones ’ Lange , risk management is “ critical ” for bringing back trust in global banking markets , and says banks should sharpen their corporate governance practices .
He adds : “ Reliable and robust risk data has always been imperative , but the current economic landscape is putting compliance in the spotlight like never before . In light of this , it is imperative that banking stakeholders are basing their decisions on timely , trustworthy sources .”
Meanwhile , Aikman feels banks can improve risk management by “ bolstering their capital and liquidity positions , providing them with greater resilience to absorb any future shocks .”
This is further echoed by Bakhtar , who suggests banks “ action a number of levers to
“RELIABLE AND ROBUST RISK DATA HAS ALWAYS BEEN IMPERATIVE , BUT THE CURRENT ECONOMIC LANDSCAPE IS PUTTING COMPLIANCE IN THE SPOTLIGHT LIKE NEVER BEFORE ”
JOEL LANGE HEAD OF RISK & COMPLIANCE , DOW JONES
ensure they stay safe in a tougher economic environment ”. For Bakhtar , this consists of three things in addition to robust risk management frameworks . “ The first is they need to have sufficient capital buffers to weather any downturns ( doing this either by raising capital through equity or debt issuances , or else by retaining earnings ).
“ Secondly , they need to reduce their risk exposure by diversifying their portfolios and reducing their over-reliance on a sector or region . Third , I believe it is crucial for them to look at operational efficiency , and streamline legacy systems , processes , and organisations to reduce costs .”
The future of economic uncertainty in banking It is clear that limiting any wavering instability is achievable for financial institutions , should best practices be maintained . And while economic headwinds may be making life
64 September 2023