According to the EY Global Banking Outlook 2017, only 11 percent of banking executives globally expect their financial performance to improve significantly over the next 12 months.

By contrast, the EY Report claims, some 60 percent of banks see the need to invest in new customer-facing technologies in order to spur growth. 

This study of senior executives was conducted among almost 300 banks across Europe, the Americas, Africa and Asia-Pacific (including Australia, Japan, Hong Kong and Singapore, and the emerging markets of China, India, Indonesia and Malaysia).

With current sentiments dampened by generally weaker economic climates, banks’ immediate priorities center around a defensive “protect and control” mode as they focus on building an agile and sustainable business model for the future.

2017 Priorities

Managing reputational risk, and meeting regulatory compliance and reporting standards are the top two strategic priorities in 2017. This reflects a magnified emphasis on strengthening risk profiles and culture while meeting corporate governance obligations.

The survey also identified two key growth agendas globally: recruiting and retaining talent (63 percent) and investing in new customer-facing technology (60 percent). The first initiative appears especially critical for Asia-Pacific institutions as management seeks to secure talent, raise employee engagement and ensure that labor resources are in place to capture growth opportunities, particularly for front-line and digital-related undertakings.

«In the current environment, the global banking industry must innovate in order to grow, institutions need to seek alternative ways to reshape, organize and optimize their businesses, while concurrently meeting regulatory obligations and actively engaging customers,» says Jan Bellens, EY Global Emerging Markets Leader, Banking & Capital Markets.

Market variations in ASEAN

Generally in the Asia-Pacific region, enhancing cybersecurity and data security, and meeting capital, liquidity and leverage ratio requirements take precedence as most critical to protecting and controlling the banks’ businesses in the coming year.

There are some slight variations in the focus for banks in Asean. In Singapore, banks are emphasizing on recruiting and retaining key talent, followed by risk management improvements, new customer-facing investments, balance sheet optimization and gender diversity promotion on the management board.

In Malaysia, banks are prioritizing risk management, and asset quality and credit risks improvement, and the ability to meet capital, liquidity and leverage ratio requirements.

In Indonesia, banks are focused on enhancing data and cybersecurity, financial crime management, ways to optimize customer channels and improvements to their risk management, asset quality and credit risks processes.

Five-step Approach to Improve Profitability

According to the study, banks should focus on these five overarching themes within their organizations:

1. Reshape – the banking industry will coalesce around four primary business models: local boutiques, global boutiques, regional champions and universal superbanks. Banks must determine their preferred business model and restructure operations accordingly.

2. Control – banks need to strengthen their three-lines-of-defense model for risk management by establishing firm-wide risk and control tools and processes, strengthening focus on vendor management and creating simpler supply chains.

3. Protect – banks need to minimize internal and external threats by addressing convoluted legacy IT architecture and demonstrating the systems in place to prevent money laundering and financial crime. They also need to embed cybersecurity in their digital and FinTech agenda.

4. Optimize – despite cost-cutting initiatives, the operating cost-to-asset ratio for banks has barely improved in the past five years. They need to drive further efficiencies by leveraging application program interfaces and open source and advanced technologies to optimize delivery and streamline processes.

5. Grow – to retain profitable growth, banks need to invest in staff and customer-facing technology to enhance offerings and experiences for targeted clients. This entails defending market share from new competitors with the use of big data and analytics to improve understanding of client expectations and develop targeted offerings to meet those requirements.

No Excuse For Inaction

«New technologies are transforming business models and causing disruptions across the financial services value chain. Incumbents would need to move beyond conservative, incremental adjustments toward effectively implementing and executing bolder organization-wide innovation. Uncertainty in the market cannot be an excuse for inaction,» said Liew Nam Soon EY Asean Managing Partner, Financial Services.