Asia Banking Executives Gather in Phuket to Discuss Risk Management

Tags: banks, insurance, risk management

Last month, 34 banking executives from 11 countries across the region attended the IDC Financial Insights-FICO Asia/Pacific Risk Officer Retreat. We conducted an informal survey, which was spearheaded by two participants, and found some interesting facts and expectations about the tenure of Chief Risk Officers (CROs) in banks.

Let me give a quick run-down:

• On average, CROs have been in their current roles for less than four years.
• The past crisis scaled up everyone's experience tremendously. What they could have gained in five years, they gained in one.
• The demand for risk executives has created a notable dearth of good risk officers in banks.
• A trend of CROs becoming CEOs of financial institutions is expected to emerge in the medium term.

There were snide (but well-meant) commentary about stress tests, Basel 3, modeling, and even the discipline of risk management itself. The discussions also reinforced some notions about the role of risk managers in banks: mainly, that it is a job that requires smarts, business acumen, fortitude, and a grasp of internal and external realities that confront their institutions.

The candid discussions in and outside of the Roundtable also validated our opinions about technology decision-making with regard to risk management. While IT spending in this area will remain high, admittedly, there will be some projects that will be categorized under "risk management," most probably to get immediate management buy-in.

Furthermore, justifications for risk management projects are getting more tactical, just as ROI calculations increasingly get treated differently. Also, technology has matured significantly over the past few quarters and risk officers have a better set of vendors to work with in the year to come. However, finding the right vendor for their organization's needs will continue to be a key challenge. These will find a way into our research agenda in the coming year.

The IDC Financial Insights-FICO Risk Officers' Retreat is designed to be an annual gathering of risk officers to share latest insights about the discipline of risk management, as well as operational benchmarks and best practices discovered in their respective banks. This year's event was held at Cape Sienna in Phuket, Thailand from July 29 to 31 this year. We look forward to continuing these discussions with those who attended and with other FSI executives who couldn't make it but are keen to join in the next gathering.

The retreat also shattered the myth that CROs are too straight-laced and don't have a capacity for humor, as the photos we took during the event show. Check out the photo gallery on the IDC Financial Insights-FICO Asia/Pacific Risk Officers' Retreat Facebook page.

Below: Proof that I was there and doing my job!

 Below: Ample opportunities to network and let our hair down.

Banks Turn the Spotlight on Vendor Risk

Tags: economic crisis, financial services, banks, asia/pacific,

In recent months, we received several inquiries from banks about how they are best to ascertain the business and financial viability of their vendors. The intent of the inquiries could partly be attributed to how banks are working to avoid another spectacular issue as that seen out of the former Satyam. Banks have more clearly  understood how technology failures, including the failure of technology vendors to deliver, can have dire implications for business continuity, bank reputation, and business strategy.

Indeed, the economic crisis has put in question the viability and sustainability of vendors' businesses. While several financial technology vendors have reported strong results despite a tumultuous economic environment, most players have shown their weakest performance in years. The pace of vendor consolidation has gained more speed. Early this year, we stated that 2009 will see 12 of the top 100 financial technology firms acquired or declaring bankruptcy, higher than the industry average over the past five years.
Vendors have been more mindful of fee structures and engagement margins. Banks justifiably have to be on guard for vendors drastically cutting staff levels (especially in banks' outsourcing partners), as well as those showing declines in SLA compliance and performance.

Although the fall of Satyam is not necessarily attributed to weak financial performance, the Satyam saga easily proved that lapses in reporting are possible. Financial institutions have thus intensified their scrutiny of the financial reports and balance sheets of their vendors. The lack of transparency is correctly considered a significant risk in itself. Vendors though have themselves responded with improved transparency. Disclosures made by vendors to current and potential clients have become more detailed to include other client references, new wins, and other metrics for performance and delivery.
Regulatory mandates have also scaled up to reflect the new regime of vendor transparency. There will be a greater push to report vendors' banking relationships (are vendors themselves clients of the banks they serve?) — something that we note especially in India. Although the most recent regulatory guidelines coming out of Asia/Pacific regulators speak more to data integrity, data privacy, and information security, the focus on effective governance of vendor relationships has indeed been heightened. We expect that in the medium term, more specific guidelines on vendor due diligence and monitoring will be put in place, following IT risk guidelines in Singapore (Internet Banking and Technology Risk Management Guidelines) and Hong Kong. This is similar to the developments we saw in the United States, where the Gramm-Leach-Bliley Act's mandates for privacy and integrity of customer information gave way to vendor due diligence and vendor risk management rules.

The Post-Crisis CXO

Tags: asia/pacific, banks, economic crisis, financial services

The post-crisis landscape will be a much different place for financial services institutions. Will the banks and insurers that survive the downturn be managed by a new breed of leaders?

What will the post-crisis CXO look like? We ask this question as we evaluate a good list of up-and-coming CEOs, COOs, CFOs, CIOs. In the Asia/Pacific region in particular, we are seeing that the average age of CXOs in the financial industry has fallen quite significantly. This is something worth noting, considering that we are talking about an industry composed of many different kinds of organizations - from large international and regional players, to dynamic domestic champions and small, family-run organizations.

Several qualities will be common among the industry's new leaders, foremost among which is, of course, competency in risk management. We have seen over the past years how risk management executives have become more prominent, playing ever more critical roles in the organization. The crisis will serve to underscore the need for astute risk management skills. Some other "new" qualities worth noting: marketing savvy and a keen appreciation of technology as a value-creator.

We also believe that alongside the rise of these future leaders, the industry will witness an upsurge of today's next-generation banking initiatives such as cloud computing (and its derivations), Green IT, Web 2.0, social networking and its use in financial services and Generation Y banking. It will be interesting to witness how the rise of the future CXO and the rise of new technology will change the dynamics of our industry.

The Age of The Stimulus: Which Banks Will Win?

Tags: banks, financial services, government

The total price tag for government-led stimulus programs in the Asia/Pacific region will easily tip over US$1.5 trillion by mid-2009. This massive injections of liquidity will up the ante in the already fierce competition of banks. In Thailand for example, Bangkok Bank has proven that bank network reach is still king, as the bank won the right to distribute stimulus checks for over 10 million Thai citizens. A reported price of 2 baht per check is loose change for a giant institution, but is not a  laughing matter either, given the ardent competition for every revenue generation opportunity.

Meanwhile, banks are expected to realign their loan growth targets as governments highlight priority sectors and greenlight huge infrastructure build-outs. Financial Insights Asia/Pacific's average loan growth estimates for 12 key Asia/Pacific markets is now at 8.7%, reduced further from previous estimates of 10.3% in November 2008. We will get a clearer picture of the aggregate and sectoral loan growth numbers by June 2009. However, we are certain that growth rates in 2009 will still be robust relative to the dire predictions in the United States and Europe. Respectable growth rates are expected out of countries with large populations such as China, India, Indonesia, and Vietnam.

Technology implications for banks?

Banks that are able to showcase operational efficiency aside from reach and distribution will win in the governments' cash-to-the-public programs. In the public spending side, key factors of success will be capability to build out lending models and the capability to scale up growth in priority sectors. Further, loan origination systems was a strong initiative for banks in the Asia/Pacific region prior to the crisis, and will be critical area of focus now.

We estimate that about 60% of loan origination systems of the top 250 Asia/Pacific banks were (and are still) outdated and could not cope with an upsurge in lending. Leading banks are expected to invest heavily in modeling and analytics (good news for leading players like SAS, FICO, etc). Building of course on quality data, these investments in scoring, models, and analytics will help in key areas such as decisioning, pricing, servicing, fraud prevention, and even collections and recovery

The full report, Asia/Pacific Banking in 2009: Opportunities Amid a Crisis, is available on the Financial Insights' Web site.