The banking sector in Bangladesh has been diligently navigating the unprecedented COVID-19 crisis since the beginning. Initially, the sector has successfully met the cash flow challenges in the economy during the general holiday (shutdown) period with some regulatory relaxations in policy rates i.e., CRR, ADR & repo. Now the sector has been entrusted with the prime responsibility of implementing most of the stimulus packages declared by the government. This is not the end here. In a Post COVID world, a strong banking sector will also be needed for a strong recovery. To prepare for this, banks now should respond to the changing customer demands in the new normal, while fostering efficiency and creating resilience in the challenging operating environment.
All measures initially taken to respond to the crisis have begun to slowly ease with the resumption of normal operations. As the risk of a 'second wave' remains, it's high time for financial institutions to look back at the lessons learned in the changing dynamics in recent months, for gaining operational excellence in the days to come. During the strict lockdown period when operations in almost all sectors had come to a standstill, banks/NBFIs continued their operations to ensure the flow of money in the economy. Many banks/FIs, during this time, quickly adapted to operational change and allowed their employees to work from home providing access to core banking software and other technologies. Some were more successful than others in doing so. The banking sector has now been playing a crucial role in distributing the government's various fiscal stimulus packages. The banks have to be more agile and vigilant in the same breath to fulfil this responsibility as ensuring repayment of these loans also rests on their shoulders. So far, progress has been achieved in the pursuit of shaping the recovery and helping their customers rebuild their financial security and business health. Banks now need to continue playing this significant role for an uncertain period of time.
With the shrinking global as well as local economy due to increased unemployment -- individuals facing extreme hardships and businesses struggling to survive -- many challenges remain unaddressed for the immediate future. For days to come, mainly focusing on things that really matter for banks to survive will help reshape the sector and ultimately support a stronger recovery. Among them are serving customers innovatively with upgraded products and services through digital channels, transforming the work process and environment, reducing the non performing assets, boosting capital, booking quality assets, and practising sustainability & governance.
From the customer service perspective, customers' focuses have been swayed somewhat from the productive activity to only daily survivals amid the COVID-19 economic downturns. So, helping them means to help them get back that focus and keep it linked to productive economic activities only. Since the crisis began here, banks have been trying to be a seamless enabler of that activity. For example, with the closure of branches and offices in the wake of COVID-19, many banks shifted to digital services-- from account opening to others. Importantly, customers also adapted well to these changes. This enabled them to manage their financial needs in the right way. That means being increasingly digital. So far, things went well, the challenge now for banks is to keep their customers on digital platforms after the pandemic ends and to integrate human touch and greater personalised service. The digital divide that exists in our society can pose a risk to the goal of making the banking service inclusive and available for all. The government must ramp up actions to remove this gap.
From an operational perspective, COVID-19 has created an exciting, and unprecedented opportunity for transformational change by forcing banks to operate in a different way. To utilise the momentum emerging out of the crisis, banks need to revamp their intelligence system to analyse the lessons learned on the behaviour and preferences of their customers as well as employees in adaptability and willingness to change. The scope of the process, technology and security improvement need to be critically analysed. For example, in recent times many banks have been relatively successful and smooth in the transition of their back office functions remotely. But in the case of front office customers facing employees, it has created the real challenge.
Finally, as a result of the pandemic, the economy has come to a sudden halt. Non performing loans may rise once the moratorium is withdrawn as the consequences on businesses and individuals seem to linger for an unknown period. While the banking industry has been suffering with NPLs persistently, the pandemic has caused a re-emergence of it. Probable increase in NPLs may weaken banks' balance sheets, hamper credit growth, cause capital depletion. Joint action with the government and regulators is required to control the probable NPL growth. Besides, banks should now critically review their assets quality to identify loans that are non-performing and need restructuring and build up provisions proactively to face any contingent situation. Regulators may come up with a mix of policy measures such as merger and acquisition to separate good and bad assets of banks, and incorporation of the public asset management companies to help tackle the burdened assets of the banks. These may ease the problem and help build a resilient and strong banking sector to fight the impact of COVID-19.
Overall, the single digit lending rate effective from April 2020 has forced many banks to keep cost minimisation and operational transformation high on the agenda. The pandemic has left no industry, economy or society untouched. Its effects will lay the foundation on how financial services will evolve over the coming days and beyond. Banks must be the ambassador of change and act as a catalyst to spread it in other social and economic forces for repairing the damage done by the pandemic and reshaping the economy. Now and over the next few months, coordinated measures by the government, regulators and the banks to strengthen the sector will determine how the nation will emerge from this crisis.
Tapash Chandra Paul, PhD, Chief Financial Officer, Mercantile Bank Limited.