FIS Modern Banking Platform
Advance your bank with a modern core platform.
On April 15, the G20 announced to invest $8 trillion into the global economy. IMF reported a $1 trillion increase to globally $9 trillion just in April. We can safely assume, there is more to come. On top of that, banks will provide further loans to heal the world’s economy. Regulatory bodies around the world are even relaxing capital and liquidity rations to maximize banks’ ability to grant loans.
As a result of all these actions, banks’ balance sheets – at least in G20 countries - will grow exponentially. To put above figures into context, the total balance sheets of all banks for South Africa is $0.4 trillion, for Germany $5 trillion and even for the U.S. it’s $14 trillion. If you go back to the world’s oldest surviving bank – Banca Monte dei Paschi di Siena (BMPS), it’s taken banks 552 years to grow to these sizes! Now, they will grow by 50 to 100 percent – within only a few weeks or months. The genesis of a new financial system is in fast forward.
But this new financial world cannot emerge without further digitalization and modernization. Already, a fifth of every dollar spent globally on IT is invested by the financial system. Yet vast parts of banks’ IT still consist of legacy systems and architecture.
What’s different this time?
- Banks’ size is exploding. Digitalization and automation are essential to manage the growth. Future balance sheets are dominated by the new business that originated within a very short period of time. Any business decisions need to be 100 percent correct – maybe even optimal – as wrong decisions cannot be balanced out by the legacy portfolio due mismatch in size. In addition, the legacy loan portfolio has its own challenges – potentially unprecedented expected credit losses.
- Regulatory bodies, governments and the financial industry itself are now realizing the need for advanced technology, and they’re starting to mandate its use. We’ve already seen how regulators see technology, FinTech and RegTech as a part of the new financial markets. For example:
- South Africa encourages the use of technology, including FinTech and RegTech to the fullest extent possible
- Switzerland promotes simplified identification under Anti Money Laundering Act (AMLA)
- UAE mandates that banks accelerate the account opening time to a maximum of two days for small- and mid-tier enterprises (SMEs)
- EU highlights the necessity of banks to refocus on their business models, more effective measures to improve cost-efficiency and a greater focus on the use of new technologies
Banks are already IT companies with a banking license. But many are more a “walkie talkie” than a smartphone. But advanced technologies are playing an essential role as we continue in coronavirus relief mode and move into the rebuild phase. In this phase we need to support the exponential growth while keeping the bank safe by efforts such as:
- Optimizing the lending process: Managing the lending portfolio starts with a perfectly incentivized relationship manager. Enabling fast decisions and reinforcing risk adjusted behavior when state guarantees are common is also key. Automating processes such as Fund and Liquidity Transfer Pricing helps banks to respond to the volume growth as well as increased competition. A decision remains in the portfolio for many years, and many wrong decisions risk the stability of the bank or even the financial system.
- Monitoring evolving risks: Defining creditworthiness in a time of uncertainty will drive Environmental, Social and Governance, as well as improvements in collateral (re)assessment and modelling, to the top of the agenda.
- Evaluating early warnings: On an individual and portfolio engagement level, ongoing impact analysis is not a nice-to-have anymore. You need the ability to quickly reassess, even forecast, likely changes in creditworthiness so that you can take action to minimize the impact and help your clients.
- Implementing smart collections: Helping distressed clients to restructure debt requires strong governance. Smart and scalable collection processes also help you minimize impact going forward and contribute to your liquidity.
- Track and maximize capacity: Maximizing the immediate lending capacity requires RegTech that can support enterprise stress testing across risk silos.
- Evolving your balance sheet management: Banks must plan capital, liquidity and business consistently across all divisions to heal the economy sustainably. That makes the ability to forecast Current Expected Credit Loss (CECL/ECL) in sync with the other planning dimensions mandatory.
So, look for regulators to talk about technology more than ever. As the European Central Bank, the supervisory body of the major European Union banks, said, “If banks reduce their dependency on end-of-life systems and increase their audits of critical IT functions, they will be able to manage their IT risk more effectively – which is particularly important in the current circumstances.”
Introducing advanced technologies can be accelerated by breaking up the value chain of a traditional bank and adopting innovative concepts such as Business Process as a Service (BPaaS), which will help in almost every dimension of the respond and rebuild phases.