New Banking Reform amid COVID-19 Pandemic
The COVID-19 pandemic is a global black swan which has severely impacted the global economy. The International Monetary Fund (IMF) predicts that sub-Saharan Africa's economic growth rate will be 1.6% in 2020, reaching a record low. Countries and regions have taken strict prevention and mitigation measures to curb the spread of the virus, bringing about a sudden global economic downturn. Coupled with tightened global financial conditions, this has significantly affected the Southern African economy.
Facing these severe impacts, banks will quickly shift from offline operations modes such as branches and merchants to online modes including mobile banking. In this new normal, emerging technologies are used to upgrade business scenarios such as account opening, approval, credit, and risk control. Meanwhile, at the macroeconomic level, the banking industry is also undergoing challenges from sharply declined economic activities, decreased deposits and loans, as well as higher unemployment rates and non-performing loan ratios.
China has experienced a huge impact on its GDP due to the pandemic. In Q1, China's GDP dropped by 6.8%. The impact spread to every sector. Hotel & catering and retail sectors declined by 35.3% and 17.8% respectively. The financial services sector, however, achieved a 6% increase. Take China Merchants Bank (CMB) as an example. Despite its affected customer acquisition, deposit and loan scale, net interest income, intermediate business income, and asset quality. CMB's online wealth management business, financial market business, and risk avoidance services expanded, and its net wealth management value remained stable. Within three weeks, CNY23.7 billion loans were issued to 896 merchants.
The banking industry amid the pandemic is undergoing a reform. Bye Bye Banks? Depicts how Internet impacts banks. While the Internet is flattening the world, it also provides multiple channels to meet people's needs under "financial repression". Banks need to quickly respond to future market changes by taking the following measures:
The pandemic will accelerate the digital transformation of the banking industry. When traditional offline services are affected, FinTech becomes prominent. The pandemic prevention and control efforts help move offline services to online platforms. Financial institutions have increased financial IT investment, strengthened online banking service capabilities, and accelerated R&D and innovation to drive digital transformation. Banks with active investment in digitalization have been highly competitive during the pandemic and seized the opportunities of this digital, mobile era.
Accelerate the functional transformation of physical branches. Off-site transactions and services are gaining popularity and promoting the integration of online and offline channels. Banks should develop smart branches through off-site technical means such as facial recognition, to comply with regulations in high-risk processing services. More importantly, digital solutions will be widely applied and well managed in services, laying a solid foundation for digital operations and regulations.
Strengthen risk control. Environment changes put risk control under immense pressure. The pandemic has affected sectors and some enterprises are facing pressure or even sustainability risks, which may raise non-performing assets. In addition, the pandemic brings higher unemployment rates and more loan needs. Banks should improve risk control and shift from post-event models to in-event or even pre-event models.
Enhance online marketing capabilities. Large amounts of data collected by commercial banks will play a greater role through AI. Based on the data, banks build 360-degree customer profiles and conduct precision marketing according to user behavior and preferences. This helps the banking industry attract and retain customers and deliver superior customer experience.
Cut digital transformation costs. Economic recovery takes time. Banks need to control costs and expenses and improve profitability while accelerating digital transformation. They are in urgent need of transforming their technical architecture into a distributed, open, and automated one to promote business model and service innovation.
In the crisis, staying unchanged is more dangerous. Active action does not necessarily guarantee success, but negative response will definitely bring chaos. The ongoing pandemic impacts not only economy but also living habits. We believe that digitalization will be rapidly and widely used in this process. Banks should proactively think and prepare for the subsequent changes in life and customers, and make services more agile to address uncertainties of the future.
Learn more on Huawei Southern Africa FSI Summit Online 2020: bit.ly/2zwuHbW
This post and content is sponsored, written and provided by Huawei.