A Monthly Update of Economic, Banking and Financial News Vol. 03, Issue 07 An Endeavor to Transtate Market Insight into Business July 2011 Need. A Newsletter of Research & Development Division, Prime Bank Limited We estimate that at least 30% of the banks' cost base will be variable by ARTICLE 2012, as successful banks use alliances, shared services and sourcing to manage noncore capabilities more competitively. For example, shared Banking 2012: Preparing for a revolution services arrangements with telecommunications companies and energy By Noel Gordon and Piercarlo Gera utilities could improve economies of scale (for both partners) and lower costs. From 2000 to 2007, the developed economies' top-performing banks had an average return on equity of 26%. Today, many of these same banks Many such alliances are already in place. BCB is a payment transaction are looking at returns of 4% to 5%-if they are still in business. services company-founded in 2004 by Germany's Deutsche Postbank- that provides payment services for four of the country's five major banks; The post-crisis challenges these banks face are indeed enormous. They it now accounts for more than 20% of the German payment transaction are operating under tighter supervision at a time when they are also trying processing market. to restore declining customer trust. The securitization surge that fueled revenues and propelled balance sheet expansion before the crisis has Technology will play an increasingly important role in the industry's slowed to a trickle. And disruptive digital technologies are strengthening transformation. So-called cloud computing, which leverages the Internet the competitiveness of new entrants. to enhance speed and flexibility, will enable banks to dramatically consolidate and rationalize IT costs-as will the creation of “virtual” shared Not all banks will succeed. However, having analyzed more than 150 IT utilities, which are likely to proliferate among smaller banks. institutions worldwide and having interviewed more than 30 of their leaders, as well as private equity experts and other industry watchers, Indeed, Internet-oriented computing is a disruptive technology with the Accenture believes that those banks that make bold decisions about their potential to redefine the future operating model for all banks. By acquiring businesses and operating models in 2009 will rebuild their returns on software as a service, banks will not need to develop and manage their equity to 15% or even higher within the next three years. own systems; this will lower costs while improving productivity. Shifting industry structure Low-cost and aggressively priced business models also offer a way to win Among the survivors, different banks will pursue different strategies, market share. CheBanca!, a high-tech, low-cost retail bank, launched in depending on their markets. But all players will be much more focused. 2008 by Italy's Mediobanca, offers a good developed-market example of The handful of global banks likely to be flourishing in 2012 will owe much such an initiative. In Kenya, M-PESA is leveraging cell phone of their success to having significantly scaled back the complexity of their technologies to provide financial services in rural areas. operations. Redefining success For these big global institutions, the challenge will be to become simpler The impact of technology will go well beyond improving cost- and more specialized. If they have deep roots in specialized businesses, effectiveness. By 2012, successful banks will embed new capabilities of they may choose to concentrate on those franchises. This is already all kinds into their operating models-risk analytics, customer analytics, happening at Citibank, which is reemphasizing its traditional strength in pricing optimization and industrialized management of nonperforming global corporate and transactional banking. Others may choose to refocus loans-so they can pursue marketing more effectively. on wealth management and private banking. Such capabilities will help deliver more personally relevant products and By 2012, most banks will be retail and commercial banking institutions services based on customer needs. They will also enhance pricing serving regional or local markets. Some big banks with strong regional management and the new customer propositions, like low-cost, franchises will divest loss-making divisions and instead focus on their aggressively priced banking, that will define success in the industry. core markets and customer segments. We anticipate that many European players may eventually fall into this category. Accenture research indicates that even before the current crisis, only 25% of bank customers believed their bank was acting in their best interests. In However, a few existing global banks-Barclays and BNP Paribas, for our 2008 global survey of customer satisfaction, 42% said they had example-are taking advantage of the financial crisis to increase their switched banks because of poor service. overseas presence. Similarly, several Japanese financial services groups are selectively expanding internationally, among them Nomura Holdings, Successful banks in 2012 will have responded to the erosion of customer which has acquired defunct Lehman Brothers' European and Asian trust by going back to basics. They will become more transparent in their assets. approach to service. They will also greatly simplify their product offerings. New economic model A customer-needs-based approach will replace the current product Few of the bank executives we have interviewed are comfortable with the complexity typical of many large banks today. more intrusive regulation that will inevitably accompany greater government involvement in the industry. Yet most recognize the need for Inside this Issue Editorial Body new and more effective internal approaches to managing risk. Article 01 Md. Golam Moula, EO Indeed, soundness and solvency, balanced with generating returns, are Country Profile 02 ATM Shirajul Haque, MT the banking industry's new imperatives. And we believe that most Commodity News 03 commercial banks in developed markets will settle for lower risk and Eiman Fergeion, MT Corporate News 03 moderate growth in their quest to achieve high performance by 2012. Imam Hossain Mahmud, MT Global Business & Economy 04 Research & Development Division A few banks-notably in Spain-were managing risk at the board level Bangladesh Economy 06 Prime Bank Limited before the crisis. By 2012, we believe all successful banks will view risk Finance & Banking 08 SBC Tower (6th Floor) Energy 10 as an enterprise-wide business responsibility. Merging market and credit 37/A Dilkhusha C/A, Agriculture 10 Dhaka-1000 risk, for example, will make the whole business of risk management more IT & Telecommunication 11 Tel: 9565564, portfolio-driven, and risk management will be integrated across product Miscellaneous 11 PABX: 9568184, 95657594 (Ext: 221) lines and business units. Strategic Moves of FIs 12 web: www.primebank.com.bd A Newsletter of Research & Development Division, Prime Bank Limited Vol. 03, Issue 07, July 2011 2 Product innovations like so-called green mortgages, which offer discounts horses, and dairy products is also important. The principal field crops are for energy-efficient homes,will address consumers' growing environmental wheat, barley, oats, and potatoes. Among other important crops are hay, and social concerns; surveys indicate, for instance, that customers are turnips, and sugar beets. prepared to pay a premium for products and services that help cut carbon emissions. These and similar customer- and community-focused product The fishing industry, long an underdeveloped enterprise in Ireland, initiatives will not only create new income streams but also provide banks expanded in the late 20th century. However, the waters around Ireland with the opportunity to build and improve customer relationships. and much of Europe have been heavily over-fished, and annual fish catches are now subject to quotas established by the EU. Deep-sea For example, microfinance (providing financial services to low-income catches include herring, cod, mackerel, whiting, and plaice. Crustaceans, customers and small- and medium-size enterprises, mostly in the particularly lobsters, crayfish, and prawns, and mollusks such as oysters developing world) is a low-volatility lending model with limited risk that and periwinkles are plentiful in coastal waters and form the bulk of the more banks are likely to adopt. Currently, between 50% and 80% of country's seafood exports. Inland rivers and lakes provide excellent adults in many developing countries have inadequate access to financial fishing for salmon, trout, eel, and several varieties of coarse fish such as services, along with up to 10% of the population in developed economies, perch and pike. Fish farming, both in freshwater and saltwater according to The World Bank. So the extension of services to the bottom environments, is becoming more important as natural catches drop. of the pyramid represents a market with significant growth potential. Mining: Discoveries of new mineral deposits in Ireland in the late 20th Another example of an emerging new business: Islamic banking, the century have led to a considerable expansion of mining, although it still provision of financial products and services in compliance with Sharia law, plays a relatively minor role in the Irish economy. Ireland is one of the which prohibits charging interest. The Asian Development Bank estimates leading