Next Chapter: Overcoming Challenges for Future Growth
By Jim Pulsipher, Grant Thornton LLP
In the aftermath of the subprime and credit crises, financial institutions of all sizes are asking the same question: Now what? The majority of bank executives are bracing themselves for a challenging year ahead. In fact, pessimism about the economy was the highest in the history of Grant Thornton’s 15th Bank Executive Survey. Although many executives reported their institutions as having no specific exposure to subprime loans, the aftershocks are now impacting the valuations of assets held by many of these institutions. However, they do not have to wait until the dust settles to begin the clean up. In fact, addressing the challenges of the climate today can help position financial institutions for growth tomorrow.
Capital is generally more expensive in the current environment. Valuations of financial institutions are low, with many trading at or below book. Although it’s not ideal for institutions to sell stock when the price is lower, some institutions may have to in order to maintain adequate levels of capital or to fund future growth.
As the stronghold of Internet banking increases, financial institutions have the opportunity to expand online services. The majority of those surveyed (98%) plan to introduce electronic bill payment in the next three years and three-quarters (78%) plan to start providing e-mail/wireless banking alerts and online loan applications. Of course, prudent IT security practices go hand-in-hand with Internet banking, and go a long way in reinforcing consumer trust.
As financial institutions face evermore scrutiny, they cannot afford to be lax when it comes to compliance. Evaluating your supervisory controls system on a regular basis and adjusting it as risks change can help identify deficiencies and help prevent costly and reputation-damaging issues in the future.
These fixes will do little for the long term if they are only cosmetic. Financial institutions need to engrain the positive changes that are made, from tighter underwriting standards to greater transparency, in their culture. Those that do can emerge the crisis and differentiate themselves in the eyes of regulators, shareholders and consumers. More importantly, these prudent practices can help prevent history from repeating.