Tightening regulation, reduced liquidity and the continued challenging economic conditions have all led to banks looking more closely at their operations, the risks affecting those operations and the regulatory capital required commensurate with those risk assessments. These reviews, coupled with ongoing assessment by regulators and supervisory bodies, have brought underperforming parts of a bank’s business into much sharper focus. When combined with the increased appetite to improve capital buffers that can be seen across most markets, a proactive approach to addressing underperformance is a necessity.
Underperformance is often a result of complex dynamics, requiring multi-disciplinary teams to identify and effect solutions. Implementing such comprehensive change across multiple LOB’s and jurisdictions cannot be achieved effectively without appropriate program management, senior management sponsorship and stakeholder management. Regulatory and public scrutiny and liquidity management issues can further increase demands on management.
The shift from high-street to online retail Banking and numerous other factors are rapidly reducing both property footprint and headcount requirements for most banks. Underperformance is often reflective of the weaker pace of delivery or ineffective implementation of major cost reduction programs or multiple jurisdictional factors and local labor law challenges. Higher performing institutions have identified that developing and effectively communicating a robust case for change is vital to retaining critical skill-sets, maintaining staff morale and ensuring a smooth transition to the new business model.
The economic downturn has resulted in growing levels of non-performing loans in many Eurozone nations. Early identification, intervention and management of underperforming and non-performing loans is critical to maintaining loan portfolio value. Regulators are increasingly requesting that banks establish dedicated specialist functions to minimize the risk of bank failure. However, transferring loan management to independent teams early in the non-performing loan cycle can make the difference between recovering loans at par and achieving low cent in the dollar insolvency returns. Examining the underlying reasons for non-performance and possible restructuring solutions are all part of the required mix for effectively managing the challenge.
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