Navigating COVID-19: Commercial Banks

Commercial banking and COVID-19 Navigate to emerge stronger April 2020 COVID-19: What to do Now, What to do Next NOW NEXT

What To Do Now, What To Do Next. Commercial banks are at the epicenter of a global economic storm fueled by COVID-19. In it, they are up against a two-fold headwind: helping their customers—especially small and midsized businesses—stay afloat, while shoring up their own businesses and scaling capacity. We understand the challenges you face and offer our assistance wherever it may be helpful—our global perspective and resources are at your disposal as you plan and enact the necessary steps to generate continuing value for the bank and your customers. 2 Copyright © 2020 Accenture. All rights reserved.

Position now to emerge stronger Many small Many small businesses are being forced to take some sort of downsizing action to adjust to the changing economic conditions.1Many have even had to close their doors temporarily in businesses are compliance with government mandates. For how long is uncertain, as the health crisis expands at unprecedented speed and scale. Many businesses will quickly use up their being forced to available cash reserves. According to JP Morgan research, half of all small firms hold a cash 2 buffer of less than one month and 25 percent of them hold a buffer of less than 13 days . Small take some sort of businesses are looking to and calling on banks for financial insights, answers, and solutions that they can use to form and execute adequate responses in the short and long term. downsizing action At the same time, commercial banks must take immediate action to protect their people and stabilize their own business operations. In line with government mandates, most banks have already shifted to remote working arrangements where possible—doing so at a time when to adjust to the demand for their services is at its peak. The National Australia Bank, for example, saw the same 3 volume of customer inquiries in just one week that it would normally see in a year . Banks changing around the world are experiencing similar surges and the trend is set to continue indefinitely as the health crisis causes small businesses to slow down or even stop altogether, setting off economic another wave of impact as suppliers up the chain feel the tightening of their demand. conditions. 3 Copyright © 2020 Accenture. All rights reserved.

Commercial banks are moving in the right direction, yet the next 10, 30, Position now to and 60 days are mission critical. Effective leaders will move even faster, with well-considered steps to further adapt the bank in light of COVID- emerge stronger 19, and to emerge stronger when the crisis storm is over. In this paper, we offer guidance on how commercial banks that act now might make it (continued) happen across four key operational areas: A first and immediate issue, of course, is the workforce. Commercial 1 2 banks are acting wisely to deploy people and scale their workforce as effectively and safely as possible. Some banks in Asia have called upon Enable clients to Help businesses retired bankers and operational staff to help service the dramatic increases in demand.4 maintain operations access financial support A large bank in Australia has undertaken rapid workforce planning to understand where skills can be repositioned. It has also halted projects that aren’t immediately contributing to the response, again releasing key 3 4 people to front-line or operational teams. Almost overnight, traditional business banking relationship management models have been Digitize commercial Proactively monitor redesigned to slow the contagion as some commercial banking clients banking offerings and portfolios to shield still rely heavily on the human touch and paper-based processes while struggling to stay ahead of customer expectations, new regulation, and automate processes credit quality the infection. We suggest what banks might do now to proactively meet business And now many banks may be seeing returns thanks to their earlier customers’ immediate needs and what they should consider doing next investments in digital offerings that require little-to-no people power and to build the more valued, trusted relationships with their clients that can are safe to use in isolation. A large bank in China drew on that advantage lead to differentiation and longer-term growth. to quickly launch a “do it from home” campaign, educating its customers on the availability and benefits of using digital channels to engage with the bank. 4 Copyright © 2020 Accenture. All rights reserved.

1. Enable clients to maintain operations Commercial banks around the world are seeing unprecedented demand Governments and societies understand the importance of channeling capital from concerned and troubled small and mid-sized businesses looking to to businesses, but they may not be aware of how constrained many banks are manage their insecure cashflow, as best they can, with extended credit. in their ability to scale the processes to meet this demand and execute at the speed many small businesses require. They are seeking: Banks’ existing processes, often as a result of local regulation, may require • New loans, both organic and through government programs. physical signatures or repeated interaction with customers for approval and • Modification of existing loan payment terms or interest schedules. drawdown. Digital capabilities are immature within commercial banking and are not prevalent globally across the industry. • Facility or line extensions. • Help in addressing impending credit risk deterioration. Many organizations are either at the outset or in the middle of digital transformation programs, either of which may restrict the availability of digital services at a time when they are needed most. With workforce safety and virus containment being an immediate priority, many banks are operating In many countries, banks mayfind it hard to with remote workforces as part of their new business continuity plans. And scale their operations to handle the influx of some offshore functions, where much of the scaled operating capacity may new credit requests. exist, may be completely cut off as many may have found it difficult to immediately enact continuity plans. To manage such operational impacts, banks should move quickly—in the next 10 days—to stand up a command center and build scalable capability. 5 Copyright © 2020 Accenture. All rights reserved.

Stand up a command center now A command center Within 10 days provides agility for Establish a fully integrated command center to coordinate all aspects of your crisis response. banks in best Focus your command center on the operational areas where the bank is most likely to see managing business origination volume spikes: government funding, line extensions, and loan modifications (such as payment deferrals). through months of Define how the command center will integrate with the bank’s broader COVID-19 response initiatives. economic Create clear accountability on who is running the command center and empower the leader. This uncertainty, role requires senior leadership, ideally, with experience of managing in times of crisis and with clear decision-making authority and direct lines of communication into the executive team. including reacting to various government Within30 days mandates and Define your broader response strategy and clearly articulate it across the organization. stimulus policies. Plan and coordinate with the understanding that crisis-related task forces may be running for the foreseeable future. 6 Copyright © 2020 Accenture. All rights reserved.

Build a scalable capability In responding to the high demand from customers, banks should immediately stand up scalable processes that enable customers to quickly draw funds from the financial system. At first, these processes may be more manual and less scalable than desired. Redirecting as much volume as possible towards digital or automated facilities underpinned with elastic cloud computing capacity will make it quicker and easier to scale. At one leading Australian bank, digital origination channels were used to support over 70 percent of new credit applications due to quick actions to change eligibility criteria and relax credit policies. Here are some action-oriented ways you can build scalable capability: Within10 days Address pressure on new credit requests. Banks should either design a new loan origination process or expedite their existing one to enable them to process high volumes of applications for government-sponsored loans—whether details of One immediate need is government programs are newly minted or even undecided. to stand up scalable Plan for loan modifications.Customers may seek clear and concise guidance on banks’ expectations for loan repayments during this time. Communicate first and processes that enable then work through the operational implications, including changes to loan customers to quickly servicing systems and legal amendment of terms. Improve management visibility. There may be strong desire by some senior draw funds from the leadership to understand the number, value, and segmentation of new loans and financial system. modifications—how many new requests are coming in daily and where the bottlenecks and breakdowns are showing up. Assign a leader to define the reporting and underlying data strategies. 7 Copyright © 2020 Accenture. All rights reserved.

Within 30 days Dedicate data analytics specialists to model roll-rate projections beyond payment deferrals and to better understand the credit risk position of the bank—ideally in real time, using all available internal and external data to guide targeted interventions. Existing analytics resources should be redirected to credit management as some banks’ success will depend on their ability to understand and predict changes in credit risk. Avoid disruption of business as usual.Traditional new loans, albeit at smaller volumes, are still going to require attention along with annual reviews. It will be important to segregate credit action relating to the COVID-19 crisis, where possible. Partner with ecosystem players to improve the speed and the scalability of loan processing. A large commercial bank in Hong Kong redirected specific loan application types, that typically took much longer to process, to a digital fintech in the region. The loans were underwritten and passed back to the bank as term sheets once they were ready for funding. 8 Copyright © 2020 Accenture. All rights reserved.

2. Help businesses access financial support Many small and medium enterprises are feeling the sting of supply chains Across many countries, governments are using the banking system to that are sluggish at best, and at worst have been totally disrupted. distribute subsidies and support small business. Italy signed the “Cura Understandably, some are shifting their focus to three survival-critical Italia,” a decree that includes a €25 billion package of economic measures priorities: to help Italian businesses and families cope with the fallout of the prolonged health emergency. The Australian government introduced a • Managing cash and debt obligations. small-business scheme under which the state will provide 50 percent • Ensuring continuity of working capital financing. guarantees to lenders of new unsecured loans. • Keeping their supply chains as stable as possible. What should commercial banks do now and next to provide support for their customers? 9 Copyright © 2020 Accenture. All rights reserved.

Within 10 days Within 30 days Within 60 days Create probable data-driven economic Offer “digital” loans to provide quick access Propose access to clients’ cash systems to scenarios as the COVID-19 pandemic evolves to financing, drawing on both internal data reconcile cash positions, receivables, and and provide perspectives on how clients can and external information and validation payables positions, and even conduct stress best manage business in those situations. services (government-based and others). tests on their financials. Extend assistance to the most-impacted Advise on strategies to capitalize on new Use insights from various markets, products, client segments with an eye on reducing business possibilities, better manage fixed and government sources to structure their costs and easing their payment and variable costs, and optimize tax appropriate product propositions for clients in obligations through actions such as opportunities. collaboration with platform moratoriums on funded facility repayments Provide a singular view on client-specific and network players. and pre-approved extension of trade loans. account receivables and payables to Grant exclusive access to alternative and Develop client-specific product offerings— support real-time cash forecasts. newer trade market ecosystems and trade e- funded and non-funded—factoring in marketplaces (such as TIN and TradeIX) that possible discounts and waivers and taking provide supply chain financing, extending to into account any government-driven clients’ risk-managed financing facilities. financial assistance schemes. Assess and propose appropriate business interruption insurance coverage in partnership with insurance providers. 10 Copyright © 2020 Accenture. All rights reserved.

3. Digitize commercial banking offerings and automate processes In the weeks after the outbreak, Asian banks serving commercial Similarly, to prevent the pandemic from blocking their ability to acquire new customers had to move rapidly to ensure their operations did not customers and sell new products, some bank chose to move quickly towards contribute to the spread of the virus.5 Traditional relationship management electronic customer onboarding, online document submission, and e- methods had to be re-thought, along with the types of branch-based signature tools. The necessity that today drives small business and other services that many small businesses valued. commercial customers to use digital services will improve their propensity to engage with banks in this way long after the virus is under control. In many ways, COVID-19 is forcing commercial This will allow long-term reductions in cost-to-serve, even for those banks to accelerate digital transformation customers who have proven the most reluctant to move away from initiatives and move customers quickly to digital “assisted” channels. offerings. Commercial banks that choose to be integrated into a digital ecosystem of platforms and service providers and have invested in digitizing their own services will be able to roll out new or complementary offerings rapidly and engage with their customers more safely. A leading bank in the US, for example, deployed a new digital process, allowing its retail and business customers to defer repayments for 30, 60 or 90 days with two simple clicks on its internet banking solution. In the first two days, more than 25,000 customers took advantage of the new process. 11 Copyright © 2020 Accenture. All rights reserved.

3. Digitize commercial banking offerings and automate processes (continued) Digital solutions like these allow employees to focus on higher-value or Without extensive digital offerings, commercial banks need to consider more complex customer inquiries. Using a network of integrated services ways to handle large volumes of inquiries, credit applications, and and solutions, one of the largest banks in China added a “Coronavirus requests for support. Applying a three-month repayment break to a zone” to its mobile app to support customers who wanted up-to-date portfolio of 100,000 loans, for example, could take many hours of information on the spread of the virus, online counselling, and searches manual effort and could, if the process is not well enforced, documented for available hospital beds. These services were offered alongside special and controlled, significant increase the operational risk. Instead, access to financial services, such as COVID-19 insurance policies, credit introducing automation could help a bank redirect human effort to more cards with interest-free periods, and facility extensions for existing loans. valuable customer engagements. A large Australian bank did just that, In one month, the “Coronavirus zone” had over 100 million visits with integrating its digital marketing platform with robotic process more than a million people receiving online counselling. Many of those automation to apply repayment holidays and extend existing facilities for who downloaded the app had no previous affiliation with the bank. specific customer segments. 12 Copyright © 2020 Accenture. All rights reserved.

Within 10 days Clearly understand exactly where the impacts of COVID-19 will show up in the customer journeys. Create and enable Define these impacted areas (prioritized based on volume, impact, and customer necessity) and a technology map them to existing digital offerings. Perform a rapid assessment of the internal capabilities required to support impacted journeys, steering group to including the urgent demand for credit (such as government-backed loans). Gaining a quick understanding of the capabilities on hand to support impacted customer journeys can help pinpoint gaps. make key Establish cross-functional centers of excellence that focus on prioritized COVID-19 customer journeys. Use automation to deploy large-scale change in a standardized, low-risk, and efficient decisions and way. Millions of small business customers will request repayment holidays and facility extensions to help shore up their available capital as the virus isolation measures take effect. Applying these take actionon changes through well-tested automation reduces the risk that they will be made incorrectly and improves audit and traceability. A large Australian bank invested in a dedicated COVID-19 automation centerof excellence designed to reduce the pressure on front-line and operational implementing staff. The team includes cross-functional product team members empowered to make decisions quickly and technical resources with access to multiple automation tools and techniques. technology Build awareness of existing digital banking services and reinforce the importance (and convenience) of using what’s in place right now. changes. 13 Copyright © 2020 Accenture. All rights reserved.

Within 30 days Within 60 days Partner with organizations that can help deliver rapid digital credit Integrate tactical commercial digital engagement solutions into origination at scale. Software providers can help banks quickly stand up the broader IT stack as solutions come on stream and immediate ready-to-go, out-of-the-box solutions to meet market demand quickly demand becomes manageable. This can help a bank to address both with minimum barriers to entry. Technology firms that are well-versed temporary and longer-term needs, while maintaining a digitally- and experienced in specific technology solutions can enable decoupled architecture. rapid deployment. Extend your existing retail banking digital offering infrastructure to Establish the future state of tactical solutions. This will entail deciding commercial customers to provide very basic and minimal self-servicing whether to improve, keep, or remove any of the resources, process, functions, enabling more autonomy and reducing menial tasks for and technology changes implemented in response to the health relationship managers. This includes duties like viewing balances, crisis. Consider how these changes may be integrated into the categorizing transactions, making payment notifications, and analyzing broader picture once the pandemic passes. cashflow. Doing so will help lighten the workload on relationship Develop appropriate change materials for broader rollout and managers and contact centersthat are being bogged down in the crisis adoption outside of the cross-functional center of excellence and with a flood of requests from large and small business customers. optimize value by determining how the wider audience can adopt Create tactical commercial digital offerings that can handle credit this change into everyday business. requests, focusing primarily on the products that are backed by government stimulus plans and electronic document management. This will help ease the interaction between applicants and relationship managers. 14 Copyright © 2020 Accenture. All rights reserved.

4. Proactively monitor portfolios to shield credit quality The pandemic has exposed major shortcomings in the access to short- With many banks relaxing credit policy substantially to issue credit faster, term credit for small business customers as many banks are unable to tomorrow’s problem may become higher default rates and the need for more process applications and disburse funds quickly. And whenever the intensive collections processes. Banks should be looking to protect both impacts of the crisis start to abate, we expect that small and mid-sized themselves and their customers from the likely credit deterioration and, businesses will need more long-term support to ensure they survive (and ultimately, defaults in what will be a long-term recovery to pre-crisis levels of thrive) in a post-COVID-19 economy. demand. For this, banks will need a coordinated and comprehensive portfolio view that draws on data and analytics tools embedded into their Banks should aspire to make access to credit simpler and adhere to portfolio management functions. Tapping into these data sets to drive government directives to provide credit to small and mid-sized processes, such as credit reviews that can be triggered through specific enterprises more flexibly—and even go further to find ways, both business rules, will enable operational efficiency and the ability to direct financial and non-financial, to support these clients in running their human capital towards higher-value workloads. businesses. New, trusted relationships may come out of it as small businesses may be more willing to engage in more open dialogue with those banks that helped them through the crisis. 15 Copyright © 2020 Accenture. All rights reserved.

Within 10 days Within 30 days Within 60 days Segment customers quickly based on higher Create an advice portal for stressed Invest in credit portfolio management tooling, risk criteria (industry, exposure to imports businesses in need of immediate answers powered by AI, that processes internal and and exports, and such) and on whether they and solutions, such as finding cheaper rent, external data to predict and detect credit have been issued credit based on relaxed restructuring employee contracts, and deterioration and serviceability challenges. credit policy. This will help banks to accessing government funds or incentives. Banks can more proactively track the promptly identify loans that have a greater requirement for relief, repayment holidays, chance of future credit deterioration, and or even loan extensions through new trigger- cluster them for different advice and based actions. ongoing management. Provide cash flow forecasting capabilities to small businesses as a value-added service to provide early warning of upcoming cashflow issues and increase cross-selling opportunities around short-term loans or deposit products (where excess cashflow is experienced). Conduct micro-segmentation of customers, based on advanced data and analytics, to determine which types of businesses will likely be hardest hit and which customer segments are likely to recover the quickest. 16 Copyright © 2020 Accenture. All rights reserved.

Calm amidst the storm It’s a challenging time for everyone. The primary concern of all right now is to safeguard the health It’s a of those close to us and for whom we are responsible, and to do what we can to moderate the damage which the pandemic is causing. At the same time, we can think about what life and challenging business will be like once the crisis has passed, and about the measures we can take now to ensure that we and our clients emerge stronger and better equipped to deal with the future. time for The crisis is likely to accelerate many existing trends, like the shift to digital sales, so there can be long-term value in developing short-term mitigants. There is also a great opportunity to test—in an environment where customers may be willing to forgive experimentation—the efficacy of new everyone. advice and other customer value propositions to understand what works and what doesn’t. While the full economic impact of this crisis remains to be seen, banks have an opportunity to support both new and existing clients through this difficult time, and to emerge as trusted partners in market-leading positions. But they are only likely to achieve this if they are operationally equipped to do what is expected of them. What we have outlined in this paper is a good starting point for the many crisis-driven calls to action that banks are facing. Accenture is ready to help commercial banks go further and emerge stronger—providing the skills, capacity, support, and advice needed to shorten and reduce the impact of the COVID-19 crisis. 17 Copyright © 2020 Accenture. All rights reserved.

Contacts Jared Rorrer Chris Jaggard MahendraKasula Nick Conlon Managing Director – Global Senior Manager – Commercial Credit, Principal Director – Corporate Banking Director – Commercial Banking Commercial Banking Lead Africa & Asia Pacific & Innovation Lead, SEA Offering Lead, Growth Markets 18 Copyright © 2020 Accenture. All rights reserved.

To help our clients navigate both the human and business impact of COVID-19, we’ve created a hub of all of our latest thinking on a variety of topics. Each topic highlights specific actions which can be taken now, and what to consider next as industries move towards a new normal. From leadership essentials to ensuring productivity for your employees and customer service groups to building supply chain resilience and much more, our hub will be constantly updated. Check back regularly for more insights. VISIT OUR HUB HERE

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