This time last year, one could make the case that the global economies were in good order, despite increasing political nationalism and division amongst allies and foes alike, and growing concerns such as climate change, increasing debt levels and reducing interest rates, and the rise of automation as a threat to jobs. Share markets are only one measure of this good order, but they indicated an economic train on the right tracks moving at pace. Banks were doing well, none more so than across the more prominent financial centres in Singapore, Sydney, Shanghai, etc.
Fast forward back to today, and the picture looks dramatically different. And with good reason, some we could have predicted in hindsight, and some that simply took the majority of us unawares. On the one hand, our economy lead by an artificially jet-fuelled US economy has produced overheating and now dramatically volatile and even broken markets and the looming certainty of a global recession, mixed with massive climate change moments (particularly in Australia) and of course the tsunami of the Corona Virus outbreak.
It’s this cocktail of dramas that will test the banking system like almost no other time – more so than 2001, or even 2008. This is a globally, interconnected set of circumstances that will take a large overhaul other than just fiscal policy to resolve.
In the short term though, we simply need to get everyone through to the other side of a 2020 that is looking increasingly tough, and is so already for millions of people through job losses, margin calls, poor health and even mass fatalities. There are of course a core set of industries that also need to be wary of their futures, given their vital role in the broader economy. The airline industry is on edge, and the healthcare systems of the world are facing their biggest stress test, as is the eCommerce industry, for somewhat different outcomes.
Banks will need to look hard at the next 12 months in particular. They may inherit the worst combination of this cocktail of events. They may be the ones to finance those people and small businesses currently under cash flow stress. They may be the ones to have to rebuild the markets that have lost so much value. They may be the ones to help the healthcare system rebuild. And they may be the ones the have to address their own business models, resources, people numbers, products and services and movement to digital only platforms.
There is 1 of 3 scenarios that each FSI, and every company will be encountering.
The first is a sobering realisation that their business model cannot withstand the shocks that are on their doorstep. Cratering revenues, committed costs, exposure to bad risk, no cash on standby to ride it out. These companies will be looking at dramatic remedies to their dramatic situation, and some won’t make it.
The second is the challenge to simply ride out the foreseeable future, with the uncertainty in how long that may take. Focusing on the fundamentals, on people and on cash flow will be key. A solid business model that serves the needs of customers in today’s unique context will be important.
The third is the opportunity that this crisis brings, and how it will accelerate the transition to business models that are thriving in these conditions. These are of course heavily biased to solely digital or self-service models, that are at the moment not just a new level of convenience, but in certain lock-down locations a necessity. They are facing growth concerns to meet the demand of essential items (sometimes in tandem with a decline in everything else), but should emerge from the crisis well.
Leadership needs to be very adaptable here in managing their own business whilst rebuilding parts of it. Understanding (not necessarily choosing) what a bank may look like on the other side of this will be something of a bet for some organisations. Those with strong values, culture and a commitment to customers should succeed over those in less assured positions.
To use the common analogy, some companies will need to rebuild the plane as they’re flying it. Others will have to stay grounded perhaps for good. But some are soaring in the clouds already.