Challenges for Hong Kong banks: how to cut costs

Technology and digital solutions the way to go

PUBLISHED : Friday, 20 January, 2017, 5:57pm
UPDATED : Friday, 20 January, 2017, 10:18pm

Hong Kong banks are not going to suddenly find their budgets freed up this year. Once again, they will have to maintain a razor-sharp focus on cost reduction, efficiency and profitability.

To do that, financial services managers should move beyond tactical cost reductions and focus on generating higher efficiencies. The days of nip and tuck cuts are over.

To achieve truly meaningful and sustainable efficiency is not easy. Indeed, in our “Top Ten Challenges For Investment Banks 2017” report, we identify aggressive cost reduction as one of the key focuses.

Our view is that the prerequisites for successful efficiency include:

• A top-down mandate capable of crossing business and operating silos, and enforcing a “bank first” view (rather than having certain departments or products dominate the perspective).

• A truly front-to-back process to help verify costs are fully understood, solutions address root causes and downstream effects are minimised.

• An understanding of costs and cost drivers. Too often, target cost reductions on departmental operating budgets are established with insufficient understanding of the total cost details.

• A re-examination of what customers will pay for.

• A plan for the savings generated – whether that is offsetting costs or generating new revenue.

Cost-reduction initiatives that set institutions up for sustainable growth should centre on technology and digital solutions, which have raised the bar for cost reductions by making them part of growth initiatives as well.

Financial services managers should move beyond tactical cost reductions and focus on generating higher efficiencies

Management teams therefore will need to allocate resources to reskill and retool employees to work with these digital solutions. This is a human resources, time and financial commitment to the future.

It also means financial services institutions need to focus less on historical benchmarks and more on what is possible with a new cost model enabled by digital technologies and powered by people.

Working with other companies – what we call the broader ecosystem – is another driver of efficiencies. This ranges from establishing meaningful alliances with financial technology companies to other banks and other industries, as well as embracing utility service providers.

Furthermore, cost-reduction opportunities can be found in most banks’ information technology departments where legacy systems are still a mainstay.

Cloud-based services and the increasingly pervasive “everything-as-a-service” model are potential efficiency drivers.

By identifying opportunities to acquire services and/or work within the fintech ecosystem, organisations can discover new ways to provide IT and operational services.

Indeed, spending may be required for savings. We are seeing increased interest in distributed ledger technology to deliver efficiency in areas such as cross-border payments, liquidity management, collateral management, syndicated loans, trade finance and securities settlements.

Big data and predictive analytics enable greater customer insight and responsiveness, and artificial intelligence to automate complex tasks that involve non-structured data and require learning algorithms will cost firms investment dollars. But they will yield more analysis and opportunities to offer customers deeper insights, which in turn should drive business forward.

Beat Monnerat is a senior managing director and the head of Accenture’s financial services business in the Asia-Pacific