Tough new challenges for CFOs

The job description of chief financial officers in the banking industry is changing dramatically, bank consultants say, with ever-greater demands being placed on them. The credit crisis had hit banks hard and rammed home the importance of a strong finance team and CFO, a study concluded.

The bottom line? CFOs aren't just number crunchers anymore. They play a vital role in evaluating risk, and forming strategies for their banks.

'In addition to the important work they've always done, monitoring and reporting, they're also providing their firms with a comprehensive, actionable view of risk,' said Keith Pogson, the managing partner of financial services in Asia for accounting and advisory company Ernst & Young. 'They're creating competitive institutions that can face future challenges in a more resilient manner.' Mr Pogson was introducing a new CFO report, 'The Finance Operating Model Matters', put out by Ernst & Young and CFO Research Services, the research arm of the company that publishes CFO Magazine.

Late last year, CFO Research interviewed finance officers at some of the world's largest banks, including the Bank of America, Barclays, Citigroup, the Commonwealth Bank of Australia, Credit Suisse, HSBC, ING, JPMorgan Chase, Morgan Stanley, the National Australia Bank, the Royal Bank of Canada and Societe Generale.

The report concluded that CFOs needed to oversee both risk and finance, and look at strategy for their banks. The banks themselves needed to centralise and standardise the way they collected financial information.

The study found banks' financial operations had become disjointed and inefficient because of rapid expansion.

Recruitment experts also noted the change in the role of the CFO. They agreed the shift had been forced on banks because they had expanded. 'The role of the CFO is changing partly because the nature of the business is changing,' said David Hui, senior client partner at recruiting company Korn/Ferry International.

'Compared to what they were 10 or 15 year ago, banks have become much more complex.'

Mr Hui has often worked on filling CFO posts and similar positions for banks. 'The delineation between an investment bank and a commercial bank is much closer now,' Mr Hui said.

'The geographic scope adds a lot of pressure because the regulatory requirements vary in different countries.'

The situation is particularly complicated in Asia, where CFOs have to consider multiple markets across the region with very different regulatory regimes, cultures and political pictures.

'Scale is an issue that shouldn't be underestimated,' Mr Hui said. 'The more regions and more products you expand into, the stronger your controls and your finance team have to be.'

These days CFOs are often involved in strategy and expansion planning - helping to evaluate which markets could be hot in the next year and which may be hazardous to the bank's health or image.

'In Asia, the market sizes are relatively small, but the investments going in are important as are the risks - both reputation and capital risks,' Mr Hui said.

The challenge was particularly great in China, the CFO study concluded, where banks had to gear up their financial infrastructure to ensure they could modernise and stay competitive.

'The efforts of China's banks for the next two to three years should be on getting any improvements in the functionality foundations totally right,' said Dirk Chanmueller, the partner responsible for the China financial-services advisory team at Ernst & Young. The response for generating reports from the finance team must speed up, and the quality and transparency of financial information needed to improve, the study suggested.

The goal, of course, is to make more money for the bank. A solid financial foundation can allow banks to put in more sophisticated management practices, such as activity-based costing and capital-allocation models.

'Eventually, the further alignment of risk and finance is likely to lead to more objective business decisions, and sustainable profitability,' Mr Chanmueller said.

The CFO is not alone, however. The entire top tier of big banks is having to shape up.

'It is not just the CFO - the whole management team, the CEO, the chief technology person, the chief risk officer, all their roles are much more integrated than before,' Mr Hui explained. 'People cannot work out of silos. They have to take a whole-bank view.'

The good news is that, although the credit crisis is hurting the banking industry worldwide, the direct effects in Asia have been relatively mild. Headhunters said there had been some effect in terms of hiring, with banks that decided to cut headcounts globally not sparing Asia. But the region is still an important source of profit for banks and in many cases is the focus for growth, given the problems in the United States and Europe.

'It is too early to say the credit crisis per se has had an effect on the hiring and firing of CFOs,' Mr Hui said.

'It won't unless there is a big writedown in Asia that somebody has to take credit for, which hasn't happened so far. If anything, it has stressed the importance of having good CFOs.'