In my recent article in Times of Malta, I dwelt on the de-risking strategy aimed at turning Bank of Valletta into a lower risk and stronger bank. I explained the three pillars of that strategy, namely to ensure strong financial fundamentals, to terminate or restrict businesses which fall outside of the bank’s revised risk appetite, and to conduct a complete ‘Know Your Customer’ review of the entire customer base.
The Board of Directors’ vision, which drives this strategy, is the stability and sustainability of the bank in the long term. BOV’s status as a systemically important institution, with all the implications this has for the country’s financial stability, demands no less.
It would, however, be misleading to give the impression that BOV’s strategy begins and ends with de-risking.
While the focus for the coming two years will indeed be on lowering the institution’s risk profile, we must not lose sight of the fact that the bank is a commercial enterprise, servicing a customer base running into the hundreds of thousands, and is a major player within the Maltese economy.
We must, therefore, transform and de-risk the bank while running our core business efficiently and profitably at the same time.
In a 2016 paper entitled ‘De-risking in the financial sector’, the World Bank had expressed concern that de-risking could result in people, sectors, and indeed entire countries losing access to banking services. The social implications could be massive.
BOV is not embarking on blanket de-risking and mass exclusion.
It will exclude business which, although legitimate, lies outside of its appetite. But it will also seek to improve accessibility to businesses and customers with which it is comfortable to transact.
So, we shall be working to en-hance customer experience and accessibility at the same time as we are de-risking. In turn, the im-provement of customer experience and accessibility requires constant investment in our network of physical and electronic distribution channels – branches, ATMs, internet and mobile apps.
The need for such investment is also propelled by pressure on the bank’s profitability that will inevitably result from the de-risking programme. For the coming two years, BOV’s bottom line will be caught in a pincer.
Closure of businesses and customer relationships which fall outside of risk appetite will lead to loss of revenue, while the progression of the bank’s transformation programme will entail rising costs in the form of consultancy and higher staff costs. This pressure can only be offset through an enhanced customer offering, comprising a three-pronged strategy of an intelligently-deployed retail network, improved response times and a competitive suite of products on our virtual shelves.
By “retail network”, I am not referring simply to brick-and-mortar branches, but to a seamless and synergetic eco-system of physical and digital customer touchpoints. The customer experience must be consistently excellent, whether the customer is transacting via a branch, a digital channel or a combination of both.
BOV is now at the tailend of its CBT (Core Banking Transformation or Changing the Bank Together) programme, a three-year strategic initiative which is changing the bank’s core IT system, simplifying the IT architecture and re-engineering core processes.
For the coming two years, BOV’s bottom line will be caught in a pincer
The bank is on the verge of switching over from its 20-year-old banking solution to a state-of-the-art Oracle Flexcube platform. The aim is not only to update an aging infrastructure, but – more importantly – to provide a sound foundation for the digital channels of the future. History teaches us that war is always a catalyst for technological advancement. Similarly, competition – especially from international Fintech operators – has set the bar at a much higher level than hitherto, and BOV is rising to the challenge even as it de-risks.
The first week of November saw the launch of the BOV PAY electronic wallet solution for Android devices (the iOS version is being rolled out in early December).
The BOV mobile app will gain additional functionality towards the end of this month. These and other innovations aim to further empower the customer, and thus incentivise the greater use of online cashless banking.
Digital banking is not the future. It is already here, and it is thriving and increasing exponentially. But that does not mean that the days of branch banking are numbered.
Branches still remain, and will remain, a relevant part of customers’ financial engagements. However, the significant costs of operating an extensive branch network cannot be ignored, and demand a conceptual re-thinking of the present arrangement.
A 2017 briefing for the European Parliament, entitled Overcapacities in the European Banking Sector, concluded that Malta is one of the most overbanked jurisdictions in the EU, in terms of assets, employees and branches. Excess banking capacity was identified as a major source of pressure on bank profitability. BOV is conscious of this situation, and has already started an exercise to review the size and efficiency of its operational infrastructure.
This exercise will be carried out within the context of the ongoing transformation programme.
The aims are cost and operational efficiency, and the delivery of a superior customer experience.
The BOV branch of the future may not continue to offer all services to all customers at all times.
Certain services and products may be centralised in specialised branches in the same way as wealth management and business lending already are, or may be given at specified times. Technology must be leveraged to increase automated banking, robo-advisory services and video conferencing.
Bank staff currently engaged in tasks which produce little or no value would be re-deployed in more productive and more rewarding work, to the benefit of customers and shareholders alike.
In our vision, the BOV of the future will be a lower risk, and a more efficient and profitable institution. The transformation programme which will realise this vision is well under way, and gathering momentum every day.
Mario Mallia is CEO of Bank of Valletta.