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Time to respond to changed fundamentals

Published 3 months ago
By BrandVoice Partner

Marinella Buscaglia, Head of Coverage at Investec

The global pandemic fundamentally changed the way the world works and, perhaps more significantly, what we derive from this new way of working.

In the wake of the COVID-19 induced crisis, certain sectors have ridden a wave of exponential growth on the back of transformative trends, while others are struggling for relevance and survival. For instance, the technology, media and telecom (TMT) and healthcare sectors became hyper-growth markets as people and businesses turned to digital channels and platforms to drive engagement and commerce, while demand for medical facilities, services and products soared.

As the world emerges from the crisis, new themes are driving cyclical growth within sectors that are strategically important to the country’s economic recovery, such as industrials, mining and manufacturing. Sectors like the fast-moving consumer goods (FMCG) industry will likely benefit from sustained tailwinds from pandemic-influenced trends, such as the accelerated adoption of e-commerce and the broader on-demand platform economy. In contrast, the pandemic has devastated the tourism, entertainment and commercial transport sectors.

Change drives innovative thinking

However, once the pandemic ends (and of course, the question is when), it is evident that few things will function like they did before COVID-19, which means no industry can afford to approach business in the way it did previously, including the banking sector.

With so many businesses struggling to survive in this unprecedented environment, business owners are putting pressure on their financial services providers to be more creative and forward-thinking.

Responding to these demands will require change to bring different, more relevant solutions to the table, where more of the same just won’t cut it anymore. Addressing future challenges will also require collaborative and diverse thinking that anticipates problems and provides relevant products and services to help businesses grow.

In this way, the socioeconomic changes ushered in by the pandemic will rewrite many previously fundamental banking industry rules and roles. Already, banks have had to change the way they assess risk and adjust their risk appetite. One-dimensional risk assessments that simply look at short-term financial metrics have become irrelevant in the current context.

Move to holistic assessments

While assessing risk based on cash flow will remain crucial, as will managing risk from a currency, treasury and interest rate perspective, banks require a broader toolset to support viable businesses in a responsible and fiscally sustainable manner.

This entails taking a holistic view of a business, considering factors such as shareholder and management implicit support and track record, the company’s resilience and diversity of product, the way they leverage technology and their ability to deliver what their clients need and then reach new markets against the backdrop of shifting market trends.

Meeting policy requirements has also become a strategic imperative, for example improving their BEE credentials and committing to improving their Environmental, Social and Governance (ESG) ratings, will influence a company’s ability to service the broader economy and influence their future growth plans. Banking partners must help to favourably position businesses in the market by identifying any potential policy gaps and addressing these shortfalls.

Banks should also look at what has fundamentally changed in the business through the crisis. What factors supported their survival? What challenges do they face currently? And how sustainable is the business strategy going forward?

A business that still has a fundamental role to play in the economy will find itself in a stronger position than a company that offers a service or product line that is waning or losing relevance.

As such, analysing the business from multiple perspectives will provide insights into a company’s sustainability and future growth prospects in the current situation. While intelligent digital technology such as AI and data analytics will play an increasingly important role in this process, bankers should not lose sight of the importance and value of building direct personal relationships with clients.

Never undervalue the human element

Engaging directly with business owners to understand them and their business engenders trust and understanding while leveraging on technology, helps to identify key themes, trends and new perspectives that are grounded in sound banking principles. Digital tools should never displace the human element in the banking value chain because engaging directly with clients can reveal nuanced information that digital tools seldom can provide.

Constructing a holistic picture requires continuous engagement to unpack how the business services clients, the state of their supply chain, how they manage working capital and risks in the business and where they are from a Black Economic Empowerment (BEE) and ESG perspective. This is a long and often complicated journey that data analytics alone cannot completely understand.

The synergy then that exists between the human element and technology provides the impetus for the solutionist thinking that banks need to address the issues impacting businesses today and into the future.

There are no drop-box solutions to today’s business challenges. In our fundamentally changed world, we need to find ways to operate differently and often with speed. Clients require proper conversations with people they trust to deliver bespoke, forward-thinking solutions that will address their unique needs and help them rebuild and grow out of the crisis.

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