Here's how you can effectively manage and lead through periods of economic uncertainty in banking.

In my opinion, assessing risks is the first critical step: Conduct a thorough analysis of potential risks and vulnerabilities within your bank. Identify areas that may be particularly affected by economic uncertainty. Develop risk mitigation strategies and contingency plans to address identified risks. This proactive approach helps in minimizing negative impacts.

As banks are in the business of taking risks, assessment of risk is of paramount importance to safe guard the banks’ interest and quality of assets. As regards lending, assessment of risks of underlying obligors is comprised of assessing industry risks, business risks, financial risks and structural risks. Thus, combination of SWOT, Porter’s five forces, and PESTEL should provide a holistic approach to assessing obligors’ risks. Addressing the credit worthiness of the underlying obligors includes establishing the debt capacity of the borrowers, leverage, gearing levels & capital structure, liquidity & cash conversion cycle, profitability, adequacy of cash flow, proper structuring of the facilities, quality of collaterals, and covenants.

In my opinion, a wise way of preventing disruption in times of crisis is to hold large amounts of own funds (obviously above the regulatory imposed minimum) in times when economy is growing meaning that banks should have a contra-cyclical approach. This was a philosophy recommended by the bank of Spain some time ago (called "countercyclical buffer"). Not all banks can afford implementing such an approach but clearly it does reassure both employees and shareholders as to smooth business continuity when economy is struggling.

It's always better to be safe than sorry, that's why adopting a proactive approach to risk management will not only ensure your business continuity through times of draught but also gives you a market edge as remain profitable through developing strategies and setting policies to mitigate potential risks,

Agility vs Strength comes into mind with this question and this is where the true intuitive power of a leader is tested as to whether they would be able to navigate their organisation into the right direction or not by allowing the organisation to have systems in place that prepare it for uncertainty in order to adjust and remain competitive. Strength can be a good thing as well, to maintain high performance of a leader but what's a strong leader if they are not agile enough to keep themselves in a position of a higher advantage from a company's point of view and how the customers see the bank during times where they need to show up to their customers and instil trust in the bank, to avoid financial failure or loss of profits.

What I have usually seen is that staying agile allows for better adaptation to changing circumstances: Implement flexible processes and decision-making frameworks that enable quick responses to emerging challenges and opportunities. Foster a culture of agility within the organization. Encourage teams to embrace change and be proactive in finding innovative solutions.

One way of staying competitive in any market is to be aware of the changing conditions of this market and adapt to it, that's why following an agile approach is being adopted by all modern businesses, so instead of using OOTB / Turnkey solutions, you develop your model through collecting feedback to make the product more realistic to the customer needs and changing economic environment, the market is always evolving, so should be the offering!

Another dimension for being agile in times of economic uncertainty is properly segmenting your portfolio based on profitable relationships that are strong credit with potential for multiple banking products to enhance the overall yield of relationships and portfolio and to focus and allocate the reason the profitable relationships. This is an addition to stress testing to the loan portfolio and obligors in vulnerable sectors to establish the strategy at the sector level whether to re- price and grow or phase out and exit. Stress testing of obligors by giving hair cuts to components of working capital assets and assess the impact on liquidity & solvency, and level of leverage.

I believe that clear communication is crucial during uncertain times: Maintain open and transparent communication with all stakeholders, including employees, customers, and investors. Regular updates help in managing expectations and building trust. Address concerns promptly and provide clear guidance on the steps being taken to navigate the uncertainty. This reassurance can help in maintaining morale and confidence.

Communication with the team is essential during uncertain times as their performance may start to deteriorate as they start to have fears about the future and with the future outcome not known, it brings in a lot of fear and leaders could leverage that fear to spark creativity and productivity out of the team as they use it as a set of motivation and give reason to team members, why they were members of the organisation to begin with. Stakeholders also do require a similar level of attention to maintain the level of trust that people have in the institution as this is the time where everyone relies on them the most for navigation through uncertainty.

how the company communicate their vision and objectives can be crucial to achieve their targets, when employees are engaged and have understanding of where the company stands and where is it going it helps steer the company toward the right direction.

In my experience, making strategic investments is key to sustaining growth: Prioritize investments that offer long-term value and align with the bank’s strategic goals. Focus on areas that can drive growth and stability, even in uncertain times. Avoid high-risk investments and speculative ventures. Instead, opt for conservative and well-researched opportunities that offer reliable returns.

One other misconception is that investing in new technologies will always improve operational efficiency and you find out that the exact opposite may occur as the cost to adapt to the technology may be slowed due to the current team not being adaptive as one may expect them to be and will eventually show that maybe the company could have used other alternatives to improve operational efficiency.

In my opinion, empowering teams is essential for effective leadership: Delegate authority and responsibility to capable team members. Empowering teams to make decisions fosters a sense of ownership and accountability. Provide training and resources to enhance their skills and knowledge. Well-prepared teams are better equipped to handle challenges and drive the organization forward.

I do believe that team empowerment is one of the most important aspects to proactively assess and respond to any uncertainty. With team engagement and empowerment, you will receive different ideas and solutions, you will find a responsible team collaborating to face any challenge, & definitely with more and more empowerment you will build experienced leaders who will be able to proactively expect & respond with agility.

What I have usually seen is that planning ahead ensures preparedness: Develop comprehensive business continuity plans that outline steps to be taken in various scenarios of economic uncertainty. This preparation helps in minimizing disruptions. Regularly review and update these plans to reflect current conditions and potential future developments. Staying ahead of the curve is crucial for effective management.

I believe that considering additional factors can further strengthen your leadership: Build strong relationships with key stakeholders, including regulatory bodies, industry peers, and community leaders. These relationships can provide support and valuable insights. Monitor economic indicators and trends closely. Staying informed about macroeconomic conditions helps in making timely and informed decisions. Foster a resilient organizational culture that emphasizes adaptability, innovation, and collaboration. A resilient culture helps in weathering economic storms more effectively.

One thing that is interesting about how banks could remain consistently competitive, is to grow within their means during times of economic downturns or uncertainty. Most companies tend to focus on saving themselves and forget that they still need to grow in accordance with the plan of action or strategy set in place by management but all the resources are used to help the bank shift away from being at risk but they neglect to leave some of the resources to help it grow. Economic uncertainty requires a lot of contingency planning and highly conservative risk management to avoid going under but that does not mean we should stop growing as a business but rather use the opportunity to become even more competitive.