Beyond crisis management
They all get into the empty banking hall. Que up at the teller point. Unfortunately, there is a technical problem with the network system of the bank.
The branch manager tries to communicate to the clients but the message is not received positively. The feedback is negative. They are not taking it lightly since they need money for Christmas shopping. On the other hand we don’t have much control over the network availability. We have befallen with a crisis.
The structural evolution of the banking sector may have a significant bearing on questions of solvency and stability. Banking systems have developed in different ways among countries for a variety of reasons. The trend has been towards an increasingly liberal stance by the authorities as regards allowing banks to diversify their activities. This should be welcomed, but only on two conditions: first, that the management of individual banks is sufficiently capable; and secondly that every bank can be effectively supervised by the central bank (or other responsible regulatory body).
The causes of banking crises can be categorized under several headings: macroeconomic instability; deficient supervision; poor strategies; weak management; inadequate control systems; operational failures; fraud. The experience of a number of countries is reviewed.
There are different cases scenarios of operational failures in our Ugandan banks.
Financial crisis involves a tug of war between the customers and the bank managers. At times, banks fall short of cash – they become insolvent yet clients expect to access their money from their branch of preference. Customers expect a 24/7 working ATM machine. Short of that, they will divert to other financial institution.
Another treat to liquidity is the Non- Performing Loans (NPL). Despite a slight decline in the NPL from 5.8 per cent as of June 2014 to 4.0 per cent in June 2015, banks wrote off a combined total of Ugx257billion. Ideally, banks should generate more revenue from the money lent out. In reality, the default rate is alarming! (Refer to the distressed companies and their debt burdens).
Shortage of staff
If you have been to a banking hall, you have heard of clients in the que complaining about how slow the teller is. The situation is worse especially if they are some vacant teller points. This all points to inefficiency in our banking system. Failure to set a clear strategy and an ideal structure often leads to staffing and other re sourcing challenges.
I bet many of us have walked into a banking hall only to be told there is no network. Clients fail to access their accounts.
(i) Network failure points to poor security set ups and assurance. Security is about confidentiality of client data, integrity and availability. Failure to invest in appropriate IT Security systems like encryption of network traffic exposes the Bank.
(ii) Banks must ensure effective governance of their IT assets – people, application system, technology facilities and data. For this reason, the Central Bank requires all financial institutions to undertake an attack and penetration testing services, in addition to the ICT Security reviews. These help evaluate the level of security to ensure reduced downtimes.
In addition, effective backups, staff training, network security are key to ensure potential crises are anticipated and prevented.