It is a cloudy moment in the banking industry. Every banker is patiently waiting for the raining day. Job insecurity in the sector is gaining more grounds by the day. You hear heads of departments tell their junior officers, ‘no one has a job here’. Banks are constantly employing cost-cutting techniques of which ‘down-sizing’ tops their agendas. I wonder if banks ever considered the dysfunctional effects on their employees. Banks are loosing more to ‘’unfair competition’’, lost of confidential information and stringent regulatory requirements.

The global meltdown has been blamed on several factors. When the advanced nations coughed, the less developed nations, like Nigeria, caught the cold. We never considered adequate laws to protect our territories before opening up for international and global markets. Developed nations leverage on our ignorance. They put global economy into recession and depress several capital markets. Equity market is declining. Confidence is fading out. Investors cannot even separate ‘’profit taking’’ from ‘’recession’’ when the share price falls. Down-sizing has made the headlines across the globe. Banks, and other companies, had blamed their inefficiencies on global recession. Definitely, under-capitalized banks, banks with unethical trading and governance problems will be potential victims to economy down-turn.

The economy recovery, while welcome, isn’t yet strong enough to ensure against deflation, in which prices fall across the board for an extended period. Nigerians delay purchases, waiting for lower prices, which exacerbates the slowdown. A sharp decline in oil prices since the end of April shows that growth worries are worldwide, since it is global demand that determines the price of oil. Gold is moving the other way, rising to more than $1200 an ounce by late May from recent low of $900 in April 2009. Investors still seek refuge from the bank.

It is no longer news that BASEL II has failed. This statement was confirmed by Charles Goodhart, a former Bank of England policymaker and professor emeritus at the London School of Economics. Instead of relying on standardized formulae, they allowed the largest banks to use internal models to calculate the risks of their assets to determine the capital charges against them. Under-estimation of risk lowers the ability of banks to sup the deep in falling investment. Stringent regulations have called on the ‘’invincible members’’ of The Basel Committee to come up with Basel III. Base III will mean (1) increased equity to credit risk assets i.e higher minimum capital requirement, (2) higher input into banks risks model calculation, (3) higher liquidity ratio and (4) extra funds to compensate for higher risk assets. Let me quickly say here that if banks are too restricted, financial activity will be curtailed or it will shift to nonbanking institutions. Coming back home, The Central bank of Nigeria will still, in the future, impose more stringent regulations in the banking sectors especially in the areas of ‘’credit scoring’’. All these regulations will mean more costs to comply, may require more complex reporting system, changes in computer hardware and software, e.t.c. ‘’Higher capital requirements may cut bank profits, but they will help the system withstand the withering losses that led to the credit crisis,’’ says Yalman Onaran.

Untapped opportunity in Information Technology

Outsourcing is a familiar concept in the banking sector. It is high time banks got their value chain analysis right. It will help them to identify their competencies and outsource other less value adding or non-value added activities. Cloud computing creates opportunity to cut costs. Cloud computing is the much-hyped model of internet-based computing that allows companies to access a range of platforms and applications without hosting them themselves. Banks employing cloud computing need not develop, implement, maintain or upgrade their current technology. If for example, a bank requires surplus computing power or storage space to meet occasional spikes in demand, it can get these in the cloud. There are three current buzzphrases being used- cloud computing, software-as-a-service (SaaS) and application service provider (ASP) – Describe different, but related, activities. While cloud computing refers to outsourcing of IT hardware, such as servers and other infrastructure services, to a vendor that provides these services via the internet on pay-as-you go basis and when they need them; SaaS is based on all users having access to the same application via the same internet-based route. ASP, the third area, employs private networks and constant customisation , making it less economical.

Hurdles in cloud computing
Cloud computing raises concerns for security, data integrity and control issues. A further hurdle will be concern for regulations. It is worth stressing here that cloud computing is not an unfamiliar concept with the banks. It involves banks leveraging on outside corporate and data providers- something they have been doing for many years. There are genuine reasons for banks to retain internal security around their architecture, data and applications. Gartner, a U.S-based IT consultant, identified in his popular report ‘’Hype Cycle for Emerging Technologies’’ that maturity of the industry will comprise two stages. The first is characterized by private clouds: data centres that are still owned by the corporate users and managed in-house. As users get satisfied with private clouds, they will move to public cloud. Concerns around security and control should ensure that banks follow an incremental approach, applying cloud computing to non-core operations first. Banks should start with fewer applications and moving more to the cloud as they see the benefits. ‘’The obvious candidate include human resources, customer relationship management and content management system,’’ says Lynn strongin Dodds.

However, in long-run, cloud computing will have the effect of reducing the IT staffing requirement across the industry. In order to reduce the ‘necessary evil of down-sizing’, banks could come into agreement with the vendors which allow them to use their existing staff for clouding. Other staff not absorbed by the vendor companies could be placed on a reduced salary scale. Communication is very vital for the IT staff not to see the whole process as being punitive.

In the developed world, there is a rapid growth in cloud computing with roughly 85 providers, led by IBM, Microsoft, Amazon, Salesforce.com and Google. ‘’Despite the high levels of security offered by leading cloud providers, there can be a psychological barrier to entrusting data to a third party,’’ explains Stuart Berwick, CEO of Singletrack Systems, UK joint venture partner of salesforce.com. Data integrity and protection remain utmost discussion in the banking sector. In order to ensure data protection, regulators we have to institute stronger Data Protection Act which should be made to cover licensing. Customers’ data should not be stored beyond the confines of Nigeria. All terms of contract entered into should reflect this agreement. Punitive measures should be clearly spelt out in case of a breach.

Banks should remain competitive by employing resource-based strategy rather than positioning strategy. Cloud computing should enable banks concentrate on banking and be customers focus. The era of sharp practices are fading out: round-tripping and other unethical acts are becoming almost impossible. Profits are wiping off. Nobody wants a job in the bank like before because ‘nobody has a job’ including banks chiefs. Cloud computing can encourage more participation in the banking sector and as well retain jobs at lower costs to banks.
Gbenga Okubade
jo, ACA, ACSI (UK), ACFE (US), LIFA (US),
IIBA (CAD).