15 October 2008

British Banking System - Get Well Soon

RIP or get well soon? Let me give you a personal perspective.

At the age of 26 in 2001, I arrived in the Czech Republic for a two year secondment with Deloitte. On my first day there, an American boss pulled me into his office to tell me the lay of the land. Amongst other things, he informed me that, in his opinion, the Czech government’s woeful/criminal (?) management of the banking sector had cost every taxpayer the equivalent of a year’s salary.

During the 1990s the Czech government had ‘liberalised’ the banking sector without actually privatising it, therein blocking necessary modernisation of the bloated banks and resulting in (ahem) leniency for politically favoured customers. Naturally, this situation eventually led to a pretty nasty banking/currency crisis in 97/8 followed by several “Austerity” budgets.

Fortunately, the Czech Republic did take firm action to restore confidence in the banking sector – ringfencing distressed assets and selling off the large state-owned banks to reputable foreign banks. On a personal level, it was a great opportunity for me as I worked closely with some of these banks attempting to change the organisational culture and develop the skill set to compete in the free market. At the micro level, here are some of the measures the newly private banks took to improve their efficiency.

- Zero-based budgets (i.e. budgets that are based on what needs to be done rather than what was spent last year)
- Staff training on credit management to improve credit decisions, credit valuation and Workout effectiveness.
- Removed time-servers/blockers
- Encouraged entrepreneurial thinking and customer focus
- Changed back office functions from cost centres to profit centres.
- Improved financial reporting
- Enhanced management information (e.g. KPI suites etc)

Look at the Czech Republic’s economic growth data series

1997 0.3%
1998 -2.3%
1999 0.5%
2000 3.6%
2001 2.5%
2002 1.9%
2003 3.6%
2004 4.5%
2005 6.4%
2006 6.4%
2007 6.5%

One of the main lessons I learnt from my first work experience in Czech was that a properly functioning capital market/banking sector is a pre-requisite for a strong economy – almost more important than anything else. This is why when our government takes major stakes in the four major UK banks (apart from the worrying implications/unintended consequences for the rest of the UK banking sector), immediately I want to hear about the states’ exit/re-privatisation strategy. I haven’t heard a thing. People may like to read and learn from this report. If there is an appetite to get the UK back on its feet it may become very relevant in the nearish future.

1 comment:

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