Digitization, Cyber security and Climate Change are three factors that will be transforming banking operations in the near future, expressed ABA Chairman Eugene Acevedo, current President & Chief Executive Officer of Rizal Commercial Banking Corp. as he delivered a Message of Solidarity during ACRAA’s 20th Anniversary Conference held on December 10th 2021.
ACRAA (Association of Credit Rating Agencies in Asia) conference was an opportunity for ABA Chairman Eugene Acevedo to briefly share with fellow industry players his thoughts on the three major factors impacting the banking industry: Thus, he encouraged credit rating agencies to embrace these transformative forces to maintain market relevance and furthermore, thrive in the new business environment. His full speech can be read below.
ACRAA Chairman Atsushi Matsuda,
Vice Chairman Faheem Ahmad
Members of the Association of Credit Rating Agencies in Asia
My name is Eugene Acevedo, and I was recently elected as Chairman of the Asian Bankers Association. Immediately after my assumption, my good friend Santi Dumlao, your Secretary General, told me about the shared history between our two associations. Since then, I have been looking forward to meeting you.
Thank you for inviting me to speak today to express our solidarity with you. Indeed, these are tough times, as we need to work more closely together. But we also have to look beyond the pandemic, think three to five years and even longer, because banking is evolving in an accelerated pace like we have never seen before.
And credit rating is going through a similar transformation.
There are three specific themes at the ABA and I would like to share them with you today. Digitization, Cyber security and Climate Change.
First, with digitization, banks have lost market share to fintechs that are fast, that give great customer experience and charge cheaply or even give services for free. And they don’t have to make any profit in up to seven years but are still highly valued. They also sell rudimentary credit scores based on alternative data. They are going after your business and mine.
Our response has been to act like fintechs, disrupting ourselves by collaborating with fintechs. In the area of consumer and small business lending for example, we ultimately have to lend real time. Lend instantaneously. If an individual wants a personal loan, we banks should be able to respond immediately with a credit decision even if the customer has no previous credit record.
We can no longer be dependent on existing credit card data, or whatever is available from consumer finance. We now experiment on internal deposit and payments data, on information from telecoms and other utility companies. Our data scientists have become more creative and are testing the credit scores they generate. What is facilitating this information revolution is the sheer volume and velocity by which data is created. Add to that cheaper storage, readily available analytical skills and more powerful computing power, we have at our fingertips an incredible amount of actionable data about our customers.
ACRAA members may have to embrace fintechs as well, and position yourselves to exploit opportunities in the world of instantaneous loans.
Second, Cyber security and the related issue of privacy. The megaload of data comes with it a responsibility for keeping the data safe. From a corporate customer standpoint, it is now crucial to assess the cybersecurity capabilities of companies that we study. Maybe even rate each companies cyber-readiness.
From a consumer standpoint, we have to respect the privacy laws when we gather data, ensuring there is consent for a specific use. A consumer credit score has to be legally audited to ensure there are no violations.
I think on the cyber issue alone, we will all need to make deliberate changes in how we do business.
Third and final point – Climate change and ESG which stands for Environmental, Social and Governance. A couple of years ago, RCBC, the bank I lead, was evaluated by a company which rates ESG competence and compliance. We were rated A initially, and then AA early this year. We also issued green and sustainable bonds, and publicly disclosed the projects that we funded. Over time, I realized that more companies became serious with both climate change and ESG.
Recently, even our central bank released a new set of sustainable finance rules. Now, when we lend to companies, we make an assessment of each company’s environmental and social effects, which requires more time.
I am sharing this because while ESG ratings maybe new, these are not radically different from what credit rating agencies already do. This activity even looks like a new business opportunity for you. These three themes will make both our organizations busy over the next two years.
To end, I wish you a productive conference, and a safe, exciting and prosperous future.