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09.10.2020 Jacqueline Maduneme

4 Elements of a Post-COVID-19 Crisis Operating Model for Financial Institutions

The adverse human and economic impact of COVID-19 on businesses has been significant. While the financial services industry has successfully navigated the immediate pressures of the pandemic, this rapidly evolving situation exposed existing operational weaknesses and just how unprepared we were to respond. 

As the immediate threat of the pandemic slowly eases, rather than returning to business as usual, banks should make an effort to refine core operational strategies. COVID-19 is not a one-off challenge. While it is difficult to predict what will happen next, it is safe to assume we should expect additional waves of this epidemic in the near term.

Unlike natural or technical disasters, malicious acts, or terrorist events, the impact of a pandemic is much more difficult to determine because of the difference in scale and duration. The key goal in managing any dynamic and unpredictable challenge is resilience – the ability to survive and thrive through unpredictable, changing, and potentially unfavorable events.

Looking ahead, there are four key areas of focus that banks must grasp to continue to help their customers rebuild their financial security while improving their own efficiency and resilience.

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Business Continuity Plans

The COVID-19 pandemic has brought fast-moving and unexpected variables, some of which existing incident management plans and teams were not prepared to handle. As banks stabilize and shift focus on how to bring people back to work, they should look to insights gleaned from current crisis response efforts and identify areas for real-time corrections.

Business continuity plans should address the impact of COVID-19 on the continued delivery of critical financial services while protecting growth and profitability. The strategy should be documented and scaled to the stages (or phases) of the outbreak, such as the 6 intervals described by the Center for Disease Control and Prevention (CDC).  The pandemic issues considered in the impact analysis should involve actions such as scenario planning, forecasting employee absenteeism, more frequent financial modelling exercises to improve resiliency, and new models that incorporate economic impacts of past pandemics.

Digital Transformation

The closure of branches and offices following the COVID-19 crisis forced a shift to digital services, from account opening to mortgage applications. Processes demanding physical signatures now allow digital signing. It is likely there will be reduced customer demand for physical channels going forward. The question is, how do we keep customers on digital platforms while delivering personalized experiences through digital channels?

To drive adoption and sustainability, banks must consider customer experience, digital access, and digital literacy. Digital access and literacy will be particularly important for vulnerable customers, those without digital access, and those that lack digital literacy. This will be an area which will face regulatory scrutiny.

Turning to internal banking operations, the response to COVID-19 has put enormous pressure on bank’s operating models, as many have extended their credit lines and continue to distribute various government stimulus packages to customers. Additionally, many banking employees worked from home during the lockdown (and continue to work from home), with technology sustaining critical business activities from trading to financial advisory services.

This real-live stress test has identified gaps in the IT infrastructure, particularly with processes that are manually intensive. This offers banking leadership an opportunity to challenge themselves and ask how they can achieve higher process automation across the bank. As the immediate crisis fades, banks should not revert to business as usual, but prioritize investment on end-to-end digitization and modernization to automate key processes, creating efficiency gains and strengthening resilience.

As new ways of working with colleagues and interacting with customers become embedded, redesigning the control environment will be a key component of the post-crisis operating model. Banks will also have an opportunity to embed preventative, automated controls as they modernize and automate processes.

Credit Risk and Liquidity Management

During this period of economic uncertainty, managing cash and liquidity positions are crucial. Financial firms filled (and continues to fill) an enormous credit gap during this pandemic through granting forbearance and greater access to loan facilities to customers. Banks also played a crucial role in distributing various government stimulus packages.

Banks are now experiencing a growing tension between supporting their customers and increased concerns about the rise in non-performing loans (NPL), which will lead to a weak capital position. Banks worldwide have taken a hit from COVID-19-linked loan impairment charges. According to BBC News, July 14, 2020, three major US banks recently reported that they put aside a total of $28bn in loan loss provisions in Q2 2020 amid concerns about customers defaulting on loans due to the pandemic.

To allow for more efficient risk management, banks should rethink their credit risk policies, credit risk models, risk tolerance levels, and key risk indicators across their lending portfolios. Risk management considerations should be reflective of economic changes, and greater attention should be afforded to more challenged customer segments.

Banks should also model worst-case scenarios to assess the impact on cash positions and revise often, identify the financial and operational sources that can be tapped to conserve and generate cash, and understand and plan for the regulatory and financial reporting considerations that will result from COVID-19.


Remote working has shown there are ways of operating and this will have permanent implications for how employees think about their work no matter what industry they are in. And, notwithstanding new areas of operational risk, remote working has been surprisingly effective in the financial services industry. Banking leaders must take this opportunity to reassess how their people can perform successfully beyond this period of uncertainty because the banking workforce will not fully come back to the same situation as pre-pandemic. 

In assessing the potential return to the office, banks should evaluate what is critical, what is possible, and what is safe. To optimize remote working for the long-term, banks should identify and evaluate emerging issues around productivity and risk and consider how to maintain and drive sustainability. While challenges such as extending cyber-security measures and controls to employee’s working from home home may be overcome, there are concerns around potential breakdown in risk culture, on-the-job training, monitoring and governance, performance management, and risk management over time. It is unclear whether instant messaging and video conferencing will be sufficient substitutes.

Third-Party Service Providers

Relationships with third party service providers should also be an area of focus. The disruption of the pandemic exposed the degree of third-party risk that many banks have, especially around business process outsourcing arrangements in low cost locations. Looking ahead, banks can begin to mitigate their third-party risk, especially with respect to concentration risk, by identifying alternative third-party relationship scenarios, especially as new cases of the virus emerge in different territories.

In seeking diversification, banks should balance cost, service, and resilience. Third-party risk management is an area which will continue to face regulatory scrutiny.

The pandemic has impacted every industry, economy, and society untouched. These effects will have a permanent mark on how financial services evolve beyond the crisis. We must brace ourselves for continued turbulence and uncertainty. But the opportunity to improve how we serve customers, while improving our own resilience and efficiency is an opportunity we must grasp.

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Published by Jacqueline Maduneme September 10, 2020