Corporate finance today is roiled by an unexpected convergence of epic events:
As we near the end of LIBOR, which underpins trillions in bank-to-bank borrowing worldwide, banks must transition to other risk-free rates (RFRs). The sheer volume and value of outstanding contracts, as well as the need to modify existing systems and processes to accommodate new RFRs, portend a disruptive transition away from LIBOR.
Unlike LIBOR, there are no term rates for new RFRs which require lenders to modify existing systems/processes to accommodate new RFRs. RFRs bring new conventions/changes in accrual processes and rate fixing methods which are quite different from what is being used today.
The COVID-19 pandemic has further complicated the transition of LIBOR to alternative benchmarks and will impact migration timelines. Given the complex nature of changes and impact across different asset classes and instruments, banks must approach this change in strategic rather than a tactical way keeping the long-term implications in mind.
Meanwhile, corporates seek simplified relationships with their banking partners; end-to-end, real-time data; and digital capabilities. More than half of corporate banking clients say they're reviewing relationships with their main banks, according to the 2019 Global Treasurer's Banking Transaction Survey.
The majority of corporate banks grapple with similar problems. When banks expanded their corporate lending business to cover multiple segments and geographical areas in response to changing customer demand nearly three decades ago, each division/geography had its own set of requirements and procured a system to meet individual needs. The systems were specialized―with some catering to origination functions while others were adept at loan processing. This created a bottleneck between the front and back-office systems, taking months for loan processing and leaving limited visibility for the borrower and banker alike.
Banks are moving swiftly to correct this disparity―and an integrated front-to-back corporate lending system can help reduce processing time to days with enough processing and workflow flexibility for a variety of loans. This eliminates the need for specialized/regional systems and provides a single integrated view of loan book to the banker.
Besides, banks are navigating their crucial role in managing the emergency financial response to COVID-19, as well as a massive influx of credit decisions. They may report application volumes that are five to eight times greater than normal. Banks must protect their corporate lending books, and they must prepare to manage additional stimulus programs.
Digitization of banking is creating new avenues for growth—and banks are looking to modernize their corporate credit/corporate lending functions for higher growth, improved efficiency, and better customer service. But most of the digitization effort is on the origination side rather than improving internal banking functions/processing platform. While this has worked in the past, the competitive edge of banks is declining dramatically against a nimble digital competitor.
It's becoming increasingly clear that many banks' corporate lending platforms aren't up to the expected and unanticipated challenges of today's market and customer realities. New levels of digital transformation―encompassing automation, integration, and intelligence―can help banks transform their operations to respond to market needs and customer expectations. These areas of corporate lending are especially ripe for digital transformation:
To truly transform the corporate lending experience for bankers and corporates alike, today's financial institutions require a single digital platform to manage the entire corporate lending lifecycle―spanning origination, credit and servicing. A next-gen solution must include a high degree of automation and configurability to adapt to each firm and the client's unique needs. As necessary, it must deliver all the information relationship managers, credit analysts and underwriters need about their clients in a dashboard available on traditional and mobile devices. Also, transformative technologies play a growing role:
Digitization is creating new avenues for banks' growth, improving customer service, and creating efficiencies in bank operations. A new-generation lending platform enables standard processes across all loans, and it brings together all stakeholders on the same system, improving workflows and transparency—and enabling remote work during the COVID-19 pandemic. Digitization helps banks quickly roll out new products and enhancements for their corporate clients, strengthening relationships, while driving new levels of efficiency and risk management.
To learn more, feel free to message me to explore more, or have a conversation.
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