Why institutional resilience matters in banking

By Rarzack Olaegbe There is something unusual about the relationship people have with banks. Most businesses can change significantly without their customers giving it much thought. Banking is different. A change in ownership, leadership, strategy or even technology can quickly raise questions about what it means for customers and their money. Perhaps that is because banking depends so heavily on confidence. People put money in a bank today believing it will be there when they need it. Businesses enter into relationships that may run for years. Families sometimes remain with the same institution across generations. There is, therefore, an expectation that whatever changes around a bank, the institution itself should continue to work. This is where institutional resilience becomes important. Advertisement Resilience is sometimes confused with longevity: though similar but not the same. A bank may have been around for several decades, but age alone says little about its ability to deal with today's realities. The more useful question is what the institution has been able to do with those years. Has it adapted? Has it remained relevant? Can it withstand difficult periods without losing sight of its responsibilities to customers? Those questions are particularly relevant to Nigerian banking. The industry has been through almost everything imaginable over the past few decades: failed banks, consolidation, recapitalisation, mergers and acquisitions, recessions, currency volatility, regulatory changes and, more recently, the rapid rise of fintechs and digital banking. The way Nigerians bank today bears little resemblance to the experience of even 20 years ago. Some familiar banking names did not make that journey. Others became part of larger institutions. A number reinvented themselves completely. And there are those that have managed, in one form or another, to keep going. What separates them? Advertisement There is no single answer, but strong institutions tend to have something in common: they are ultimately bigger than the people who run them. Managing directors leave. Boards change. Shareholders change. Strategies are revised. None of these should mean that the basic obligations of a bank change with them. Customers still expect to make transfers, access their deposits, receive credit, resolve complaints and go about their business. This is one reason governance matters so much in banking. It is easy to reduce governance to board meetings, policies and regulatory requirements, when its real value is more practical. Good governance helps create the structures through which an institution continues to function regardless of who happens to occupy a particular office at a particular time. The same applies to risk management. Its value is rarely appreciated when everything is going well. It becomes much clearer when economic conditions change, technology fails, fraud evolves or an institution has to navigate an unexpected challenge. Nigeria's older banks offer an interesting perspective on this. Union Bank and First Bank, for examples, have roots going back over a century. To remain in business for that long in Nigeria, the banks must have lived through several very different economies and several different banking industries. The banks have seen changes in government, regulation, ownership and leadership. They have experienced the era when banking largely meant queues and passbooks and the present one in which a customer can move millions of naira without entering a branch. That history is noteworthy, but history by itself cannot be the point. A customer trying to complete a transaction today is unlikely to be impressed by the fact that his or her bank was established more than 100 years ago if the transaction does not go through. Neither will a business choose a bank simply because its name has been around for generations. The older the institution, perhaps the greater the challenge: it must preserve whatever trust its history has earned while proving that it can function in the world its customers now inhabit. That world is increasingly digital, and it has changed what resilience looks like. A large branch network was once one of the most visible signs of a bank's strength. It still has value, but much of the infrastructure that keeps a modern bank resilient is now largely invisible to customers. Cybersecurity, payment systems, data protection, fraud controls and business-continuity arrangements may not feature prominently in everyday conversations about banks, but they have become central to whether customers can bank safely and reliably. Advertisement This is where something like the Union Bank's recent attainment of the Payment Card Industry Data Security Standard (PCI DSS) v4.0.1 certification becomes relevant. The standard relates to the protection of payment-card information and the environments in which such data is stored, processed or transmitted. On the surface, that is a technology or compliance story. Look at it differently, however, and it says something about resilience. An institution established in 1917 is having to meet security requirements created for risks that could hardly have been imagined for most of its history. And it will have to keep doing so because the risks will keep changing. This is perhaps the harder part of institutional resilience. It is not enough to recover from difficulty; institutions have to anticipate what may threaten their relevance next. For banks, that could be cybercrime today, a new form of competition tomorrow or another change in how customers want to manage their money. It also explains why trust in banking cannot be built entirely through communication. Banks can tell customers that they are strong, secure or dependable, but customers ultimately form their opinions from what they experience. Does the bank work when they need it? Can they get their money? Is their information protected? Does somebody respond when something goes wrong? Can the institution continue serving them through periods of change? Those seemingly ordinary questions are probably better measures of resilience than any corporate claim. There is another reason this matters. Banks occupy an unusual place in an economy. Their problems do not remain their problems for very long. Businesses depend on them for financing and payments. Employees depend on them for salaries. Families keep savings with them. Entire commercial relationships pass through their systems. An institution's ability to remain functional through change therefore has consequences well beyond its shareholders or management. None of this means longevity should be romanticised. Institutions can survive for years and still lose relevance. Heritage can become a burden if it creates resistance to change. And an established name is no protection against a customer moving elsewhere when another institution serves him better. For Union Bank, more than a century of continuity, alongside continued investment in modern banking standards, reflects an institution that has consistently adapted to change. Perhaps that is the truest measure of resilience: the ability not simply to endure, but to keep evolving. Olaegbe, a tech writer, sent this article from [email protected]