The maxim “the unexamined life is not worth living” in its literary understanding can be considered as one of the wise-sayings which guide the life of man. We can also relate this expression of wisdom to the lives of businesses. As we are in a new year, every business owner would have reviewed their performance for the previous year and made new plans. Banks and other financial institutions are no exception; each of them has their plans and strategies in place, with a budget to support them.
Indeed, the outcomes of their plans will reflect in the financial statements at the end of the year. It also an established practice for banks to publish their financials in each quarter of the year as required by the regulator. As a result, the Board, management and staff of various banks play their defined roles to produce the expected results which have been set out in the strategic plans.
One of the major issues in the scheme of the plans that keeps every employee in check is the expected targets. These targets relate to the total sum of all that a bank expects its employees to achieve at the end of the year in terms of financial figures. To help set a new target, the board and the management review their performance (results of the previous year(s) and that informs them of the plans and strategies for the new year.
It is very important to note that target-setting does not take place in a vacuum; the business environment’s outlook within the framework of economic indicators and the trends of performance for other players in the industry also serve as a benchmark. On the other side of the plans to help navigate the path to the targets is the required amount of resources to be deployed. In that respect, banks invest in systems to improve their processes which help them to realise these goals. Similarly, regular training and development of staff has always been in the plans because they (staff) are the main drivers of the processes toward achieving the financial results. These results, as a matter of fact, have always centred around the core activity of banking. I would name such principal activity as movement of the two hands.
Movement of the two hands
In this movement, one of the hands takes deposits from the public ((individuals, the private sector and government institutions) through liability products which include current accounts, savings accounts, fixed and term deposits. The other hand turns these deposits into loan (assets) products and sells them to other people – including business entities who need them for different purposes – to make its income. Unlike those days when customers themselves largely went to the banks to make deposits, competition in the sector due to the increasing number of banks and non-bank financial institutions has changed the dynamics.
Today’s banker is required to be at the beck and call of the customer. In this regard, the militant word ‘aggression’ – better said ‘aggressive’ – has found its way into the deposit mobilisation strategies which use channels within the promotional mix (personal selling, sales promotion, advertising and public relations).
In recent times, tapping into floats generated by Telcos from mobile money has become a touchpoint for more deposits. I submit that the main reason for all these efforts is to generate enough liquidity to stimulate the lending cycle, which by itself requires efficient management of the relationship between the two hands. In brief, the overall strategy of a bank and others alike is geared toward maintaining a healthy financial performance at the end of each business year, hence giving value to shareholders.
Interestingly, it is the performance of employees which helps to achieve this expectation within the framework of assets and liabilities. Owing to the singular importance that is attached to it, every bank is required to have an ALCO (Assets & Liabilities Committee) for strategic directions. That is all well and good, but nonetheless the catch-phrase in banking circles today is ‘stretch’ targets. This is being used to describe goals in terms of the number of deposits (liabilities) and loans (assets) products among other variables which employees are tasked to sell within a period.
These targets are supposed to be realistic and achievable, and therefore require significant effort to reach them. But how much of a ‘stretch’ will motivate employees to give their best without causing them to become overwhelmed or demoralised has always been the challenge. In truth, the expected figures become a push factor which leads employees into a trap. The trap is in their conscious minds, which pushes them to adopt any means to achieve the ‘stretched’ and unrealistic targets.
Let us consider credit administration as a case in point. In the past, gathering information on loan applicants to decide whether to approve their loans or otherwise was difficult. In fact, inability to establish comprehensive credit history reports on them accounted for multiple loans in their names leading to high non-performing loans in the banking system. Fortunately, in today’s credit administration process, the use of credit reference bureaux has become handy to complement the efforts. One would expect that credit referencing in addition to other analytical tools should help make sound credit decisions aimed at controlling non-performing loans.
Surprisingly, non-performing loans are still increasing and were 21.6% in the last quarter of 2017 as compared to 17.3% at the same period in 2016. The crux of the matter is that the human person who is under pressure to meet such ‘stretched’ targets to secure his job deliberately overlooks the warning signs in the credit propositions and approves those loans for short-term personal benefits.
When you have high non-performing loans in your books, these may not necessarily be due to a difficult business environments or weak monitoring strategies, the inherent trigger in my point of view is that animal called ‘targets’ in the trap, with stretched and unrealistic marks on its neck, which you must feed. The eventual loss of focus in pursuit of targets is that there is gradual shift from healthy credit quality considerations to weak credit quantities which lead to toxic loan books.
At the liability side, this is not the time to open a can of worms when it comes to money laundering. The stark reality is that in a saturated competitive space, every pesewa counts on its way into the vaults – with little or no attention to where it is coming from. In that vein, the inability of some employees to uphold high ethical values in their mobilisation drive to achieve their targets tends to open them up to the vulnerabilities of money laundering.
What is more, we cannot doubt the existence of bank accounts with comprised Know Your Customer (KYC) checks. Really, there are instances when sales personnel and other staff resort to opening phoney accounts in a bid to achieve their targets. Even though we may have been aware of such occurrences in the Ghanaian banking scene but not heard them being reported from officialdom, the case of Wells Fargo Bank in the US is worth citing.
This bank had an internal goal of selling at least eight financial products per a customer in what it dubbed the ‘Gr-eight initiative’. In what turned out to be an albatross scandal around its neck, the bank then admitted that the unrealistic sales targets set its employees was the presser which encouraged them to open fake bank accounts – in addition to cross-selling electronic banking products to customers without their consent. It was revealed that some employees succeeded in using wrong means to hit their sales targets and received bonuses. Consequently, the bank – which has been in existence since 1852 – saw its reputation severely damaged. It paid a heavy fine of US$185million to the federal regulators in 2016.
While I strongly acknowledge the fact that performance targets help employees to keep their eyes on the ball and inspires them to work harder for promotion and other rewards, there are instances when it is misapplied. It turned out to be an irrational and inhumane mechanism for some of the companies to control high wage bills. This trap – I would like to state without any ifs and buts – is that those financial institutions in their desire to increase their profitability within cost limits, resort to unrealistic targets for their employees; so that when they are unable to achieve them, they find their exit routes without any compensation.
Would you be surprised to hear that a young banker was frolicking on his own, when in fact he was driving from Accra to the far end of the countryside to close a deal for the targets? One of the pointers that establishes the unhealthy culture of performance targets is the persistent year-on-year high staff turnover ratios in those companies.
This discussion would be incomplete without considering other aspects of our banking activities which aim at improving workflow towards the targets. Gone are the days where every transaction in the banking hall was manual. Even so, I saw banking officers close early enough and go back home. It was envisaged that the advent of computers and other digital applications would help reduce the number of man-hours spent on laborious tasks to make the banking profession more exciting. This is far from the reality in present times. Bankers spend more hours at the office to meet deadlines clouded in targets. The rising medical bills and cautions from doctors to bankers about stress-related ailments explains it all. Are we expecting to bite off more than we can chew without feeling it? You can answer this better.
Thank You! Thank You for the time. God Bless!
The writer is a Chartered Banker