Corporate and Commercial Lending Industry- Trends to watch in 2021

Published on December 18, 2020 by Manisha Baid

The global banking sector is facing a formidable challenge in its efforts to continue servicing customers and maintain business resilience amid the COVID-19 pandemic. For many of our banking clients and the industry as a whole, the crisis was a catalyst for digital transformation and innovation in product and service offerings as well as for streamlined credit underwriting and monitoring. A large number of banks are adopting alternative channels or collaborating to remain resilient.

Uncertainty about how the post-crisis year will play out still looms, but the banking sector will continue its drive to modernise legacy systems, institutionalise the learnings and build an agile, resilient and future-ready business model. Below, we discuss some major trends we foresee next year.

Trend#1 – Continued revenue pressure and muted recovery

Banks’ profitability would remain low as we step into 2021 on a low-interest-rate environment, declining global GDP growth (c.4% decline estimated in 2020), higher loan loss provisioning (projected at USD1.9-2.3tn, above the 2008 crisis level) and digital infrastructure build costs. Recovery would hinge on the dynamic play of a myriad factors such as innovative revenue models, cost optimisation and risk management strategies.

Trend#2 – Fast-tracked transformation and shift to digital business model

The pandemic has created an urgency to change the traditional banking and lending business models and shift to a digital platform. Digital transformation has become the number one priority for most banks in order to face the challenges emanating from the COVID-19 crisis. A constantly volatile demand environment, rising customer expectations, complex regulatory requirements and rising operational cost of traditional banking would see banks’ making substantial progress in building digital infrastructure in 2021 and beyond.

Trend#3 – Intelligent automation and data analytics

Lenders globally will change their underwriting and monitoring practices to improve credit decisioning, emphasising on obligor- or borrower-level monitoring, stress testing and measuring operational flexibility. This will call for higher real-time data aggregation and analysis. Most banks are now focusing on using predictive analytics across the product life cycle to augment the efficiency of relationship managers and enrich customer experience. The latest developments in machine learning (ML) and artificial intelligence (AI) translate unstructured data into more meaningful insights, supplementing credit scoring. Automated credit scoring, widely practiced in retail banking, will gradually bring corporates under its ambit, especially when banks can integrate spreading and other information into their rating models to automate the process.

According to Gartner, by end-2024, 75% companies will shift from piloting to deploying AI-based technologies, enabling a 5x increase in streaming data and analytics infrastructure.

Trend#4 – Unlocking value through intelligent partnerships

Increasing revenue pressure has led to growing demand from front-office relationship managers. Stepping into 2021, we see strategic alliance with specialist firms with significant domain experience and automation platforms to help fast track transformation and implement the right mix of onshore-offshore work allocation in order to enhance front-office efficiency, pare costs and keep businesses scalable.

Trend#5 – Increasing competition from fintechs

New-age fintech players continue to capture the SME business with their shorter, faster and transparent approval process. The International Finance Corporation estimates 65m firms, or 40% of formal micro, small and medium-sized enterprises (MSMEs), in developing countries have an unmet financing need of USD5.2tn every year, equivalent to 1.4x current global MSME lending. We see a rising trend among banks to capture this large SME demand by adopting innovative digital lending platforms and improving customer experience.

Trend#6 – Blockchain adoption, but not on a large scale

Fintech players providing peer-to-peer blockchain lending are seen as future trendsetters in the sector. The traditional banking sector sees an urgent need to align with this competition. As per a Business Insider Intelligence survey, c.48% of banking representatives believe blockchain technology will have the biggest impact on banking in 2021 and thereafter. The use of home-grown blockchain technology by traditional institutions and sovereigns is also likely to ratchet up.

How Acuity can help you navigate the current crisis and build a future-ready operational model

Leveraging its two decades of experience delivering high-value research, analytics and technology solutions, Acuity Knowledge Partners (Acuity) has built a robust and sustainable ecosystem of people, process and technology.

Acuity has unmatched credentials as a strategic partner of corporate and commercial banks, supporting them across the full spectrum of lending functions. We understand the need for simpler, faster and cost-effective transformation, given an uncertain business environment and increasing revenue pressure. We offer the flexibility to choose from specific transformation projects to full-scale managed services. All our services are aided by in-house suite of business excellence and automation tools, which offer AI-/ML-integrated domain-specific contextual technology.

Our clients have benefited substantially achieving 30-35% faster loan processing, 2x more time on client differentiating activities, 40-50% cost savings and overall improved credit risk governance.

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