This article is an updated version of theBankDoctor’s final newsletter of 2019. Read the original full version here: 2020 looms.

Neil Slonim has spent 30 years holding senior leadership positions in Business Banking, Corporate Banking and Credit within the National Australia Bank group.

After leaving the banking sector in 2008, Neil formed Slonim Consulting Pty Ltd — a banking advisory and advocacy practice which performs the role of “the banker in your corner” for medium-sized corporates.

It certainly has been a challenging year for the banks, probably even more so than most of us anticipated. Following Westpac’s recently revealed breaches of anti-money laundering law, its shareholders voted for a second time against the remuneration report but then overwhelmingly voted against a spill of the entire board.

Notwithstanding the anger with their directors, they seem to have thought agaead and asked themselves some pretty incisive questions like

• Do suitable cleanskin alternatives actually exist?

• Even if they did, who in their right mind would take on such roles?

• Would the bank actually be better off with an entirely new board?

It would be interesting to see how shareholders of ANZ and NAB vote at their AGMs in the coming week. Both of these banks are also staring down a second strike but their shareholders too are unlikely to go to the next step and vote for a spill.

The banks are struggling under a relentless double barrelled onslaught from a baying media constantly seeking to identify and expose the next episode of bank misconduct and politicians who, perhaps to their own surprise, have finally hit upon a profession which is even less trusted than themselves.

WHAT WILL 2020 BRING?

It would be unwise to suggest that it can’t get any worse for the banks. One thing we’ve come to learn is that if one bank has a problem, there’s a fair chance the others will have similar problems. Warren Buffett's cockroach analogy rings true:

Banks will continue to proclaim with some justification that “compliance is killing us” but there will be no let up until such time as they demonstrate they have learned the lessons of the past.

They will continue the process of simplification which implies more divestments. Impetus for this will come from within the banks as well as external influence from markets, government and regulators. Shedding of staff will continue although the reliance on consultants will be unabated.

Investment in technology will increase and we are likely to see more partnering with innovators who leverage technology to improve customer outcomes and compliance. Offshoots like NAB Labs and Westpac’s Reinventure will play an increasingly significant role in strategy and development.

The banks will remain the whipping boy for the politicians on all sides because there are votes in it. Scott Morrison wants to be seen as hard on both rogue banks and rogue unions and recently warned bankers that “crooked bankers will face tougher sanctions than union thugs”.

At a more meaningful policy level there needs to be further discussion about the dismantling of the four pillars policy, not to allow mergers amongst the banks but rather to encourage a change in direction of one or more of them.

The removal of the government guarantee on deposits held with ADI’s is something which should be considered along with a clear commitment to the principle that the banks are not “too big to fail”.

It has taken some years, but finally it seems that politicians and bureaucrats have come to the realisation that the best way to increase competition is not by trying to get the banks to change but by making it easier for new competitors to take them on. There is now more happening on this front but even more can be done.

The banks shouldn’t be written off just yet, they still have much going for them including a massive customer base and big and reasonably strong balance sheets. But time is no longer on their side as incumbency and inertia are finite advantages. One way or another, 2020 could herald the beginning of the dismantling of this long standing homogeneous oligopoly.

Neil Slonim

theBankDoctor

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