Applying \\\'knowledge management\\\' in banks for buoyancy

The recent large-scale financial scams in banks and financial institutions in Asian countries including Bangladesh, in Africa, the European Union and the United States and the ethical scandals from Enron to WorldCom, have brought to the fore once again the need for knowledge management (KM) in banking industries.
Globalisation of industries and financial markets has forced bankers around the world to be knowledge-based. Now they run the banking operations efficiently and effectively by applying knowledge management. Mergers, acquisitions, competition among banks and financial institutions, technical and cost-efficient innovation have made the banking industries rethink about business strategies. They have to create new revenue streams, enhance operational efficiency, enter new market domains-nationally and internationally-- gain market share, increase profitability by reducing operational costs and establish better customer relations.  KM can play a crucial role in achieving the objectives of banking industries.
In the past, knowledge was created and transcribed in textual records. Hardcopy books, newspapers and notes were some of the major channels which provided knowledge. In the present knowledge explosion era, the World Wide Web provides another new channel which even disseminates news, knowledge, data and information in a faster and quicker way. While banks of old era were engaged mainly in business, modern banks also sell knowledge.
Banks with the most updated information will successfully retain their competitive edge. Evidence in the UK Treasury Select Committee in 2009 revealed that much of the available knowledge on markets and risks was ignored in the failing banks during the 2001-2007 periods. The board of directors and top management in the failing banks emphasised too much on growth-based incentives and pay schemes, sales and trading culture, leading to emergence of very risky organisations. These banks did not have sufficient knowledge about intermediation and risk at the level of employees, middle management, top management and the board was deficient. All these contributed to the failure of the intermediation activities. They did not understand how retail, wholesale and investment forms of banks worked together or created new risks for each other in a bank. They did not understand that the high level of risks in wholesale and investment banks threaten equity capital shared with retail banks. The bank's board of directors and top management in failing banks prioritised their general knowledge of business strategy over knowledge of risk, intermediation, organisation and special function in banking. They exclusively pursued growth, profits and bonuses and they recklessly paid at best lip-service to prior knowledge of risk management.
MISPLACED EMPHASIS: Similar problems of misplaced emphasis on idealised theories of markets and mathematical knowledge were to be observed at middle management and operational levels during valuation processes, bank lending, market trading and so forth. This was also failure of top banks, which was a case of knowledge and learning failure.
KM is used to describe creation of knowledge repositories, improvement of knowledge access and sharing as well as communication through collaboration, enhancing knowledge environment and managing knowledge as a valuable asset for an organisation. It is a wide and comprehensive paradigm, successfully implemented in banks, industries and services in the present century.  It has been introduced as the most important catalyst for an organisation and it is generally known as a collection, discipline of identification, organisation, storage, sharing and application of knowledge.
In the present stiff-competitive business environment, the factors that lead to success of enterprises, especially the banking industries, are no longer dependent simply on investment of capital and manpower, but in the ability to apply KM in the organisation. Researches, analyses and data show that the developed countries are more advanced in application of KM than developing countries around the world. It has gained wide application in banking industries.
The World Bank is renowned as one of the pioneers and champions of KM application within the organisation and its various projects scattered around the globe. It has an extensive KM approach in action. Relevant know-how was identified as a tool that could be captured and entered into the knowledge-base of the bank so that it is accessible to all staff of the bank, its clients, partners and stakeholders around the world.
Swedish Insurance giant Skandia is a bright example. It expanded its 'points of sale' from 5,000 to 50,000 in less than five years through effective and efficient transfer of knowledge and increase in its uses throughout its global operations.
The Asian Development Bank (ADB) has made 'knowledge solutions' as an integral part of its long-term mission. From its Long-term Strategic Framework, 2000-2015, which marked the ADB's initial transition from a learning organisation to one of the knowledge action plan, the bank has striven to use its plethora of knowledge tools, techniques and approaches to drive change and development in the region.
The Bank of Montreal (BMO) is the oldest bank in Canada. It wanted to change the status quo of the traditional knowledge discovery lifecycle and capture the potential benefits of improving the efficiency of using models in production. As a result, the BOM participated in a multimillion dollar project that would help make the knowledge discovery process more economic, error-free and faster.
The Deutsche Bank is the biggest Euro zone bank and the world's second largest, which has embraced the strategies of continuous, concentrated corporate learning and intellectual capital branding through its the Deutsche Bank University (DBU). The DBU is in the initial stage of development and to a large degree, it follows thinking, ideas and innovation that are recognised by industry experts as best practices in developing a corporate university as an umbrella organisation for learning KM.
Banking industries in the developing countries have been suffering staggeringly from operational inefficiencies. These resulted in continuous operational losses, lack of good customer relationship, failure in recovery of loans from customers, loan-scandals, corruption, etc. The main reason is that the banking industries could not implement and enforce KM in their organisations.
THE BANGLADESH SCENARIO: In the context of Bangladesh, banking industries in private sector (PCB) have been doing good business in terms of operation, turnover, profitability, customer relationship and business development in comparison to state- owned banks (SCB). This is due to the application of knowledge management in banking industries.
Banking industries in any country play a crucial role in the economy by accumulating savings of general and business people and investing the same in the fields of production, businesses and services. They go for investment that creates employment opportunities and directly lead to sustainable economic development.
Running banking industries is not an easy job. It needs expertise, professionalism, adequate knowledge and application, use of latest Information Communicative Technology (ICT), advanced software, use of business intelligence, strategic planning and decision making.
PCB VERSUS SCB: The PCBs in Bangladesh have started applying KM and are getting its advantages and benefits. The SCBs, on the contrary, are far behind in applying KM and have failed to cope with the PCBs in terms of profitability, operation, business development and customer relations. Banking industries are business organisations and should be run prudently from commercial points of view without any political influence.
Application of KM can improve banks' performance, marketing, risk management, talent management, customer segmentation, fraud detection and prevention, budget planning and so on. Usually in major banking industries, investment in KM systems such as decision support systems, data warehouses and data mining are rapidly growing.
LOAN SCANDALS: The large-scale loan scandals in SCBs and low-scale loan scandals in PCBs could have been reduced to tolerable limit by application of KM. KM gives more responsibilities to the management of the banking industries. The management of one of the SCBs in Bangladesh was found to be resorting to fraud and corrupt practices resulting in huge classified loans, as we noticed from the media. "The state-owned BASIC Bank, under fire over financial irregularities, has an unrecoverable amount of debts that have increased nearly 30 times over the past four and a half years", said one report. Surprisingly, no action against the responsible directors/managers was taken except dissolution of the board or termination of jobs of some senior managers of the bank. Proper application of knowledge management could have saved the SCB from the colossal loss from bad debts.
ROLE OF ICT: The ICT is one of important components of KM. In banking industries, it plays significant roles in ATMs, e-banking, net banking, mobile and tele-banking, uses of computers, software, call centres, electronic clearing services, electronic fund transfer, centralised fund management systems, negotiated dealing system, debit cards, credit cards and many more. Bangladesh as a country is much behind in application of ICT in businesses and services.
Similarly, banking industries, especially the SCBs, do not have adequate ICT facilities to meet the customers' needs. Many branches of SCBs and PCBs do not have ICT facilities and the customers are deprived of online banking services. Some PCBs have online banking facilities but these are not comprehensive enough to meet the needs of the modern competitive world.
In the developed economies, people can avail 24 hours' banking services sitting in offices and at home. There is no need to go to bank branches off and on and be in the queue, thus saving valuable time and energy of the customers of the banks.
The fast-moving banking industries in developing countries can't afford to sit behind the fast-track knowledge-based banking industries of the developed world. It is the right time for Bangladesh to implement and use KM in all areas of operation and get its multifarious advantages and benefits. Managing knowledge and risks are the order of the day for banks and financial institutions.
The central bank of the country, being the 'banker' to the banks, may play an important role in implementing KM in private and state-owned banks by making appropriate rules, regulations and practices. It can save the banks from an imminent catastrophe. The KM can help save the banking industries from the hands of corrupt, fraudulent and inefficient management.
The writer is the Group Financial Controller of a
private group of industries.
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