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While most banks in the Asian region have largely avoided the severe impacts of the credit crisis, this presents an opportunity to further consolidate positions and strengthen the foundation to leverage future growth.

Many bankers in the region are responding by boosting their capability to penetrate markets, improving customer service, expanding product offerings, upgrading technology, streamlining costs and investing in talent.

Having experienced the Asian crisis in the late 1990s and observing the shake-out in US and European markets, Asian bank leaders will still pay close attention to the response and actions taken to focus and further refine their strategies and business models.

This is also equally relevant for bank regulators, who will maintain the momentum generated from the initial application of Basel II standards (recommendations on banking laws and regulations to create an international standard for banking regulators), plus factor in further changes to the standards now being promulgated, particularly in the areas of asset quality, governance, risk, capital management, liquidity and stress testing.

The survival and future success of banks currently mired in the financial crisis will depend on the alignment of key fundamentals and this will differentiate the leading banking institutions from the second-tier players in the future. A clear strategy and vision will be essential for the banking industry but it must also get all the fundamentals right.

These banks need to act quickly to develop comprehensive plans, first to stabilise their businesses and then to move forward. Typical reactions from the banking industry to the current financial crisis have, understandably, been short-term in nature and, in many cases, driven by the need for survival. However, even for those banks that survive this downturn relatively unscathed, there is no guarantee that they will do well in the future.

The risk is that taking a short-term view can undermine the longer term-viability of the business. Banks are highly complicated structures and the temptation for a quick fix can divert them from doing "the right thing".

To ensure future success, banking strategy must get the fundamentals right: governance, risk and control; financial management; delivery; legal and physical structures; cost structures; and people and rewards.

Nothing less than a world-class approach will suffice and the ability to address all of these issues, in the correct order, and to ensure that responses are aligned, will be of critical importance to survival.

Effecting real change across an organisation requires skill and dexterity, taking strategy and driving it though, while at the same time managing current business risks.

It's possible to develop individual components, but putting them together in the right way and delivering sustainable change is the challenge that will set the winners apart from the rest.

The key fundamentals that banks must address include:

- Determining strategy: No organisation is starting with a blank sheet of paper, so management must clearly understand their starting point and ensure action is taken to address past strategic errors, such as the creation of toxic portfolios, or entry into market segments where no competitive advantage exists.

The future belongs to organisations that can identify their ability to add value to market segments where there are customers who are willing to pay for their products, and then have the courage to act on these insights to invest in some businesses and shrink others.

Putting in place basic mechanisms to communicate, execute and monitor progress against strategic goals will be fundamental to future success. The management of change may seem mundane in these times of crisis, but implementation will be a differentiator.

- Building the business model to deliver the strategy: The model will need to flow from the overarching strategy and be clear for each business so it can manage its underlying risk profile and particular funding requirements. Leaders need to act decisively and make the hard decisions on what to retain and grow, and what to shrink or dispose of.

The current crisis presents a real opportunity for banks to re-evaluate their business models. Once demand returns, focus will be on meeting customer needs, not on fixing the plumbing.

- Ensuring that the management of capital, risk, regulation and governance is nothing short of world-class: Capital is a scarce resource; the systems and processes that govern its deployment must be robust and effective.

This will require fundamental change at all levels. A clear understanding of the organisational and business risk appetite will need to be embedded throughout each business, followed closely by the measurement and accountability of the management structure.

The need to look forward and evaluate different scenarios must be part of business as usual. The next crisis will not necessarily look and feel the same as the last so all assumptions need to be understood, tested and continuously challenged.

- Having the right people, rewarding them fairly and being transparent about doing so: The key to success will then hinge on the ability of leaders at all levels to engage the organisation in the implementation and delivery of the new model based on risk-adjusted performance. This will require significant changes to metrics, governance, and compensation design. Clear leadership will be required to overcome the inevitable barriers to change.

Noel Ashpole is a partner and Cameron Evans is a director in Advisory services practice at PricewaterhouseCoopers Thailand. The content of this article is general in scope and is not intended to be comprehensive. It is not a substitute for investment advice.

Published on our website on Sept.30, 2009