Tuesday, February 27, 2024
CommentaryHR: as a prerequisite to turn banking liberalization into opportunity

HR: as a prerequisite to turn banking liberalization into opportunity

The Ethiopian government is attempting to lay the foundation for sustained economic development through reforms, which include the recent introduction of the stock market and the liberalization of the telecom and financial sectors. These are notable accomplishments, even though there is still some way to go.

However, it would be a figment of imagination without the involvement of people with good character and dexterity and modern human capital practices. It is a challenge that needs immediate intervention.

The recent resolution of foreign investments in the banking industry was the subject of a longstanding argument. The opposing arguments for sector liberalization were understandable until recently, when they were sidestepped.

Along with the long-term benefits to the nation, the impact of the liberalization of the financial sector on local companies, especially financial institutions, is tremendous. If foreign banks choose to enter and begin operations in the future, domestic banks’ efficiency will undoubtedly increase due to the upcoming stiff competition. Similarly, foreign banks may have a negative impact on the performance of domestic banks, potentially leading to a crisis in the sector.

By all measures, the financial sector liberalization endeavor may have a positive impact on the efficiency of the banking sector in the host market. This is because domestic banks are forced to compete with foreign banks, through which skills and technology levels will also improve. In addition to the technology and knowledge transfer, it will also create job opportunities for many Ethiopians and may improve bank supervision through regulatory spillover. Of course, life will not be easy for local banks that are seeking to maintain the status quo and hope for any possible government U-turn.

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Challenges of financial sector liberalization

Though crucial to the prosperity of the nation, the implementation of financial sector liberalization will certainly be impacted by the insufficiency of a skilled workforce and the lack of modern human capital management practices in the sector. The current practice of most local banks in Ethiopia is traditional and does not meet contemporary business needs, which seems like an afterthought given how important human capital is to their success and growth.

Human Resources (HR) today is entirely different from what it was years ago. In the past few years, the roles of the HR department have often been viewed in terms of transitions from operational to strategic, from qualitative to quantitative, from policing to partnering, from administrative to consultative, from functionally oriented to business oriented, from short-term to long-term, from internally focused to externally and customer-focused, from reactive to proactive, and from activity-focused to solutions-focused.

According to a human capital trend report published by Deloitte for Ethiopia a few years ago, Ethiopian human capital practices are in some ways reversed from global human capital practices. Most of the financial institutions in Ethiopia were included in the study. Less attention is given to the current human capital trends in Ethiopia: organizational design, technology, leadership, culture, engagement, and learning.

Globally, organizations are changing their structures from top-down hierarchies to a network of teams that deliver faster results. Engagement is shifting to a constant employee listening process. Learning and development programs are shifting from an internally focused, corporate-centric learning universe to a learner-centric approach.

Still, in most of the local banks in Ethiopia, the HR department is in charge of hiring and firing, ensuring that people are following regulations and policies and getting paid, and managing paperwork, which can be described in three dreaded words: transaction, administration, and control, as referred to by Enrique Rubio, the founder of Hacking HR. Such was the role that HR held for too long in other countries, too.

If the entry of foreign banks becomes evident at this critical point in time, local banks will not be able to withstand the pressure that may come from the competitive strength of incoming foreign banks. Therefore, it will be difficult for the governing body to reap the socioeconomic benefits of the sector.

Unlike the bold decision to liberalize, skilled labor and modern human capital management practices will have a greater impact on the reform.

This, however, can be possible for banks as long as they wisely use the grace period given to them by the government to strengthen their financial capacity, upgrade their technology, and improve their existing human capital management practices.

What is missing from local banks’ current practices?

An organization with excellent human capital management strategies performs significantly better in terms of customer satisfaction, retention, and revenues. Such experiences are a power source for the banks to realize the need to change their traditional human capital management strategies. Based on a recent research study by the RBL Group, HR’s work contributes to as much as 25 percent of an organization’s results, primarily through the HR function’s activities and how they build business capabilities.

Modern human capital strategies depend on their ability to smoothly integrate four core elements: putting people first, aligning their operations with the business purpose and goals, becoming more agile, and leveraging technology, according to Rubio. But most domestic banks have shortfalls in putting people first, aligning their human capital operations with the business purpose and goals, and leveraging technology.

The facts on the ground show that most banks in Ethiopia do not have a separate or dedicated human capital management practice like their finance and marketing departments.

The strategic role of HR has been downplayed in the financial sector for too long. Most of the banks are overwhelmed by outdated HR systems and practices. Most Ethiopian banks do not have a human capital strategy at their disposal. Their function is not organized to support business but rather to drive traditional human capital processes that are unfit to face the financial market of the future.

The other gap is the underdevelopment of human capital in the sector. So far, no independent body is in place to accredit financial professionals in the sector. Some banks do not conduct real training for their experts and do not have a learning and development plan in place. It is not difficult to find experts in the financial sector without attending a single training course for a couple of years.

Succession planning has no place in most banks, and for this reason, talent migration and poaching have become common practices in the sector. The majority always seek to hire experts from their competitors instead of developing staff from within.

Banks have, in most cases, shown a tendency to not sponsor an all-inclusive culture. Political inspirations and ethnic and religious affiliations are reflected by several banks. Such kinds of business relationships in the local financial market are not conducive for domestic banks to compete with foreign banks.

Employee development programs, proper workforce planning and talent management mechanisms, employee engagement schemes, or reward and recognition programs enhance individual and organizational success. There aren’t many performance management systems that have specific, measurable, attainable, reasonable, and time-bound goals. Instead, there are often reviews that are based on subjective criteria.

What should be done in the interim to mitigate the impact?

The creation of a dependable, motivated, inspired, and productive service staff can significantly strengthen the financial sector’s priceless, multifaceted contribution to the socioeconomic development of the nation.

Local banks should first recognize that the role of HR has changed a lot, which requires them to redefine its agenda and purpose, upgrade their analytics, leverage technology, and build their competencies.

With the liberalization of the financial sector and the entry of foreign banks, business leaders in the financial sector should realize that HR is an important part of their success that goes beyond “transaction, administration, and control.”

Just like all other aspects of the business, if local banks are planning on how to improve their human capital practices, they need to audit and measure their HR department deliverables. The department should be clear about the bank’s business growth strategies, how it can help those strategies succeed, and what the business priorities are and how it can help these priorities.

Local banks should not forget that they are constantly changing. Accordingly, their HR department’s transformation must be ongoing as well. They also should underline that their people are most likely their greatest asset. It is HR that can deliver the human capabilities and leadership that will impact all other departments organization-wide and influence the impact on external stakeholders.

Banks should work hard to raise the skills, knowledge, and attitude of their employees to the extent necessary to prove superior performance. Though training alone is not a solution, the banks should allot a significant percentage of their budget. In addition to the technologies they use, foreign banks will undoubtedly use a modern human capital management approach in dealing with employee issues.

Most domestic banks seem to lack a culture that is all-inclusive and capable of guiding individual and organizational behavior in the right direction. In reality, the organization of some banks is a bit strange and has a structural resemblance labeled with ethnic signage.

Organizational culture matters a lot for the performance of any organization, including financial institutions. Local banks should start working on their organizational culture, incorporating well-built, supportive values to help shape a better business strategy. Unless employees are able to live within the acceptable values of a particular bank, they cannot deliver the business strategy or achieve what is promised to customers and shareholders.

The practice of poaching for talent is actively occurring in financial institutions. The primary reason for this is a regulatory requirement that individuals with significant influence in a bank only be hired from financial institutions.

When foreign banks begin operations in Ethiopia, it is obvious that they will seek talent from existing local banks. Thus, they should get ready on how to manage their experts’ exodus during the transition, implement succession plans, and introduce programs such as fresh graduate and management development programs, which will help them mitigate the case.

The focus for local banks should be on the future of work and making use of technology, in addition to developing the skills and capabilities of staff to raise productivity. Up-skilling and re-skilling are highly valuable both for the organization and the staff.

The financial institutions, just like many other businesses in the country, are reluctant to recognize and reward employees in a fair and neutral manner for going above and beyond the call of duty and living the bank’s values. It is compelling to conduct employee engagement surveys regularly and take the necessary action to enable their business to reach the next level. This would be an essential practice in this turbulent time and in the future.

So far, local banks have been extensively paying high salaries and granting loans to bankers, which will become insufficient to boost the morale of employees now and in the future. Local banks need to introduce a total reward package that includes staff wellbeing, benefits, professional development, a vibrant working environment, work-life balance, and performance recognition in order to retain their talent. That will help local banks have an engaged and productive workforce and attract new talent.

Local banks should not forget that employee sentiment (attitude, perception, response to, and so forth) about work continues to evolve, with emerging thinking about the employee experience that deals with emotional wellbeing and mental health tied to being safe, believing, becoming, and belonging, according to the RBL Group’s recent study. They need to have a workable performance management system in place that integrates individual and team performance with the bank’s strategic plan.

On the part of the government, it must propagate the critical role of skilled manpower for national development, mainly concerning matters like the liberalization of the financial sector.

In the future, Ethiopia’s financial market may be dominated by a large number of foreign banks that have strong financial capabilities, improved banking technology, and great customer service, all of which can attract talented people.

The government should also provide more support for financial institutions in every possible way, such as by allowing a joint venture with incoming foreign banks instead of granting permission to operate alone and control the financial market. It should also take precautions when admitting foreign banks without fully enhancing the human capital management strategy and make sure local banks are ready to compete with the new banks.

During the transition, the regulator should let local banks hire expats with more relevant experience and training. This would allow them to review their strategic plans and practices along with the new resolution, which they can’t do under the current directives.

Given the scarcity of senior executives, requirement that persons with significant influence in a bank be hired only from financial institutions, need to be reconsidered. This will allow local banks to hire senior executives from other sectors with new perspectives.

The regulator should elevate the quality and increase the size of its staff to enforce regulations aligned with macroeconomic goals.

(Senay Lemma is a human capital manager for an international business company. He can be reached at [email protected].)

Contributed by Senay Lemma

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Video from Enat Bank Youtube Channel.

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