Amid growing geopolitical instability, the global economy faces heightened volatility. Recent examples—such as the abrupt imposition and suspension of historic U.S. trade tariffs—underscore a new economic reality: uncertainty is now constant, not exceptional.
Optimism has faded. Recession concerns loom, especially in major economies like the United States. As a result, supply chains are being reevaluated, inflationary pressures are mounting, and international capital flows are becoming more restrained. Businesses across all sectors are adapting to a world where unpredictability is the norm.
Financial Institutions Under Pressure
Retail and business banks are particularly vulnerable. Core revenue streams—from lending to deposit management and asset portfolios—are being squeezed as risk, profit margins, and customer confidence become harder to control.
This article kicks off a four-part series focused on how financial institutions can build resilience in today’s uncertain climate. The current focus is on retail and SME banking, especially in navigating unstable lending environments and managing risk. Upcoming segments will examine:
- Wealth & Asset Management: Highly sensitive to market fluctuations.
- Deposit Management: Impacted by margin compression and balance sheet volatility.
- FinTech: Requires dynamic pricing and enhanced value propositions to stay competitive.
Scenario Planning: A Tool for Resilience
Rather than attempting to predict the future, banks should prepare for multiple possible outcomes. Scenario planning enables faster, smarter decisions when markets shift. The key differentiator in times of crisis is how quickly institutions recognize change and respond effectively.
A Five-Step Scenario Planning Framework:
- Explore Key Scenarios: Identify a few major drivers shaping the economic future—e.g., prolonged global trade tensions vs. temporary negotiation tactics—and develop broad but manageable scenario sets.
- Assess the Impacts: Determine how each scenario affects core metrics like economic activity, lending volume, and interest rates.
- Evaluate Response Options: Consider all strategic responses before prioritizing.
- Select Key Actions: Choose concrete, pre-approved steps to implement if specific scenarios materialize.
- Define Triggers: Establish clear indicators—such as central bank rate changes—that prompt execution of specific actions or pricing shifts.
Effective preparation reduces decision-making delays and limits reactive missteps.
Five “No-Regret” Actions for Banks
Regardless of what unfolds, Bespoke Business Development identifies five strategic moves banks should begin immediately:
1. Proactively Support Clients
Now is the time to reach out to both retail and business clients. Personalized, timely communication can ease fears and reinforce trust. Go beyond generic mass messaging—use internal data to craft segment-specific outreach and offer meaningful solutions, such as liquidity support, tailored trade financing, and cross-border risk advice.
2. Diversify Revenue Beyond Interest Margins
With interest rates potentially heading downward, banks must reduce dependency on interest income. Expand offerings in areas like investment services, insurance, and transaction banking. Also assess unprofitable relationships and correct pricing gaps through cross-selling or reevaluating discounts.
3. Evaluate Loan Portfolio Exposure to Trade Risk
Trade disruptions affect more than exporters. Slowing sectors can reduce employment, weaken consumer confidence, and threaten loan performance. Go beyond standard credit stress tests—quantify how exposure to tariffs, pricing sensitivity, market dynamics, and product substitutability affect client resilience. This enables more accurate risk assessments.
4. Adjust Risk Appetite and Align Pricing Strategy
Risk appetite changes must translate into proactive pricing models. Many banks lack systems to do this in real time. Start by building transparency into client-level profitability. Use these insights to simulate how evolving risk profiles and capital consumption affect returns—especially return on equity (ROE). Then adjust pricing to preserve margins and strategic targets.
5. Implement Advanced Pricing Tools and Governance
Having insights is not enough—banks need tools that bring pricing decisions into everyday operations. Leading platforms offer relationship managers dynamic pricing suggestions and allow leadership to simulate outcomes. But these tools must be embedded within governance structures that ensure proper usage and accountability, especially at the front line.
Turning Uncertainty into Competitive Advantage
For retail and business banks, strategic readiness is now a differentiator. Those that move quickly, personalize outreach, and modernize their pricing and risk management infrastructure will outperform.
Bespoke Business Development partners with financial institutions to help transform uncertainty into strength. Through advanced scenario planning, pricing optimization, and strategic governance, we help banks take control of uncertainty—adapting not only to survive but to thrive.
The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect those of Bespoke Business Development. They are intended to encourage discussion and reflection, rather than serve as legal, financial, accounting, tax, or professional advice.
Have Questions or Thoughts About Our Latest Insights?
We’d love to hear from you. Whether you’re curious about a recent post, want to explore a topic further, or have ideas you’d like to share—reach out to us. Our team is here to connect, collaborate, and provide clarity.
