In most Sub-Saharan African economies, financial deregulation came as an indirect response to the reduced global polarization between the eastern political bloc and the west in the late 80s. Consequentially, this politically-based response to economic restructuring created an immense adjustment and adaptation gap where expertise of most central banking institutions was found challenged to meet the vicissitudes of economic liberalization. The competition shift from near-collusive oligopolistic structures to non-collusive, diverse structures of varying sizes, origin and strategic orientation intensified competition for market share within the commercial banking sectors. The supervisory and surveillance function of central banks met the challenge of regulating the risks posed by increasing market players in low growth rate markets.
Economic liberalization in the financial sector saw the entrance of new banks and non-bank financial institutions some under policies of indigenization, internationalization, privatization and others hybrid. New products were introduced and in some economies there was an increase in accessibility to the sector as well as a reduction in transaction costs. A relatively new concept of market desegmentation meant commercial banks could transact services which were traditionally reserved for specified institutions. In less than 10 years competition for market share increased whilst economic growth slumped as economic sectors struggled to adjust to economic reform.
Growing competition versus slow economic growth rates resulted in the increase of the significance of marketing strategy in commercial banks. Also diversity in the industries brought diversity in competitive and survival strategies for institutions. Liberalization of prices and interest rates reduced the non-price competition that had prevailed under the more centrally controlled markets. Strategic marketing to lure and retain a sustainable market following became as central as a bank’s financial strategy. Like any strategy, marketing strategy had it constraints. It had to attract a given target market given internal and external constraints. One of such constraints is risk.
Risk management targets the reduction of financial and non-financial losses faced in
the nature of banking business through the employment of internal risk management strategies and ensuring the adoption of external policies and regulations. Theoretically marketing strategy and risk management must complement each other with the former bringing in the customers and the latter improvising and ensuring compliance in dealing with them to minimize the bank’s as well as the customers’ losses. As such it is possible for marketing assignments to be rejected due to their failure to comply with internal standards and external regulation. Thus conflict between the two can emerge where there is poor strategic coordination, communication and comprehension.
In conflicting circumstances, risk management may be construed as restrictive to business hence organizational interests as it caps the type of transactions that can be undertaken by the bank regardless of their returns. Furthermore, risk management has more external impositions from central banks and national laws hence may be viewed as an external force constraining corporate progress.
The moral hazard of such a scenario is the sacrifice of internal and external controls and regulation to gain clients and business deals. Focus is deserved by any indicators of risk management principles being subordinated by marketing strategy in commercial banks. This increases the risks in the financial system which at their worst may transmit shocks to the sensitive financial sector. Bank failures triggered by risky dealings can have serious domino effects to the sector which are further transmitted into the economy at large. Central banks must enhance their capacity to deal with this hazard without necessarily becoming the controllers of banking marketing strategy.
