2009 was the year when risk management was thrust firmly onto the agenda for global banks and lenders. Looking forward to 2010, many banks are likely to be shifting their priorities in preparation for regulatory changes and the economic recovery.

Looking ahead over the next months, actions that have an immediate effect on financial institutions’ bottom line will continue to be a priority as the slow economic recovery begins. However, at this stage many banks have still not solved the underlying challenge to improve efficiency, quality and control of processes. In short, if the banks do not use this low activity period to invest in building scalability into their lending processes in advance of the anticipated economic recovery, the effect on the bottom line will be short-lived.

In line with banks’ efforts to achieve greater efficiency in their processes, the trend towards greater simplicity in banking, also known as a ‘back to basics’ approach, is likely to continue to gain popularity in the banking sector. Online banks that have been set up around Europe using very simple products and processes have already achieved a great deal of success, and more banks will also look to meet the competition through their own direct banking channels. This observation is supported by findings of an extensive global study conducted by the IBM Institute for Business Value (IBV). The study shows that emerging market banks, which have smaller product portfolios and simpler operational structures, have taken the lead (among the top 139 financial institutions) in establishing the best cost income ratio, outpacing North American and Europe banks.

IBM suggests that banks emerging from the current economic crisis as winners will be the ones that are focused on clients' success, while the weaker, less focused banks may never recover. However, according to IBM, restoring client relationships is only part of the solution, banks must also become far less complex and develop an enterprise-wide view of risk.

It’s been a turbulent 18 months for the lending industry, and the likelihood is that many of the trends that have caused this uncertainty are set to continue well into 2010. This year will undoubtedly be challenging but the secret to success will be embracing change. Those banks that adapt to the new financial world will be best placed to gain significant competitive advantage and profitable growth.