Supporting Digital Transformation in Banking

 

About the project

Guided by the Sustainable Development Goals and the National Strategic objectives outlined in the Presidential Programme for Socio-Economic Development for 2019-2025, the National Banking Strategy, the Programme for development of economic, financial and banking sector for 2019-2025 and the Concept for Development of Digital Economy in Turkmenistan for 2019-2025, and inspired by the achievements of the joint project implemented in 2018, the State Bank for Foreign Economic Affairs of Turkmenistan (TFEB) and United Nations Development Programme (UNDP) engages in the new project to continue cooperation in developing an innovative business model and digitalization of TFEB under the joint project “Support in expanding access to International Development Finance”.

The new project has been also initiated to implement provisions of the Memorandum of Understanding between UNDP and TFEB concerning joint cooperation in mobilizing development financing for the achievement of the Sustainable Development Goals in Turkmenistan with focus on continued strengthening TFEB’s capacity to attract external finance and implement the development finance projects.

What we aim to achieve

The project identifies the following areas for cooperation:

1.       Improving alignment with the international financial reporting standards

In July 2014 the International Accounting Standards Board (IASB) published the final version of the International Financial Reporting Standards (IFRS) 9 - Financial Instruments that has a mandatory effective date of 1 January 2018. The final version of IFRS 9 brings together the classification and measurement, impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement.

Transition to IFRS 9 is a monumental change which requires galvanisation of entire organisation and substantial cost and efforts. It is expected that benefits of change will be far greater than the efforts and resources employed in successfully managing this huge transformation.

IFRS 9 will have an enormous impact on the banking industry, as it requires an adjustment to the classification of financial instruments. Banks, which typically hold the largest number of financial instruments, will be required to assess if and how classification has changed for each of their instruments. In addition, the introduction of the expected loss model to replace the traditional incurred loss model will require continuous re-assessment to the level of risk of loans throughout the life span of the loan, as opposed to the previous model wherein loans were assessed at one stage in absolute terms. This standard also has an impact on companies that have a hedging program, potentially allowing accounting hedge treatment to be more available.

To support TFEB in IFRS 9 application, the project will conduct a series of training courses for the TFEB staff who are preparers and users of financial statements to evaluate the impact of IFRS 9 on the TFEB business and its financial statement. Particularly, the project will conduct an in-depth analysis of IFRS 9 Financial Instruments, including numerous examples and illustrations to explain the business model and cash flow characteristics test for classification of financial assets, amortized cost and fair value measurement of financial assets and financial liabilities, de-recognition of financial assets (retained servicing, continuing involvement etc.), measurement of expected credit losses and the accounting and impact of different types of hedges on financial statements. In addition, training will cover the disclosures in IFRS 7 and the principles of fair value measurement in IFRS 13. The project will also provide hands-on support for transformation of the TFEB financial statements to address IFRS 9 requirements, including IFRS 9 integration into the existing IT system.

2.       Building foundation for digital transformation

Digital transformation of the economy is a key priority area for the country in the upcoming years. In November 2018, the Government of Turkmenistan adopted the Concept for Development of Digital Economy for 2019-2025. The National Banking Strategy also envisages digitalization of the banking sector through Internet and mobile banking platforms. TFEB has also adopted the Business and Digital Strategy for 2018-2021 prepared by PwC within the joint project between TFEB and UNDP.

TFEB is a state commercial bank that serves a wide range of clients that are spread around the country. At present, clients are served primarily through limited branch and ATM networks. The customer base would certainly benefit from wider distribution options, and the Bank would benefit if they could serve remote clients in a cost-effective manner. Implementation of Internet Banking solution can optimize service cost, ease of use and potential for geographic expansion. Internet Banking is not only a convenient way of improving sales orientation (more time to spend on branch sales, and an online sales strategy should increase revenues), but is also an important tool to trim operational costs: in the short term, many service efforts could be moved online. This would require significant investment in TFEB’s IT systems.

In this regard, the project will support modernization of IT infrastructure of TFEB through procurement of servers, networks equipment, personal computers, printing devices, ATM/POS equipment, and outsourcing IT services to implement performance measurements, standardise workstations and printers and develop a plan for its ATM and POS network.

3.       Developing capacity and capabilities of TFEB staff

People are the key to any successful strategy implementation. TFEB will need to train its existing staff and hire some new people to improve the organization’s capacities and capabilities. This is likely to require new human resource approaches to and processes in recruitment, on-boarding, training, ongoing development and retention. The project will support development of new technical skills and capacities of TFEB staff in the following areas of business development and digitalization: i) IT security; ii) cybersecurity; iii) bank process improvement. The list of trainings can be revised and/or amended based on the emerging needs of TFEB in the course of strategy implementation. Given that more than 60 percent of the TFEB staff are female, the special attention will be given to increasing skills and knowledge of female staff.

Although TFEB is at the forefront of many of Turkmenistan’s international initiatives, it is a state-owned bank, with functionally aligned departments and hierarchies reflecting its history. While this organizational structure has served TFEB well for many years, market circumstances have changed. Competition is increasing, the National Banking Strategy has been modernized, and client expectations have changed. In order to best position TFEB to embark upon this transformative programme, TFEB must consider adjusting its organizational structure (which will influence governance, compensation, and others) to make them ‘fit for purpose.’

To address the above, the project will support TFEB in preparing for transformative changes by raising awareness and knowledge about the best corporate banking strategies and ‘management by objective’ framework, according to which the efforts of TFEB and staff will be measured against specific goals. It will also expose TFEB management to the RACI framework, according to which each task has individuals assigned as Responsible, Accountable, Consulted and Informed.

 

 

Status:

Ongoing

Project start date:

October 2019

Estimated end date:

December 2020

Focus area:

  • eradicate poverty in all its forms and dimensions
  • Project office:

    UNDP in Turkmenistan

    Implementing partner:

    United Nations Development Programme

    Full project information  

    Funding Support by

    Donor name

  • United Nations Development Pro
  • Government Of Turkmenistan
  • Amount contributed

    $643,903

    Delivery in previous fiscal year

    2020 $53,658

    2019 $3,708

    UNDP Around the world

    You are at UNDP Turkmenistan 
    Go to UNDP Global