How banks can successfully emerge from COVID-19
Banks must look beyond the pandemic and use this crisis as a basis to reimagine their role in the new reality that awaits.
- Banks must continue to focus on customers’ needs to help them recover from the impact of COVID-19.
- Equally, banks must adapt their operating models to drive efficiency and resilience.
- Risk management thresholds need to be reflective of broader economic changes, and greater attention must be given to more challenged customer segments.
The banking sector has successfully navigated the immediate pressures of the COVID-19 crisis. As thoughts turn to a world beyond the immediate crisis, a strong banking sector will be needed for a strong recovery. In a low interest rate, low profitability world, where the risk of a “second wave” remains, banks will need to focus on customer needs, while driving efficiency and building resilience.
As the initial crisis measures to respond to the COVID-19 pandemic begin to slowly ease, financial institutions are starting to examine lessons learned from how they have adapted their operations in recent months. Many banking employees made a success of working from home during lockdown, with technology sustaining critical business activities from trading through to financial advice services.
Moreover, the banking industry continues to fill an enormous credit gap: offering forbearance and giving customers greater access to loan facilities. The banking sector has also played a crucial role in distributing various governments’ fiscal packages.
However, further challenges lie ahead. The global economy is facing extreme hardship with widespread unemployment – the jobless rate in the US stood at 11% in July 2020 – soaring government deficits and businesses struggling to survive.
Banks are experiencing a growing tension between supporting their customers and increased concerns about the rise in non-performing loans (NPL), which will lead to capital depletion. Three major US banks recently reported that they put aside a total of $25b in loan loss provisions in Q2 2020.1