Effects of Covid-19 have impacted all aspects of our life and the banking and finance industry is no different. The banking and finance industry has been impacted by the global pandemic at many levels. Time taken for recovery in each specific domain will be variable.
While COVID – 19 has bought about instability and volatility in capital markets across the world, we are yet to determine the full impact of the pandemic. The effects are likely to stay with us for some time in the future.
Let us take a look at some of the areas of the banking sector that have been significantly impacted by the pandemic:
Profitability and credit management
As an impact of COVID – 19, jobs have been affected, resulting in banking entities lowering the rates of interest over all forms of credit. This reduces the profitability of core banking operations in mature markets. Financial institutions are correspondingly making a shift towards a commission-based model from tech businesses and online payment firms. Credit risks are higher, from retail and corporate clients in particular. Overall, the need to differentiate between short term phenomena and long term impacts is more than ever before. A few of the European banks have posted heavy losses for Q1’20. Effects of covid-19 has downgrade the economy as well.
The governments are nowadays involved with taking corrective actions for countering the effects of COVID – 19. As a resultant, the risk profiles are mitigated. Similarly, it is becoming likelier that a future market of synthetic securitization would call for revitalization following the contemporary developments. This would account for a significant economic impact.
Another development in the field, which spans the past few years, is that European banks have finalized upon many important disposal operations for impaired loans. This has resulted in a significant reduction in the NPL ratio.
As a new trend in the market, the identification of unlikely-to-pay (UTP) loans is easier. But this in turn gives rise to a secondary market for bad debts.
Commercial models and customer relationships
COVID – 19 has become a crisis for the real economy. Beyond the same, banks are finding it difficult to promote excellent customer experience for the end customer for the purpose of digitalizing the sector. Effects of covid-19 not only impacted the lives of human being but also the banking sector as well.
Even territorial and branch centric banks are not in a position to encourage consumers who prefer to visit branches to do so. A few of the consumers have to try out the digitalized alternatives with some difficulty, and the banks find it difficult to display proximity with their consumers.
However, with the banks recognizing the gaps in their services, digitalization has sped up in the times of pandemic. The collaborations with the fintech community are more than ever before.
Business continuity management and operational resilience
Technological innovation brings business continuity for banks. This may come in the format of AI implements or robotics, such as advanced bots. It may further come in the format of mobility solutions, such as a platform that manages promoters or system authorizations. This gives protection to the critical processes of banking operations, to operate efficiently in the shortage of staff.
Similarly, since the availability of infrastructure resources is unpredictable at this time, the financial sector is in a better position to evaluate the benefits of the cloud technologies that they use.