While most banks will now be in full business continuity mode, they also need to consider the likely impact of COVID-19 on the banking industry and its customers. They will be critical players, and with the right actions could significantly moderate the economic damage this crisis is expected to inflict. Accenture has drawn up a checklist of the issues banks should address and the initiatives they should consider to support their customers, maintain their business, reinforce their organization, and play a positive role in the economy and society.
COVID-19: How banks can manage the business impact
The global pandemic of the COVID-19 virus shook the financial markets and affected almost all the inhabitants of the planet. For part of the population, this is the first time in history that they have been forced to experience restrictions on personal freedoms. This global crisis is perhaps only comparable to the global financial crisis of 2008-2009. However, its effects may have more far-reaching consequences, in particular for the digitization of work, changes in the way it works and risk management. A significant positive remains the fact that the banking sector is better prepared for this crisis thanks to its capital condition and sufficient liquidity.
"Compared to 2008-2009, the banking sector is in a relatively good starting position, so that a possible long-term weakening can withstand it. Banks are well-capitalized and have some room to absorb losses, and they are much more digitized, and therefore have the ability to provide most of their services through digital channels. With their timely proactive support of credit markets, central banks are helping to prevent a recurrence of the domino effect due to insufficient liquidity, as in 2008. And payment systems are now much better able to respond to change," says Klara Starkova, Managing Director, Accenture Czech Republic.
Although many banks continue to operate unchanged, they must reckon with the impact of covid-19 on the sector as a whole and on their customers. The main areas potentially affected include: credit management, revenue reduction, customer service and consulting, setting up operating models and cost control.
1. Credit Management
The fall in demand for products and services, which will lead to lower revenues and redundancies, will result in a deterioration in the cash flow of many consumers and businesses. This can lead to an increase in non-performing loans. However, at the moment, banks can very well help their clients and thus strengthen their relationship with them by deferring installments, effectively interpreting government measures, personalizing the range of suitable products or strengthening financial education.
2. Falling Revenue
In the first few weeks of the pandemic the banking industry market value fell to a lower level than during the 2008/09 crisis. This is because the market has factored in short-term revenue compression from multiple sources including lower net interest margins, drop in revenue payments, decline in trade finance and cross-border payments
3. Customer Service and Advice
Due to the nationwide restriction of the movement of persons, changes in customer service preferences are evident in the short term. While many banks maintain their core services and leave branches open, customers increasingly prefer to manage their financial lives through applications and online banking. Banks must therefore do their utmost to provide quality and personalized services in the online environment.
4. Managing the Business
The cumulative impact of the three points above will lead to a misalignment of short-term revenue and expenses in the banking sector. We expect a range of impact from a 50 - 100 percent drop in PBT. As the demands of the next four to six months will be different from what was envisaged six weeks ago, banks should respond with as much flexibility as possible: Carefully consider the tasks of the ‘war room’, Review project expenditures, Be flexible with vendors and suppliers, Invest in things that will outlive the virus .
How can we learn from the current pandemic?
"Although banks face many of the challenges posed by the covid-19 crisis, it is clear that regardless of the end result, this situation will bring them many valuable lessons. Banks should take away the inevitable need for full digitization, a new approach for employees to work from home, the task of motivating clients to ensure financial reserves and sufficient liquidity, and the need for proactive communication of current regulatory regulations with an impact on clients, concludes Klara Starkova from Accenture CR.
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