The COVID-19 Diaries – Day 2 – “A bank (is) was a place that would lend you money if you can prove that you don’t need it” (Bob Hope)
Primary responsibility of banks is to provide liquidity and financing to households and companies via acting as an intermediary between lenders and borrowers. The above statement applies in a business as usual scenario. However, today is far afield from business as usual.
In turbulent times banks are positioned as the foundation of global financial markets. And every structure is as resilient as its pillars.
The meltdown of 2008 pointed out the systemic risks posed by banks. However, the current crisis is originated from outside the financial sector. After throwing in the towel circa 10 years ago, banks have the opportunity to prove themselves as stabilizers of the social system in times of market turmoil.
There is a great odds that the performance of financial institutions will take a hit. Regulators already surged to support banks with more lenient capital requirements but at the end of the round, each entity has to rebound on its own.
Banking Stakeholder Group from EBA proposed the below:
- Allow banks to change the payment schedule of historically financially borrowers which are affected by the consequences of the virus
- Facilitate the debt restructuring of firms which are in temporary distress but still economically viable
- Consider supporting banks’ lending capacity by easing the level of combined buffer requirements
- Consider supporting the ability of banks to use part of the liquidity buffer below minimum requirement, in order to provide temporary liquidity to non-financial business – without any detriment to the banks’ prudential evaluation
- Ensure that these measures are available and put in place without an increase in costs and burden upon distressed consumers and firms
Financial institutions revenue will decrease from several angles. Reduced consumer spending will hit retail branches. Slowdown in M&A and traditional corporate finance business will affect fee income negatively. And overall lower assets under management is going to have an adverse impact group-wide. Credit losses will diverge between segments with worst losses originated from lower income clients and SMEs placed in industries which will suffer the most.
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The views, information, or opinions expressed in this blog series are solely those of the individuals involved and do not necessarily represent those of PwC Austria and its employees. PwC Austria does not give any representation or warranty of any kind (whether expressed or implied) as to the accuracy or completeness of the information contained in this blog series. It has been prepared solely for general informational purposes. Nothing in this document should be construed as advice to proceed or not to proceed with transactions or any other type of decisions.