This article by Sanjiv Anand – Chairman, IBS Intelligence provides additional insights about the potential impact of the Coronavirus on financial services
- Financial Services sector stability & profitability comes under pressure – stock valuations and prices come down.
- Central banks bring down interest rates – if a significant part of the asset book is flexible rate, then interest margins are affected.
- Lower business and consumer transactions – lower fee income.
- Less liquidity from government as they need to finance deficits. And deferred spend – negative liquidity impact.
- Number of corporate banking sectors negatively affected. Example – oil & gas, consumer durable, automotive. Increased number of work out accounts, likelihood of NPAs, and reduced income.
- SME/Commercial clients under pressure for many sectors – reduced demand and delayed payments from customers. Larger number of NPAs, work out accounts, and reduced income and a smaller trade finance book.
- Wealth Management not so wealthy any more. Portfolio values down. AUM down. Conversion to cash preserve capital. Resulting in fee income reduction. Also margin calls.
- Retail book stressed. Less liquidity, and asset quality under threat. Part of mortgage book impacted. Reduced spends on cards, auto and personal loans. Loss of income also resulting in higher NPAs. Also limited growth.
- Branch utilization drops off – fear of visit, fewer transactions.
- Basically, the full revenue & cost model affected – urgent need to transform, including job losses.
Potential winner – digital channels and digital banking ?
BIIA editorial comment: It is not only your health, but also the health of the financial industry is at stake. One of the unexpected consequenses from this health related issue is the fact that germs travel on bank notes. Apparently the People’s Bank of China withdrew an enormous amount of paper currency from the market during the Coronavirus crisis. Smaller denominated notes were destroyed, larger denominated notes were ‘dry-cleaned’. Keeping millions of people in cash has become a major health issue. This will be a precursor to the People’s Bank of China going fully into digital currency in the foreseeable future. We would’t be surprised if other central banks follow suit.