The COVID-19 pandemic is a health and humanitarian crisis, as well as an economic shock. Banks have a pivotal role to play.
We at Accenture are helping our banking clients address the short- and long-term consequences. Beyond the obvious facts that the pandemic will test the mettle of the industry’s leaders and impose an overriding imperative to ensure service continuity, we believe the short-term impacts will affect four key areas of retail and commercial banking: credit management, revenue compression, customer service and advice provision, and operating model adjustments and cost control.
4 key areas for coronavirus & banking
1. Credit Management
The cashflow of many consumers and businesses will collapse as lack of demand flows through into lower business revenues and employee layoffs. These in turn will cause an increase in both commercial and retail non-performing loans, as borrowers struggle to make scheduled interest and principal payments. There are, however, steps banks can take to mitigate this, to help their customers survive, and potentially to emerge with stronger customer relationships:
- Support government actions
- Initiate credit forbearance and modification programs
- Prepare for losses
- Extend credit
- Digitize to manage the demand for refinancing
2. Revenue Compression
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
- A drop in payments revenue
- A decline in trade finance and cross-border payments
3. Customer Service and Advice Provision
A short-term impact of this pandemic will be rapid changes in customer servicing preferences. While many bank branches will stay open as a vital service, customers are increasingly looking to run their financial life through apps and online banking. How should banks react to this pivot?
- Educate and train customers
- Minimize physical infection risks
- Personalize advice to consumers
- Support virtual SME relationship managers
- Accelerate digital sales and service
4. Operating Model Adjustments, Cost Control and Innovation
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
The future of banking after COVID-19
As banks grapple with the many challenges posed by the COVID-19 crisis it becomes clear that, whatever the eventual outcome, they will learn many valuable lessons about their customers, their own capabilities, and the market as a whole. These will serve them well in the years ahead.
We hope our deep dive into the implications of the crisis provides some nuggets of insight. As your business partner, we stand ready to provide whatever support you may need.