{"id":616,"date":"2020-07-29T19:36:53","date_gmt":"2020-07-29T19:36:53","guid":{"rendered":"https:\/\/businessner.com\/?p=616"},"modified":"2024-01-13T10:22:45","modified_gmt":"2024-01-13T10:22:45","slug":"leadership-in-the-time-of-coronavirus-covid-19-response-and-implications-for-banks","status":"publish","type":"post","link":"https:\/\/businessner.com\/leadership-in-the-time-of-coronavirus-covid-19-response-and-implications-for-banks\/","title":{"rendered":"Leadership In The Time Of Coronavirus: COVID-19 Response And Implications For Banks"},"content":{"rendered":"
The devastating impact of the Covid-19 crisis on every-day life and health has carried a thoroughly disruptive economic fallout. Economists cannot revise their projections of growth down fast enough. Analysts anticipate that the total cost of the pandemic will have accumulated to a staggering $8.8 trillion<\/a> by the end of 2020, which is almost nine percent of the global GDP.<\/p>\n An overwhelming number of measures have been developed to cushion the Coronavirus blow to the global economy. Yet, the path ahead remains precarious, thanks to epidemiological uncertainty and unpredictable shock to both supply and demand.<\/p>\n Meanwhile, \u201cpre-existing conditions\u201d in the economy that had long remained hidden are coming to light as major challenges. Organizations in virtually all industries are painfully accepting the reality that\u00a0business\u00a0will not return to normalcy any time soon. The remote and flexible work model has gradually become the new normal, boosting the number of people who choose to become self-employed freelancers and thus, the need for\u00a0fixed price accountants<\/a>\u00a0and bookkeeping professionals.<\/p>\n As Covid-19 continues to wreak havoc, banks undoubtedly have their hands full. Businesses are facing stagnated sales and declining profits, and individual borrowers are losing jobs. Consequently, banking customers are increasingly seeking financial relief.<\/p>\n Even as the world looks to banks for help, however, these institutions are not in the best position to be philanthropic. They too have to deal with the strained earnings and the rapid changes to banking habits that Covid-19 has brought.<\/p>\n The outlook of the financial market was positive during the first several weeks of the year, but things quickly took a tumble. When market stress started in February, bank stock prices plummeted. In March, a severe stock sell-off set in, and banks became the worst performers in the market<\/a>. By the end of the quarter, banks\u2019 stock prices were lower than those of some of the hardest-hit sectors. Price-to-book ratios fell to below one<\/a> across banks in Europe and the U.S.<\/p>\n Banks have suffered immensely, not just relative to other sectors, but also when you compare this year\u2019s pandemic to previous crises. Despite the recent improvement, the decline of stock prices is on par with the one that followed the 2008 collapse of Lehman Brothers<\/a>. Long-term rating outlooks are deteriorating dramatically, and industry players are expressing concerns over the Covid-19 impact on bank earnings.<\/p>\n Meanwhile, indicators of banks\u2019 funding costs have risen exponentially. In March, spreads on bank bond indices grew substantially across various maturities and currencies. Even after some decisive policy actions<\/a> from the Federal Reserve and the European Central Bank, funding conditions remained tight all through May, with most spreads ranging around twice as wide as they were in February.<\/p>\n The rapid spread of the Coronavirus got many institutions scrambling to reinvent their workspaces to minimize in-person banking and physical exchanges. When the World Health Organization advised against contact payment methods in March, the Bank of Korea responded by quarantining bills coming from local banks<\/a>. Similarly, the U.S. Federal Reserve resolved to isolate banknotes from Asia<\/a> for up to 10 days. In many parts of the world, disinfecting and isolating physical notes became commonplace.<\/p>\n Of course, Covid-19 has more carriers than just paper money. Banks, customers, and regulators have been weighing the risks of face-to-face transactions. Official recommendations from the CDC advise individuals to keep at least six feet away from visibly ailing people, a feat that could be impossible at physical branches.<\/p>\n Banks are therefore feeling the pressure to think outside the box and embrace new technologies and processes. Digital banking now seems like the most reasonable way to complete transactions.<\/p>\n In April, the Federal Financial Institutions Examination Council advised banks<\/a> in the U.S. to test their system\u2019s capacity to handle the anticipated influx of digital banking demands.<\/p>\n At a time when reducing operating costs is the top priority for all business organizations, institutions without the framework for remote banking are grappling with the fact that they must invest to satisfy their clients.<\/p>\n If you have any interest in the banking sector, you have probably been wondering what banks can do, both in the short and long term, to wade through the Coronavirus storm and play their part in sustaining the global economy.<\/p>\n Banks around the world are expected to be the stabilizing pillar for their customers, employees and economies. Essential services like deposits and withdrawals, credit extensions, and payment facilitation must not be disrupted.<\/p>\n Concurrently, banks must reassure their customers and retain their trust during this uncertain period.<\/p>\n Read on for the critical steps that banks must take to stay afloat and secure their post-Coronavirus future.<\/p>\n It is difficult to pin-point the exact financial impact of the Covid-19 crisis. Nonetheless, based on current indicators, the banking industry can safely anticipate some trends over the course of the year.<\/p>\n To understand the impact that these trends will have on portfolio, banks need to apply rigorous testing tools and complement them with close monitoring. Before testing, however, they must first examine the performance assumptions that structure existing systems. The Covid-19 situation is unprecedented, and assumptions built into previous models may not hold.<\/p>\n Proper systems stress-testing will require banks to prioritize and iterate intelligently. They will need to identify the industries and segments that present opportunities or are most vulnerable, and quickly analyze data to identify warning signs in time. This base will enable them to build a more comprehensive view of the economic landscape as the pandemic evolves and respond accordingly.<\/p>\n Additionally, reverse stress-tests will enable banks to lay out hypothetical scenarios that represent actual occurrences more accurately. These scenarios must, however, be based around the potential spread of the virus and the corresponding human reaction as the situation progresses.<\/p>\n Analyzing the preempted changes in supply and demand chain will be particularly complex due to the lack of a direct historical precedent. Historically linked factors like employment and income could decouple, while previously decoupled variables like global business continuity plans might get more correlated.<\/p>\n When building scenarios, banks must factor in the implications of short-term measures. Most institutions have reacted quickly and appropriately to try and contain virus spread. These measures will likely have to remain in place for several months, and if they do, their impact on the bottom line may need to be re-evaluated.<\/p>\n A survey by Gartner HR highlighted that 88 percent of organizations in the U.S.<\/a> have encouraged or required staff to work from home. Banks themselves have shrunk operating hours and reduced the number of customers they can serve at a time because of social distancing rules.<\/p>\n That said, sustainable health measures take months, not days or weeks. Banks need to ensure the steps they have taken are sustainable. They must be designed to get the most productivity from employees while preserving both their mental and financial well-being.<\/p>\n Banks provide essential services to customers and communities. Therefore, they need a workforce management framework that is based on service criticality and exposure risk. Keen attention is required for workers that provide critical customer-facing services or require infrastructure that is only available at work premises.<\/p>\n Trading activities, for instance, are crucial for market operations but technology and compliance requirements make it difficult to conduct them remotely. Most banks have already implemented measures like segregating employees and activating business continuity plan sites. To cope with a prolonged crisis, however, banks may need to consider alternatives that do not suffer the capacity constraints of BCP sites.<\/p>\n Furthermore, because of the high probability of simultaneous infection across BCP sites, banks must maintain backup plans in the event of infection at or in the vicinity of a site. These backup plans could include; the readiness to move to a work-from-home model on short notice, for which the technology and regulatory clearance needed must occur preemptively.<\/p>\n For the employees that can work from home, banks need to tailor their policies, practices, and controls to the new working environment. Technological requirements and output-based performance management must particularly be in focus. Meanwhile, both the internal tech support and employee relations must be adequately staffed and trained to accommodate many new requests.<\/p>\n Banks have experienced a significant increase in the number of customers filing queries on a typical working day. Clients are frantically reaching out to their banks with questions, concerns and requests. Meanwhile, staffing shortages and limited operating hours in call centers have resulted in longer waiting times, further fueling the disgruntlement.<\/p>\n Banks must provide their customers with the digital tools required to ensure non-disruptive banking to cope with this challenge. According to BAI, more than 95 percent of banks in the U.S.<\/a> were keen on investing more in digital banking at the beginning of the year. In light of recent events, you can reasonably assume that the emphasis on digital banking has increased. An omnichannel experience that enables navigation across multiple devices and direct connection to bank systems can help shift traffic from physical to remote channels.<\/p>\n Through these remote channels, banks would need to offer some self-service features. Clients can accomplish tasks like submitting documents, opening accounts, managing balances, initiating transactions, executing payroll, and even printing checks, all online.<\/p>\n By minimizing the need for customers to visit physical branches, banks would offer better customer experience while reducing the costs and errors that come with frequent manual intervention.<\/p>\n For most companies, one of the most pressing concerns of the Covid-19 pandemic has been its impact on supply chains. A D&B report<\/a> on the pandemic\u2019s impact on business performance, 938 of Fortune 1000 companies have suppliers that have been affected by the crisis. UNCTAD estimated that the impact of the virus cost global supply chains $50 billion in exports<\/a> in February alone.<\/p>\n <\/p>\n<\/a>The Covid-19 Impact on Banks<\/h1>\n
<\/a>Strained Earnings<\/h2>\n
<\/a>Challenged banking habits<\/h2>\n
<\/a>How Can Banks Survive The Covid-19 Scourge?<\/h1>\n
<\/a>Stress-test existing systems<\/h2>\n
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<\/a>Develop sustainable Workforce Measures<\/h2>\n
<\/a>Reassure their customers<\/h2>\n
<\/a>Finance the global supply chain<\/h2>\n