COVID-19 And The Banking Sector
Welcome to another week of financial learning. The whole world has come to a partial standstill due to the outbreak of the Corona Virus.
The virus that started slowly in China has now spread to more than 150 countries across the globe. The economic impact of the pandemic goes beyond the shores of China.
According to Mathieu Vasseux, Head of Financial Services MEA at Oliver Wyman
“The ongoing coronavirus epidemic may lead to reduced borrowing and lending, impacting banks that work in corporate and personal finance in Dubai and the Middle East”.
Mathieu made this statement after the Central Bank of the UAE (CBUAE) requested that banks implement measures to counteract the effects of Covid-19, including rescheduling loans, offering temporary deferrals on monthly loan payments and reducing fees and commissions.
International Economic Rating agency Moody’s Investor Services had this to say about the spread of the Virus in their latest report;
“Travel bans to and from affected areas will negatively affect tourism, hospitality, and transportation, as will reduced demand from the curtailment of non-essential travel and other measures,”
Ghana recorded its first Corona Virus case more than two weeks ago and currently stands at 132 cases at the time of writing.
The President through a directive has suspended any form of social gathering which has affected churches, schools, funerals, weddings to mention a few.
The directive can affect other sectors in the coming days if it has not even taken place already.
The United States of American government has earmarked over a trillion to fight this pandemic disease. Ghana has 100 million dollars as the budget to curb this menace.
The virus spread has led to total state lockdowns in the UK, Italy, Spain, and a host of other countries globally including South Africa.
Whiles, we fight to eradicate the virus I want to address the impact on the banking sector of Ghana.
The first major impact of the spread of this virus and lockdowns is the inability of loan customers to settle their indebtedness as they fall due.
Most customers with monthly repayment structure will begin to have a negative impact spanning from turnover challenges.
Many companies who are into fast-moving commodities have begun to have a downwards turnover trend due to the call for people to stay at home.
Sales have begun to slow down whiles overhead costs remain almost the same.
Revenues of these customers are being impacted seriously especially Schools and churches.
Schools and churches with assets at commercial banks will begin to have difficulties in the coming weeks servicing their loans.
Banks will, therefore, need to quickly move into restructuring mode or start recording high NPLs by the end of March and April.
I have read with a bit of concern about how a section of Ghanaians on Social Media are lambasting some Pastors who initially exercised concerns when the President directed for the partial shutdown of churches.
Some of these churches have taken loans from banks that will require repayment in March and April.
No physical church service will lead to a reduction in revenue to these churches thereby causing defaults.
Their concerns are therefore genuine and should not be “rubbished”.
However, with technology and innovation, these churches should educate their members to give in support of the running of the ministry.
The slow growth of revenue, suspension of some businesses among others should be of great concern for commercial banks in Ghana as we move to the next stage of the Covid-19 management.
RUN ON BANKS
The second impact of the Covid-19 on the banking sector is the negative deposit growth of financial institutions.
Many Ghanaians have started stocking their homes and wallets with rumors of Accra and Kumasi shutdown.
The more these rumors gain root, the more customers will begin to withdraw their savings from the bank to buy consumables in anticipation of restricted movement.
This will impact negatively the liquidity positions of most banks.
The Central Bank to manage this challenge has reduced the Primary Reserve Requirement from 10 to 8 percent as well as the Capital Conservation Buffer(CCB) for banks from 3 to 1.5 percent.
This is providing more liquidity to the banks and support to critical sectors of the economy as captured in their communication signed by Mrs. Sandra Thompson, Bank of Ghana Secretary on March 20, 2020.
Banks should continue to engage and educate their customers on financial management measures in times like these to manage a possible run on them.
One of such important education is to advise customers against liquidating their investments out of panic. This is a call that I made personally on my YouTube Channel Patrick TV GH.
The President of Ghana in his directive advised against the public gathering of people not exceeding 25 persons.
This call has led to most banks resorting to staff rationing.
Most branches have divided their staff into two groups with one team working for a week while the other team works from home.
This is a laudable initiative but can negatively affect the business development.
The productivity of staff working from home is obviously very questionable in our setting.
Most of the staff have a family at home hence; divided attention and home-like mood can lead to low productivity.
We are not in normal times and as such, this step is commendable.
UNPLANNED OPERATIONAL EXPENSES
Almost every bank has purchased precautionary and safety items at the various offices to manage the spread of this Virus.
Some of these items are gloves, facemasks, Veronica Buckets, Sanitizers, and Extra detergents.
None of these banks considered these during their budget session.
No matter how small the total costs of these items are, it will influence the P&L of these banks.
Efficiency is therefore needed in the utilization of these items.
The picture is not all gloomy for the banks. Reports have indicated that the Virus will have a positive effect on the usage of digital services like online banking, mobile wallets, etc.
Consumers' desire for digital banking services will most likely increase, forcing many traditional financial institutions to fast-track digital innovation efforts.
As a result, many banks and financial institutions will have to look to fintech firms for assistance in bringing better digital banking solutions to the marketplace.
I will end by advising bank staff to work extra hard in times like these as the revenue of the bank will hit badly by this Virus.
Your life is precious to your employer. Revenue is also important to your employer so work at matching your life to the revenue expected from you.
We are not in normal times but as our President said, this too shall pass!!!
Wash your hands with soap under running water every 30 minutes, use alcohol-based sanitizers periodically, avoid close contact and call the emergency lines should you feel any Covid-19 symptoms.
I wish everyone a wonderful and memorable week, Stay Safe!
Patrick Baah Abankwa is a chartered banker with over 6 years of experience in mainstream banking having worked in various capacities. He is currently at the Branch Manager Position of his institution.
He has been a qualified member of the Chartered Institute of Bankers, Ghana with a good membership standing since the year 2013.
He also holds EMBA and BA from the Kwame Nkrumah University of Science, Technology, and the University of Ghana respectively.
Patrick is the originator of the daily epistle dubbed “Savings Tip of the Day” which has been running for over a year on WhatsApp and Facebook.
Patrick has also been teaching on the Topics Savings, Investment and Financial Independence for over 2 years and a research fellow for ILAPI Ghana. He runs a financial channel on Youtube by the name “Patrick TV Gh” and has appeared a couple of times on the business segment of TV3 News 360.
Patrick is into youth facilitation and counselling. He can be contacted via [email protected]
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