Covid-19: Implications & Recommendations for Banks
McKinsey’s characteristically thorough assessment of Covid-19’s impact on the banking sector outlines both immediate and future implications and actions for banks. In doing so, it provides banking leadership with a clear and sensible checklist of considerations, which should provide a valuable aide in these unprecedented times.
McKinsey’s recommended short-term focuses for banks can be summarised as follows:
Protect both workforce and customers, in order to minimise the spread of the virus.
Whilst several of the article’s recommendations in this space have now been superseded by the more stringent instructions of the official government lockdown, they perhaps play a more useful role in considering a medium-term people & service strategy for the eventual relaxation of the current terms of lockdown.
Maintenance of essential services to retail customers
Banks must focus efforts on maintaining ATM services, enhancing and promoting digital service offerings and on delivery of clear customer communications. The two key tasks for comms are:
- to provide the help, guidance and clarity customers need in these uncertain times; helping people understand their options for money management and the special provisions brought in specifically to alleviate financial pressures relating to Covid-19, e.g. mortgage repayment holidays & enhanced overdraft flexibility.
- to encourage extra vigilance around fraud. Increased instances of fraud are unfortunately to be expected, as opportunistic fraudsters seek to take advantage of unsettled consumers. Banks must work to identify new fraud risks and support customers in mitigating them.
Support households & businesses with lending
Households will be significantly impacted as people lose their roles or see their income fall. Households and businesses with significant exposure to investment markets will also have been impacted by the March slump.
The impact on businesses has been, and will continue to be, massive. The extent of that impact will naturally vary significantly by sector, depending on the business’ exposure to supply and/or demand shocks caused by Covid-19.
Banks must therefore work to quickly identify the most impacted sectors and customers, and prioritise support for these most vulnerable groups. Doing so gives banks the opportunity to deepen customer relationships and to reaffirm banks’ role as key enablers of the economy.
And the considerations for the medium to longer term?…
Fee income will fall. Net interest margins will remain compressed. Credit losses will be up. This all sounds very bleak for the industry and banks will therefore need to apply stress testing tools, model different scenarios of varying severity, update constantly based on monitored live data, and try to gauge the specific impact on their business over the coming months and years.
Finally, whilst the short-term naturally demands a lot of immediate focus, banks need to also consider how lessons from today need to inform future operating models and digital transformation plans, with a view to boosting resilience to any continued or future such shocks.
You can read the full report here: