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Banking sector covid-19´s implications
McKinsey´s report on “Global Banking Annual Review 2020” offers an in depth analysis of the covid-19 crisis implications for the banking sector, both in its business model and its strategy. The report also provides a set of recommendations to the sector to overcome successfully the crisis in the long term.
Global banking profitability will bottom out in 2021, however “almost in all covid-19 scenarios the vast majority of banks should survive and most of them can regain their 2019 ROE within five years”.
The industry is “sufficiently capitalized to withstand the shock”. On average the global banking sector Equity tier 1 (CET1) ratios would decrease from 12.5% in 2019 to 12.1% in 2024, with a low point of 10.9% expected in 2021. Following with this estimates McKinsey finds that only “a 3% of banks, representing about 0.6% of banking capital have a >50% chance of falling below regulatory capital minimums”, which would question the viability of that institutions.
Improvements in productivity and capital management will be a must to success not just to survive. In this regard the report points out to several imperatives for banks such as:
- Remaining in the high speed and agility mood showed during the covid-19 crisis.
- Reinventing their business model and adopting the best new ideas from digital challengers to operate in a prolonged low-rate environment improving efficiency ratios (Mckinsey estimates up to 30% efficiency gains in the mid-term for the industry)
- Renewal their contract with society promoting the purpose of the companies (through environmental, social, and governance issues) and their commitment with the communities in which they operate and with their employees.
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According to Kristalina Georgeva IMF Managing Director, lifting growth requires three things: one, regulatory housecleaning to unleash private enterprise; two, deeper regional integration; and three, preparedness to harness AI.
According to The European House – Ambrosetti, the European Union has an opportunity to boost competitiveness and growth by simplifying regulatory and supervisory frameworks, particularly in the areas of sustainability and the financial sector.
According to Ramón Casilda Béjar, Spain, in today’s complex geopolitical landscape, has the opportunity to strengthen its role as a bridge and connecting country between Ibero-America and the European Union, revitalizing investment flows in both directions.
According to @ECB, in moments of acute stress, the public often turns to physical currency as a reliable store of value and a resilient means of payment, underscoring the crucial role it plays above and beyond everyday transactional convenience
According to Juan S. Mora-Sanguinetti, in Spain a 10% increase in regulatory volume leads to a 0.5% drop in employment in companies with fewer than 10 employees.
According to Hélène Rey “In a world where stablecoins, particularly those pegged to the dollar, become an important global payment tool, we must brace ourselves for substantial consequences”.
@judith_arnal proposes reforms for the EU to advance regulatory simplification, starting with consensus on its meaning, with competitiveness as a pillar, plus coordination mechanisms and a governance rethink.
According to @iee_org, Spain has one of the most demanding tax environments for businesses within the European and international context, which may have significant implications for competitiveness, foreign investment attraction, and business expansion.
According to Christine Lagarde for the euro to gain in status, Europe must take decisive steps by completing the single market, reducing regulatory burdens and building a robust capital markets union.
According to the Bank of Spain, in a context of strong growth in transactions and prices, the conditions under which new mortgage loans are granted currently show no signs of easing in lending standards.
McKinsey notes that European private capital is half the size of the U.S. and must play a key role in boosting competitiveness, by driving innovation, scaling firms, and mobilizing the investment needed to close the gap with other regions.
IMF states that global financial stability risks have grown significantly, driven by tighter financial conditions and heightened trade and geopolitical uncertainty.