McKinsey Global Institute
A test of resilience: Banking through the crisis, and beyond

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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