As the world continues its fight against coronavirus, the financial sector continues to contend with unique challenges each day brings.
Broadly speaking, the financial industry is severely affected by the decrease in demand for financial services and income situation of consumers affected by the pandemic. The problem is aggravated by staff shortage issues and pressure on existing infrastructure.
And, even if vaccines have brought hope that the end of the pandemic is approaching, as long as the effects of the pandemic are here, these problems aren’t likely to go away. Firms and institutions must remain open to aggressive fiscal and monetary policies, and watchful on how these and other solutions can bring forth stabilization to financial services and to their businesses in general.
The full impact of the pandemic on the banking sector is not fully known yet, but its knock-on effects are expected to continue well into the future.
One of its immediate effects is the higher risks involved in credit management of retail, as well as corporate clients of the banks.
The low economic activity means banks are called on by the government to continue to finance the economy by providing support for recovery for individuals, and small to medium businesses. This presents profitability issues with most financial institutions shifting towards commission-based pay.
Asset And Wealth Management
COVID-19 has affected both wealth management firms and investors alike. Transactional revenues have increased along with trading, and asset net interest income and fees have decreased along with the market.
Some asset and wealth management trends have progressed, while others have regressed, and wealth management companies have to put up contingency plans to protect the interest of their clients during this volatile period.
This early, wealth management firms must position themselves ready for the uncertainties of the coming months or risk losing their market share. Top wealth managers, like the Mercer Advisors, offer holistic solutions and financial strategies designed for clients to reach their financial goals faster at this trying time.
The COVID-19 pandemic also challenges traditional banking habits. Because paper money is viewed as a potential virus carrier, and social distancing and staying home are all encouraged, in-person banking has become a high-risk activity.
The move to digitized banking has seen an influx of digital banking demands from consumers. There is now an increased reliance on digital banking and this is likely to continue post-COVID-19.
Mortgage & Finance
COVID-19 has also greatly impacted the mortgage industry, in turn posing challenges to bank mortgage services.
There’s a global widespread of interest rate reductions as governments, in response to COVID-19, make an effort to stimulate the economy.
The rate cut has brought different effects to different economies. In the US, rate cuts have resulted in a flood of mortgage applications, and banks must outline a new strategy for this change alone.
Falling interest rates also affect investors and mitigating the risks involved is a concern because low-interest rates may encourage investors themselves to increase their loans.
Unemployment rates are also on the rise. Bank and non-bank mortgage servicers are facing a huge surge of missed payments. Loan modification requests are also increasing. Thus, mortgage servicers must account for default management, as well as contingencies in preparation for a potential wave for loan modifications in the coming months when revisiting their COVID-19 strategies and priorities. This way, they’ll be able to avoid operational capacity constraints.
Mortgage delinquencies are expected to rise as homeowners continue to face loss of income and a high level of unemployment.
The impact of COVID-19 to insurers differs from country to country, depending on how badly affected the country is by the coronavirus.
Mortality rates are high in some countries. Claims are climbing, and insurers expect a reduced capacity if this continues. This could potentially result in equity loss, and insurers will have to impose higher premiums.
The economic impact of COVID-19 will continue even after science and vaccine are here. The immediate effects are already obvious, but the knock-on effects are yet to be fully established.
Financial institutions play a critical role in stimulating global economy and supporting economic recovery of individuals and businesses. Yet, these same institutions are also greatly impacted by the pandemic.
To protect their profitability, financial institutions must continue to monitor their profits and losses, and be ready to swiftly adapt and respond to changes, new needs, opportunities, and challenges this pandemic brings.