Last Monday, I attended a webinar organised by the Central Bank of Malta on the subject of the new normal in banking. John Cassar White, former chairman of Bank of Valletta, delivered an excellent and insightful presentation, mentioning a number of aspects that banks need to act upon to meet the challenges posed by the environment post-COVID-19. My objective is not to provide a report on Cassar White’s presentation, but to write about a number of considerations triggered by the webinar.
It is generally accepted that the coronavirus has changed our lives and our outlook fundamentally. The extent to which this change is irreversible still needs to be seen, but I believe that most analysts argue that it is in effect irreversible, and that we have to come to terms with a reality that we have never seen before. While the long-term consequences cannot yet be foreseen in full, the outlook presents a rather challenging picture.
Top of the list of considerations is the move to digital banking. This was already on the cards, and cash may not be dead as yet, but the move towards contactless payment options is likely to pick up speed. This could be accentuated by governments that will be promoting the use of payment methods that are traceable and, therefore, the use of less cash.
Even though during COVID one could still see queues outside bank branches, it is important that every operation in branches can also be performed electronically. Business and personal customers are likely to be expecting more services on-demand.
In today’s crisis, caused by the pandemic, the whole of the banking sector is an important part of the solution for the economy to pick up momentum
Another important development is the increased competition. Various businesses are sprouting to provide one or more services traditionally provided by banks, be they retailers, fintech companies, brokers, online banks, and so on. They are all nibbling away at the banks’ market share and profitability. In addition, they have to contend with low interest rates for some more time and increased compliance costs because of regulatory requirements. As such they need to diversify their income streams to sustain profitability.
A third consideration is the role of the banking sector in the community. The economic crisis caused by the coronavirus has put and will continue to put a great deal of strain on individuals, families, businesses and countries. Banks cannot be oblivious to all this and will be expected to provide support. Up to a certain point this is payback time for the banking sector.
In the past, in several countries, the banking sector was saved thanks to government intervention, making use of public funds. For that reason, these governments had to burden the population with austere fiscal policies. Now is the time for banks to prove that they are an integral part of the society in which they operate and take the appropriate steps for the economy to right itself.
How banks will react to these challenges remains to be seen. In the last severe financial and economic crisis triggered in 2008, international banks were part of the problem. In today’s crisis, caused by the pandemic, the whole of the banking sector is an important part of the solution for the economy to pick up momentum.
Banks have been active in the implementation of government support programmes, not just in Malta but also abroad, and need to continue with this activity. For this reason, banks need to review their business and operating models in order to adjust to the new environment to remain relevant for tomorrow’s economy.