Global Insight: Banking & Capital Markets and COVID-19

Banking & capital markets and COVID-19: Providing stability in the midst of uncertainty

By Peter Burns, Global Banking & Capital Markets Leader, PwC Australia and Paul Griggs, Partner, PwC US

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The COVID-19 outbreak has brought the world into exceptionally difficult and largely uncharted waters. BCM organisations are feeling the strains alongside their clients, their employees and the societies they serve. 

As communities go into lockdown and economic activity is scaled back, there’s a growing risk of business failures, job losses and a rise in credit defaults. The immediate focus is on directly affected sectors like travel and hospitality. But as social distancing is extended, we could begin to see an impact on factories and other operations where working from home is unfeasible. 

Those at most immediate risk of losing their livelihoods include gig workers, who make up a significant proportion of the workforce in sectors like hospitality. Any recession could also weigh heavily on small and mid-size enterprises and people who are self-employed. Your organisation clearly needs to safeguard vulnerable clients and maintain vital credit and financial exchange on the one side, while protecting yourself against the impact of an increase in credit impairment on the other. This is a difficult circle to square given the continuing uncertainty over the duration of the emergency.

Equally, important is your responsibility to sustain essential BCM services, while protecting the health and wellbeing of your staff. Many services are already digitised. Now the face-to-face contacts in areas such as mortgage advice and approval will need to be either scaled down or switched to digital channels. If your business already has well developed capabilities in these areas it will clearly be at an advantage. In turn, there could be spikes in demand in areas such as refinancing as a result of falling interest rates. How can you reallocate resources to meet these and other shifts in demand? 

Sharpening your focus:

As you look at how to steer through these uncharted waters, we believe that it’s important to focus on four key priorities:

1. Ensure continuity plans are up to speed

Your business needs to put continuity plans in place. As a global pandemic might not have been part of a previous plan, these plans need to be continually assessed, revised and enhanced to consider new factors. See this excellent recent article by our colleagues Melanie Butler and Kristin Rivera, which discusses the immediate crisis management challenges for all businesses. 

2. Take care of your people

It’s important to ensure that your people have the necessary equipment, tools, working practices, access rights and technology to enable them to minimise contact and work flexibly offsite. 

Engaged supervisors and clear lines of communication are essential in keeping approvals and processes moving. Stress levels may rise due to client demands, volatile markets and other challenges when working outside a familiar and supportive office environment.

With increased remote working also comes greater risks of cyber security issues. Reinforcement and reminders of cyber security policies and threats such as phishing and data breaches will be key.

3. Take care of your customers

The immediate priority is communication and assurance. As we highlight in a special report on consumer lending, this includes explaining how services that would normally be delivered face-to-face will now be handled. Think about how to switch branch staff to digital operations. Think how to deploy options like automated valuation models to ensure that credit supply isn’t needlessly slowed or halted. 

As businesses and jobs come under pressure, it’s important to gauge who is most at risk and be proactive in offering support such as payment windows and loans to help tide clients over. Many customers will want to know what happens if their credit scores change or financing options are constrained. Clarity and transparency are crucial in sustaining confidence at both a client and market-wide level. 

Potential financial stress and hardship are also important considerations for preparedness and continuity planning. Again, resulting plans could include reallocating branch staff to handle enquiries from concerned clients.

4. Plan how to sustain capacity

In this difficult climate, the overriding question is how to sustain vital liquidity and financial exchange, while enabling temporarily troubled businesses and the livelihoods that depend on them to survive and revive. 

Ensuring liquidity is sustained where it is needed most requires close monitoring and proactive  management. It also requires a careful balance between support for clients and prudent business decisions. 

These decisions will need to weigh up a number of coalescing factors. These include the stresses within many parts of the economy and BCM organisations’ potential role as a delivery mechanism for government programmes. There will be behavioural strains. For example, to maximise access to cash, some businesses may seek to draw on the limit of their revolving credit facilities. In turn, market fluctuations are leading to heightened volatility and valuation swings within capital markets operations. Other possible threats include the potential for contagion as impairment and default in one area of the economy have a knock-on impact on confidence and liquidity in another. The balance sheet and regulatory capital impact of these factors will need to be fully assessed in striking the right balance between sustaining liquidity and supporting the economy, while safeguarding your business.

Part of the solution

The next few weeks and months will determine how well your business, your clients and societies worldwide can weather the storm, while being ready to bounce back stronger at the other end. Your response to these issues could be critical to future customer and employee relationships, and it could very well damage your public image if not handled well. If you respond effectively and sensitively, you can demonstrate your true value to the economy and society as a whole. This is also a chance to bring the exceptional ingenuity and problem-solving capabilities with the industry to the fore.

PwC’s Global Crisis Centre

PwC’s Global Crisis Centre provides guidance on confronting the crisis with confidence. Please join our webcast on 19 MARCH @ 13.00 GMT.

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