Banking and Financials in the aftermath of COVID-19
Kim Catechis and Andrew Graham, Head of Asia discuss the impact the crisis has had on bank profitability, but why we shouldn’t be worried about a back slide in banking services penetration.
This video is part of our weekly AFTERMATH video series led by Kim Catechis, Head of Investment Strategy, where members of the Martin Currie investment team discuss the far-reaching impacts of COVID-19 on the economy, the equity market, society, politics, the environment and our portfolios.
One of the key learnings for governments in this crisis is the important role that banks have to play ... They can do things that the government simply can not do.
Kim: Hello everyone, thanks for tuning in. This is the Aftermath and today we are talking banking, which is why I am wearing my white shirt. With me to help me go through this complicated sector I have Andrew Graham, Head of the Asia team. Andrew, really good to see you.
Andrew: Hi Kim.
Kim: So, Andrew lets kick off with the obvious. We've got a scenario that doesn't look very good for banks, we've got low interest rates, we've got little demand for lending, high deposits on the retail side that is, and a big impact on profitability. What do you see from this?
Andrew: This impacts the banks in different ways. First of all, lower interest rates result in lower lending yields, and the later might actually also be exacerbated by loan restructuring as well. And at the same time, deposit repricing will offset that to some extent, but also with the weaker economy you've got lower credit card related fees, lower transaction related fees. With an offset and wealth management fees, they are stronger.
Kim: I talked earlier about having relatively low demand from individuals borrowing, but overall, the economy is going to have mountains of debt piling on over the next year, 2 years, perhaps more. How are the banks going to cope with this? How much national service are they going to have to do?
Andrew: Well it's, I mean it's already happening, it's coming in 2 forms. Number 1, the loan moratoriums a large part of lending we are under, and on the other side in terms of various measures that are under way to support customers and the economy, but also through increased lending to the government through buying government bonds.
Kim: Are you seeing any regional variations to this, particularly?
Andrew: It's pretty broad-brush, Kim, to be perfectly frank. You know there are differences, iterations in different markets, but it's very wide spread as you would expect.
Kim: Another question is, I guess we've have the experience from emerging markets investing, and we know that in times when economic growth is strong, penetration of financial services is really high and evidently this is part of the investment case with these countries. What's going to happen now? Should we be considering the possibility that back slides, and that you end up having countries going backwards in terms of financial services penetration?
Andrew: It's a very pertinent question, but I actually I think that's a very, very low risk and quite the opposite in fact, because one of the key learnings for governments in this crisis is the important role that banks have to play in terms of number 1, being conduits for government support to individuals, and number 2, as the gate keepers for various credit and business support schemes, because banks are in a much better position to assess the long term viability of corporate borrowers and small and medium sized enterprises. And they can do things that the government simply cannot do. So actually, I think this has elevated the role and importance of banks, and also inclusive of finance as well.
Kim: Thank you that was very helpful. Thank you all for tuning in, I've enjoyed it, I hope you have. Again, this is the Aftermath. Tune in next week and we will approach something completely different.
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