Four months after the start of the covid-19 crisis, it was time for the banking sector to take stock. The sector withstood the shock caused by the pandemic, putting its employees on telework and supporting the economy with loan moratoriums and loans guaranteed by the state.
At a press conference on Wednesday, the ABBL stated that as of 19 June, more than 1,000 such loans were requested by companies, totalling €146m. On average, 75% of these applications were granted.
In addition, banks received 18,386 requests for loan moratoriums, totalling €3.7bn, with an approval rate of 97%.
With the gradual return of employees to financial firm offices, the ABBL stated that four major challenges will have to be addressed in the coming months.
1. The consequences of the economic slowdown
Containment, implemented to limit the coronavirus pandemic, will leave traces. “The main consequence is a major economic slowdown with supply and demand bottlenecks. This will not be without consequences for economic activity, and therefore for that of the banking sector,” said Pierre Etienne, vice chair of the ABBL.
“We anticipate an impact on income and employment, with repercussions on the economy as a whole,” the trade group said in a press release.
The impact could also be delayed for banks. Guy Hoffmann, chairman of the ABBL, pointed out at the press conference: “Overall, banking players are doing well, but our sector is out of step with the crisis. For us, the real threat is pushed forward, because our health depends on the level of economic recovery. The consequences for the sector are likely to be more visible at the end of the year, or even in 2021 and 2022.”
2. The prospects of a second wave
The likelihood of a second wave of infection also worries the financial sector. “A second wave would cause a new challenge to our organisations,” said Etienne.
The ABBL encourages its member companies and their employees to be tested for the coronavirus. A large-scale screening of staff in the financial sector was recently launched by the Luxembourg Institute of Health, the Ministry of Health, the Ministry of Higher Education and Research and the National Research Fund.
“In each bank, one in five people is tested every week, which means that an infection in this five-person cell will be detected quickly and that the necessary isolation measures can be put in place,” according to the ABBL.
3. IT costs
The transition to widespread telework has resulted in significant costs for the banking sector, due to the purchase of computer hardware, software and new licences to adapt computer systems to current needs. Not to mention the strengthening of cyber risk protection measures.
At the same time, digitalisation has accelerated towards customers, and internally, and will continue.
“IT, organisational and processing costs have to be controlled,” stated Etienne.
By the end of 2019, staff and administration costs had risen by 8.5% compared to 2018, after an increase of almost 7% in 2018. The year 2020 could therefore witness a new escalation in costs.
4. Regulatory expenses
“The cost of compliance, with ever-increasing regulations, must be managed (personnel and training costs, investment and IT development),” said the ABBL.
In particular, the association noted the deadlines of the IPU (intermediate parent undertaking) scheme, which will impose an organisational overhaul for banks and which could lead to outsourcing or relocation of activities. In this context, non-European banking groups carrying out large intra-EU transactions will indeed be required to place their European subsidiaries under the same entity, the “intermediary parent company”.
However, in terms of equity, the EU has eased off banks, to allow them to play a bigger role in economic recovery. The “banking package” came into force at the end of June, aimed at reducing capital requirements for banks.