Welcome to another week of financial learning.
The whole world has come to a partial standstill due to the outbreak of coronavirus.
The virus that started slowly in China has now spread to more than 150 countries across the globe.
The economic impact of the pandemic goes beyond the shores of China.
According to Mathieu Vasseux, Head of Financial Services MEA at Oliver Wyman:
“The ongoing coronavirus epidemic may lead to reduced borrowing and lending, impacting banks that work in corporate and personal finance in Dubai and the Middle East.”
Mathieu made this statement after the central bank of the UAE (CBUAE) requested banks implement measures to counteract the effects of COVID-19: including rescheduling loans, offering temporary deferrals on monthly loan payments, and reducing fees and commissions.
International Economic Rating agency Moody’s Investor Services had this to say about spread of the virus in its latest report;
“Travel bans to and from affected areas will negatively affect tourism, hospitality and transportation, as will reduced demand from the curtailment of non-essential travel and other measures.”
Ghana recorded its first coronavirus case more than two weeks ago, and currently stands at 132 cases at the time of writing this piece.
The president, through a directive, has suspended any form of social gathering – which has affected churches, schools, funerals and weddings to mention a few.
The directive can affect other sectors in the coming days, if it has not done so already.
The United States of America government has earmarked over US$1trillion to fight this pandemic disease. Ghana has US$100million as the budget to curb this menace.
The virus spread has led to total state lockdowns in the UK, Italy, Spain, and a host of other countries globally, including South Africa.
While we fight to eradicate the virus, I want to address the impact on Ghana’s banking sector.
The first major impact from the spread of this virus and lockdowns is the inability of loan customers to settle their indebtedness as they fall due.
Most customers with monthly repayment structures will begin to feel negative impacts beginning with turnover challenges.
Many companies that are into fast-moving commodities have begun to have a downward turnover trend due to the call for people to stay at home.
Sales have begun to slow down while overhead costs remain almost the same.
Revenues of these customers are being impacted seriously, especially schools and churches.
Schools and churches with assets at commercial banks will begin to have difficulties servicing their loans in the coming weeks.
Banks will therefore need to quickly move into restructuring mode, or start recording high NPLs by the end of March and April.
I have read with a bit of concern about how a section of Ghanaians on Social Media are lambasting some pastors who initially expressed concern when the president directed the partial shutdown of churches.
Some of those churches have taken loans from banks which will require repayment in March and April.
No physical church services will lead to a reduction in revenue for those churches, thereby causing defaults.
Their concerns are therefore genuine and should not be ‘rubbished’.
However, with technology and innovation, the churches should educate their members to give in support of running the ministry.
The slow growth of revenue, suspension of some businesses among others, should be of great concern for commercial banks in Ghana as we move to the next stage of COVID-19 management.
Run on banks
The second impact of COVID-19 on the banking sector is the negative deposit growth of financial institutions.
Many Ghanaians have started stocking their homes and wallets, upon rumours of an Accra and Kumasi shutdown.
The more these rumours take root, the more customers will begin to withdraw their savings from banks to buy consumables in anticipation of restricted movement.
This will impact negatively on the liquidity position of most banks.
The central bank, to manage this challenge, has reduced the Primary Reserve Requirement from 10 to 8 percent, as well as the Capital Conservation Buffer(CCB) for banks from 3 to 1.5 percent.
This is providing more liquidity to the banks and support to critical sectors of the economy, as captured in their communication signed by Mrs. Sandra Thompson, Bank of Ghana Secretary, on March 20, 2020.
Banks should continue to engage and educate their customers on financial management measures in times like these, to manage a possible run on them.
One of such important education goals is to advise customers against liquidating their investments out of panic. This is a call that I made personally on my YouTube Channel – Patrick TV GH.
The president of Ghana, in his directive, advised against the public gathering of people exceeding 25 persons.
This call has led to most banks resorting to staff-rationing.
Most branches have divided their staff into two groups, with one team working for a week while the other team works from home.
This is a laudable initiative, but can negatively affect business development.
The productivity of staff working from home is obviously very questionable in our setting.
Most of the staff have a family at home; hence divided attention and a home-like mood can lead to low productivity.
We are not in normal times, and as such this step is commendable.
Unplanned Operational Expenses
Almost every bank has purchased precautionary and safety items at their various offices to manage spread of this virus.
Some of the items are gloves, masks, Veronica-buckets, sanitisers, and extra detergents.
None of these banks considered these during their last budget session.
No matter how small the total cost of these items, it will influence the P&L of these banks.
Efficiency is therefore needed in the utilisation of these items.
The picture is, however, not all gloomy for the banks. Reports have indicated that the virus will have a positive effect on the usage of digital services like online banking, mobile wallets, etc.
Consumers’ desire for digital banking services will most likely increase, forcing many traditional financial institutions to fast-track digital innovation efforts.
As a result, many banks and financial institutions will have to look to fintech firms for assistance in bringing better digital banking solutions to the marketplace.
I will end by advising bank staff to work extra hard in times like these, since their banks’ revenue will be badly hit by this virus.
Your life is precious to your employer. Revenue is also important to your employer, so work at matching your life to the revenue expected from you.
We are not in normal times, but as our President said: This too shall pass!!!
Wash your hands with soap under running water every 30 minutes; use alcohol-based sanitisers periodically; avoid close contact and call the emergency lines should you feel any COVID-19 symptoms.
I wish everyone a wonderful and memorable week, Stay Safe!
>>>The author is into youth facilitation and counselling. He can be contacted via email@example.com and or 0243984492. Follow Patrick on the various platforms for more education. Facebook: www.facebook.com/PatrickTVGh/ Instagram: @PatrickTVGH