Global banking industry to lose $3.7trn over five years – research

• Post-Covid recovery still remote
• Sector to lose $1.9trn LLPs by 2021, rising north to $3.7trn by 2024
• In Africa, NPLs to rise sharp from 11% 2019 level
• 48% of banks plan live customer interactions via ATM by 2021

For the global banking industry, the potential for economic recovery in the near term remains uncertain, as the current Covid pandemic is set to pose a double-pronged problem for the industry in the months and years to come, said a new research analysed and published by ComprarAcciones.

According to the research data, the global banking industry is projected to lose $1 trillion in foregone revenue and set aside $1.9 trillion in loan loss provisions (LLPs) by 2021. By 2024, the sector is forecast to suffer a loss of $3.7 trillion in revenue, a 14 per cent drop from pre-crisis projections.

Meanwhile, in Q3 2020, banks across the globe set aside $1.15 trillion as LLPs, much higher than the amount set aside throughout 2019.

According to McKinsey, in the coming years, LLPs will surpass those of the Great Recession (of the 1930s). During Q1 to Q3 2020, the top 100 banks in North America provisioned $130.9 billion for loan losses. In APAC (Asia, Pacific), the top 100 banks set aside $89.4 billion, while in Europe, they set aside $72.2 billion.

Meanwhile, based on a report from SP Global, banks across the globe are estimated to suffer credit losses of up to $2.1 trillion in 2020 and 2021. In 2020, the figure is expected to reach $1.3 trillion, more than double the $603 billion posted in 2019. It will drop to $825 billion in 2021.

On the other hand, Deloitte projects that the average Return on Equity (ROE) for the US banking sector could drop to 5.6 percent in 2020. But by 2022, it will rebound to 11.7 percent.

For the top 100 banks in North America, Europe and APAC estimated ROE could fall by three percentage points to 6.8 per cent in 2020. In North America and Europe, they will not rebound to pre-crisis levels in the near future. But in APAC, they might rebound to 9.2 per cent by 2022, the research said.

Also, 60 per cent of the losses forecast in the report are expected to take place in Asia Pacific (APAC) regions. From the $926 billion increase in credit losses in 2020 and 2021, APAC will account for $518 billion. China will dominate with $398 billion in credit losses.

North America will account for $240 billion of the increase, while Western Europe will account for $120 billion.

According to SP Global, pre-provision earnings should be able to absorb the losses. Further upticks would, however, take a toll on banks’ ratings, with some recording net losses.

For the top 100 banks in North America, APAC and Europe, the estimated average ROE could fall by three percentage points to 6.8 percent in 2020. In North America and Europe, they are not expected to recover to pre-pandemic levels in the near term. However, in APAC, they might get close to the pre-COVID average of 9.2 per cent by 2022.

On the bright side, COVID has accelerated digitization trends. Based on the Deloitte report, 44% of retail banking customers claims to be using their primary bank’s app more frequently. For Brazilian digital bank, Nubank, the number of accounts rose by 50 per cent to 30 million.

Bank of America reported a 117 percent increase in check deposits via mobile on its business banking app. During H1 2020, Standard Chartered posted a 50% growth in retail banking digital sales.

Over the coming year, 48 percent of banks surveyed by Deloitte is planning to incorporate live customer interactions with bank employees via ATM. 46 percent are considering changing self-service touchscreens into contactless kiosks to facilitate transactional services.

Meanwhile, in Africa, www.odi.org says the stability of the banking sector in the continent is threatened by the likelihood that there will be a sharp increase in non-performing loans, from the already high levels of 11 per cent in 2019. Borrowers across sectors and scales of business will be affected, as declines in income and revenue mean that they will be unable to meet their obligations. Individual institutions also remain vulnerable to failure. For example, microfinance financial institution (MFI) portfolios will come under stress as a result of lending to households with volatile income and no assets, and some may be unable to maintain solvency. Institutions at risk include those with hard-currency, short-term funding or interbank liabilities, or those with high concentrations in sectors particularly affected by the Covid-19 shock.