The first half of 2020 has brought people around the globe in “shock and awe” due to the series of unfortunate events that took place, leaving a chronicle as never before experienced.
These unfortunate events entails the crisis between the US and Iran, the Taal Volcano eruption in the Philippines, the devastating earthquake in Turkey, the deadly bushfires in Australia, the untimely demise of a basketball legend when the helicopter he has ridden crashed in Calabasas and the outbreak of an infectious disease caused by a new strain of coronavirus, although came about during December 2019, but reached the borders of countries with the most cases during 2020.
The infectious disease later designated by health authorities as Coronavirus Disease 2019 (Covid-19) is continuing and still in existence, affecting the health and economic systems of the countries where it has spread, including the Philippines. For this matter, on March 18, 2020, a local transmission of Covid-19 has been confirmed, which immediately caused the Philippine President, Rodrigo R. Duterte to issue Proclamation No. 922, declaring a State of Public Health Emergency throughout the country. The State of Public Health Emergency intensifies the Philippine government’s response and measures to arrest the spread of Covid-19 and mitigate its health and economic effects across the country.
The issued proclamation charted a course of series of national and local executive issuances, imposing Enhanced Community Quarantine (ECQ) and General Community Quarantine (GCQ) in strategic geographical areas domestically, resulting to either closure or reduction of business hours of non-essential and essential businesses alike and such was the case of the Philippine banking industry.
Banks, being engaged in essential business, while continually operating during this pandemic, are not spared from the effects of Covid-19 as they too must observe precautionary measures put in place by the authorities and assume the consequences to its operations and earnings.
With the community quarantine in force, comes the corresponding national and local executive issuances that banks must observe, including the guidelines affecting their business operations. Most notably, in deference to these guidelines, banks implemented shortened banking and office hours, established alternate banking days, retained skeleton workforce, and adopted flexible working arrangements.
• Deposit side.
Due to these guidelines, banks’ business operations are not carried on a full-scale basis. With respect to their deposit activities, banks are having low transaction count involving deposit taking, but with a relatively high transaction count involving withdrawals. The reason is attributable to the fact that, for the time being, people need cash on hand as a liquid asset to be able to purchase their basic needs. Nonetheless, online banking is now instigated to be the “new normal”, wherein fund transfers, payments and investments are transacted online, while the account owner who initiated the transaction is at the confines of his or her home. Not to mention his or her difficulties to attend to over-the-counter transactions due to the risk of infection, no means of transportation, numerous roadblocks and countless of checkpoints.
• Lending side.
With respect to the banks’ lending operations, banks have taken a more conservative approach by suspending grant of additional loans/lines to those businesses who were heavily affected by Covid-19, such as those engaged in school or educational business, hotel and hospitality business, and construction and real estate business. On the other hand, banks are now taking into consideration to, instead, grant loans/lines to those engaged in food manufacturing and selling business, and delivery and cleaning services.
Nonetheless, in conformity with Republic Act No. 11469, otherwise known as the “Bayanihan to Heal as One Act”, banks are a giving grace period to all loan borrowers whose principal and/or interest payments fall due within the ECQ period as defined in the law, without necessarily having to pay for the past due interest, compounding interest, penalties, fees and other charges. In fact, banks are also granting credit extensions and restructuring as a relief to borrowers whose cash flow were affected because of the pandemic.
Consequence to Banks’ income.
With the banks’ limited business operations, conservative lending stance and deferred payment collections, banks are losing millions of daily or monthly revenues that would supposedly be sourced from account maintenance and transaction fees from deposit taking, as well as booking fees and interest income from lending.
Besides all that, banks, regardless of their classification, are charged with the burden of having to maintain the continued employment and compensation of their personnel, even so that they have already lost valuable man hours due to mobility restrictions and some of their business units’ non-operations.
Against the background, Philippine banks, at this initial stage, perhaps ought to study the business strategies of banks from Asian countries considered to be in the post Covid-19 economy, such as that of Taiwan, Hongkong, Singapore and South Korea.
Other than that, on its own, appropriate departments of banks must work hard in deposit generation, re-assess target markets for its lending operations, monitor payments from borrowers who availed of the grace period to reinforce its activities in collection, work out a repayment plan in case of non-payment and collection, and evaluate its performance during the ECQ period as against its goals for the remaining months of the year and quickly recover.
All things considered, the Covid-19 pandemic greatly affects, not only the health system of the country, but also the economy as all businesses, including that of banks with seemingly inexhaustible assets are disrupted. Yet, all and sundry looks forward to the forthcoming “normalcy” of the day-to-day business and private affairs.