Banks and Covid 19: how the pandemic has hit the banking system

Banks and Covid 19: how the pandemic has hit the banking system

What are the damages caused by Covid-19 to the balance sheets of world banks? To date, the situation seems to be better than expected, although the effects that will materialize after the withdrawal of public support measures for companies remain to be assessed.

As stated in the latest report published by the strategic consulting firm Oliver Wyman: there is a risk that the expected impact on credit has not been reduced but rather postponed. In addition, there is also talk of any zombie companies that could go bankrupt as soon as there is an increase in interest rates.

Despite Covid-19, the banking system seems prepared

However, according to the consultancy firm, the European banking system would be able to deal with the risks. This is due to the losses that have yet to fully materialize and which have therefore given banks time to prepare for the potential peak in restructuring, with varying levels of proactivity observed.

Oliver Wyman also argues that there will be five major challenges for the European banking sector when it comes to the post-pandemic period:

  1. Prepare for the end of emergency measures;
  2. Support the Capital Market Union and the Next Generation fund of the European Union;
  3. Financing the transition to sustainable energy sources;
  4. Accelerate the digital transition of payments, loans and other services;
  5. Develop the financial infrastructures of tomorrow, starting with the digital euro.

For Italy, banks will play a key role when it comes to relaunching the economy, argued Claudio Torcelan, the head of Financial Services for Oliver Wyman. On the one hand, they will have to act proactively to mitigate the impact of the end of the transitional support mechanisms for the economy and on the other hand they will have to take an active role in the implementation of the Recovery Plan.

Finally, Oliver Wyman added that banks will be able to play an active part in the development of capital markets in Italy, where the relationship between listed companies and GDP is one of the lowest in Europe.

Nothing to fear, therefore, banking institutions will once again be able to tackle the problems caused by the pandemic. This is good news also for investors who will still be able to place their trust in the banking sector.

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