Article:

COVID 19 – Crisis or opportunity

08 June 2020

As the coronavirus continue to spread, many countries have implemented different level of restrictions in the cities. Governments in many countries have banned their international travelling, ordered their citizens to stay home or will face the penalty if they breach the social distancing requirement. Shops, retail malls and restaurants are mostly closed, and the cities are effectively being locked down, with only the essential services are being opened. 

The economic fallout due to the Covid-19 has also driven many countries to pump in unprecedented amount of money and the recovery packages, reduce interest rate and implement the fiscal measures to moderate the impact of the shutdown in most activities. In many cases, the recovery packages from the governments have exceeded the support in last global financial crisis in 2008. For open economies and countries that are heavily relying on trading, export and tourism, the impact is particularly huge. Singapore for example, has dipped into the country’s reserves which have only done twice in the history to sustain the economy. In April 2020, IMF indicated that Thailand could see a contraction of 6.7% in 2020. In earlier May 2020, Hong Kong has posted its worst decline of GDP, shrinking 8.9% year on year in 1Q of 2020.

While some of these recovery packages look huge, they represent around 5%-20% of the countries' GDP, effectively around 0.6 to 2.4 months without productivity. If we are taking the assumption that the package is used to compensate half of the normal productivity, they can only support 1.2 to 4.8 months. 

With all major countries trying to resuscitate the economies, the financial market seemed to be relatively stabilised as compared to last global financial crisis. Some sectors like oil, airlines, automobile, tourism, retail, and durable goods, however, have suffered more. We have witnessed that the US crude oil futures fell below zero per barrel for the first time in the history in our lifetime. On the other hand, pharmaceutical, telecommunication, e-commerce, logistics, cloud-based companies, and on-line gaming industries have benefited from the pandemic crisis.

For the banking industry, most banks are not severely impacted during the pandemic, as least not yet until we see the credit loss kicking in after the middle of the year. To deal with the pandemic crisis, most banks adopted the split team arrangement at the beginning and subsequently moved to the remote working arrangement after the cities were widely lockdown. The duration of this broad-based remote working arrangement could be one of the longest most banks have experienced in history. Fortunately, most systems and IT infrastructures are intact so some level of activities can be carried on.

Looking back over the last few months, Covid-19 started with a pandemic crisis and slowly turned into an economic crisis. In the agile and nimble economy, coupled with the fourth industrial revolution, banks may want to take a step back and see what are the opportunities lie ahead? 

With the Covid-19, many people have little choice to accept the digitalisation much faster than they originally plan. Virtual meetings have become the new norm, even when people are moving back to their offices. The take up rate for the online transactions and banking have also increased dramatically during this period. The cloud-based providers have stood out and proven to be more versatile, reliable (in term of IT redundancy) and better equipped to deal with the cyberattack than many financial institutions.

In summary, every crisis comes with an opportunity. The Covid-19 has expedited the online banking, cloud-based solution, and adoption of the digitalisation in the society. It gives rise to the opportunities to adopting new ways of working in the organisation.

With the remote working arrangement, some potential cost saving opportunities can be identified. These include but not limited to the office rental, maintenance, furniture, equipment, electricity, business recovery site, paper, storage, travelling cost, etc. At the same time, it opens the physical boundary of office location and attracts new types of workforce in the organisation. Imagine, all the sudden, Banks are now able to recruit people from everywhere, including the gig workers, young and experienced talents who prefer flexible working arrangement in their owned countries. As a result, the organisation can reduce substantial cost associated with the relocation, allowances, and subsidies.  

Of course, one will reasonably expect that the cost associated with the digitalisation, video conference, IT security and infrastructure be increased. But with an open mind, right IT strategy and continued reduction of 5G technology cost, this could be easily resolved.