Straining digital collaboration and service
As banks restrict physical interactions, they are turning to digital tools and platforms. Productivity will decline in the short-term because GCC banks have been slower to adopt virtual infrastructure than European and U.S. financial institutions. Employees are also not accustomed to using remote working protocols. Digital channels for customers will be tested as some branches close and customers stay away. Banks that have invested to give customers access to a wide range of online services will benefit the most, however, the spike in digital usage will test the infrastructure of all banks.
Financing for stressed consumers and companies
“Gig” economy workers, and employees in leisure, travel, and hospitality will experience notable income declines. This will oblige them to rely on short-term loans or existing lines of credit. SMEs will also encounter financial pressure as consumers reduce spending. This will result in more non-performing loans. Surveys have already demonstrated that fewer GCC SMEs have lines of credit compared to similar companies in advanced economies, and they are also a smaller proportion of the total loan book, making them financially vulnerable. Banks may need “moratorium tools” to restructure payments for otherwise healthy borrowers facing difficulties, which is an opportunity to generate long-term goodwill.
Lower fee revenues for value-added services
Some income streams will shrink. Customers will make fewer payments, meaning less transaction fee income. Regional financial markets, which governments have sought to develop, will be tested. Less activity by the region’s sovereign wealth funds could exacerbate matters. Worried clients may shift assets from riskier classes to safer holdings, cutting management fees. Corporate finance fees will decline as M&A activity is confined to emergency acquisitions. The uncertainty and volatility will put major issuance in the capital markets temporarily on hold.
Less VC funding means bank-fintech collaboration
Venture capital for Financial Technology (fintech) will wither, with government-backed initiatives unlikely to maintain fintech funding as a priority. That means investment opportunities for traditional banking organizations. The need for digital banking services could force banks to accelerate digital innovation, inclining them to partner with fintechs.
Non-cash payments and e-commerce boom
Contactless payments can limit the spread of COVID-19 on banknotes. The World Health Organization is encouraging contactless payments and has asked card associations and networks to temporarily reduce fees. The GCC is in a strong position thanks to fast adoption rates for contactless card and mobile payments, along with high smartphone penetration. E-commerce is also likely to grow as customers avoid physical stores and shift their daily shopping online.