Banking sector still in crisis [Kochański & Partners report]

13 July 2020 | Knowledge, News

Polish banks have still not begun to recover from the coronavirus pandemic. Analysts warn: if specific measures are not taken quickly, the banking sector will plunge even deeper into crisis.

 COVID-19 crisis in the Polish banking sector 

The Polish banking sector has been severely affected by the coronavirus pandemic, recording drops of around 45% in mid-May compared to January. And even worse, there are no indications of any quick recovery from the crisis. Current values of indices show that banks are still stalled at this point.

The continuing crisis in the sector is mainly due to the growing aversion of banks to granting credits and of borrowers to incurring new liabilities. An additional problem is the growing risk of mass insolvency among businesses, having a direct impact on the financial result of banks. Nevertheless, it may be expected that banks will become more active and credit restrictions will gradually relax as the economy continues to thaw out.

 Western banks also recording losses

The Polish banking sector is not alone in being impacted by the COVID-19 pandemic. The US banking sector has also recorded declines of as much as 50% in the second half of May. The pace of recovery is also unsatisfactory, with the banking index being still 35% below this year’s initial value.

However, the federal government has taken steps to improve the liquidity of the US financial system. The FED’s maintenance of very low interest rates, its sustained intense easing policy and other schemes in place are providing a significant boost to the economy. However, given the controversy over the effectiveness of unconventional monetary policy instruments, an objective assessment of the actions taken by the US will only be possible at a later stage.

The German banking sector, in comparison, has been recovering much faster. Following drops of around 37% in early June, the value of the banking index has been approaching 10-11% below that recorded at the beginning of the year. The positive trend in the German banking sector is primarily due to its presence in the euro area, with low interest rates maintained by the European Central Bank mitigating the decline. In the long term, however, the situation of the banking sector will depend, among other things, on the intensity and duration of the economic crisis, which directly affects the liquidity of businesses and individuals.

 COVID-19 hits investment banking

The indices also show that the pandemic has also affected global investment banks, being extremely sensitive to any global economic slowdowns and crises.

A downturn in the stock market listings began in mid-February and lasted a month. In the second half of March, however, the values began to edge upwards. Goldman Sachs fares particularly well in this area, perhaps owing to its strong standing in securities trading, accounting for around 40% of its revenue.

 

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