Analysis by Kearney has found that revenue for retail banks will fall by an average of 20% over the course of 2020 and that one in eight will face losses
The information was revealed as part of the global consultancy partnership's annual European Retail Banking Radar report. This provides an annual analysis of the pan-European banking market, tracking 92 retail banks across 22 European markets - 50 in Western Europe and 42 in Eastern Europe.
This, the first instalment of the 2020 edition, focuses on five key topics impacting the retail banking industry as it navigates the journey towards a post-COVID-19 world. These five topics are:
- The 2020 retail banking outlook: minimising loss and maximising customer trust
- New decade, new crisis: lessons learned from the global financial crisis
- A new normal: fortifying distribution channels in a post-COVID-19 world
- The operating model of the future
- Life after COVID-19: building a new banking landscape through mergers and acquisitions
Retail banking and COVID-19
Kearney says that, as a result of measures to address the global pandemic of coronavirus, banks are in a "precarious position as their income levels drop while operating costs remain largely unchanged".
Modelling revealed that those one in eight banks that face a loss will do so as a result of the impact of COVID-19. The report states that, while certain customer areas such as food shopping, online retail and streaming services continue to thrive, customers have dramatically scaled back their overall spending.
The research also suggests that profitability per customer is projected to reduce by approximately 60%. This, it says, is a result of measures being taken by banks to accommodate customers during the COVID-19 crisis, such as cutting interest base rates, cancelling overdraft fees, granting mortgage repayment holidays and more.
Bank revenues are, as a result, expected to drop by 20%. It should be noted that Kearney describes this figure as a 'base scenario', and that a revenue drop of as much as 40% is possible.
However, despite this, costs for those banks will remain "largely the same". Banks, it says, are entering a holding pattern wherein operations are being kept afloat as they consider whether to reopen and what the post-COVID-19 operating model looks like.
On the research, Simon Kent, Partner and Global Head of Financial Services at Kearney said that there is no doubt the coronavirus pandemic is impacting retail banks.
He noted that retail banks are "having to weather enormous and unprecedented changes", adding that "repayment holidays on credit cards and loans and offers of interest free overdrafts are vital for consumers, but they do mean that banks are vulnerable as their income levels drop while operating costs remain largely unhinged."
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