The global banking industry could lose between $1.5 trillion to $4.7tn in cumulative revenue between 2020 and 2024 because of the effects of Covid-19, according to a new report from consultancy McKinsey.
Banks will need to fundamentally reinvent their business models to sustain a long period of zero or near-zero per cent interest rates and other economic challenges, according to McKinsey's latest Global Banking Annual Review.
“Middle East banks have also been severely impacted across all levers, i.e. margin decline, demand slowdown and increased credit losses. However, capital and liquidity positions remain strong, allowing these institutions to weather the storm,” said Jawad Khan, McKinsey’s banking practice leader in the Middle East.
Capital and liquidity position remains strong, allowing these [Middle East] institutions to weather the storm
“Challenges will remain in the mid-term, but this is the time for banks to re-think their operating model to drive productivity and become even more capital-efficient.”
Governments around the world have provided $12tn in fiscal stimulus measures to support the global economy from the fallout of Covid-19, with central banks adding a further $7.5tn in monetary measures as at the end of September, according to the International Monetary Fund.
However, this has come at a cost to lenders as lower interest rates push down the margins they can make from offering loans to customers.
McKinsey's report argued that banks face a two-stage problem. The first will be severe credit losses, likely to last until late next year.
The extended lockdowns in some cities globally will result in people and businesses unable to keep up with their payment obligations, resulting in increased personal and corporate defaults. Global banks have provisioned $1.15tn for loan losses through the first three quarters of 2020, surpassing those for all of 2019, McKinsey found.
“We project that in the base-case scenario, loan-loss provisions in coming years will exceed those of the [global financial crisis],” the consultancy said.
In the second stage, amid a muted global recovery, banks will face a “profound” challenge to ongoing operations that “may persist beyond 2024”, the consultancy said.
“On an absolute basis, compared with pre-crisis growth projections, the Covid-19 crisis may cost the industry $3.7tn – the equivalent of more than a half year of industry revenues that will never come back.”
McKinsey also estimated that banks’ return on equity would continue its decline, from 8.9 per cent in 2019 to 4.9 per cent in 2020 and 1.5 per cent in 2021.
The industry is sufficiently capitalised to withstand likely credit losses, with average tier-1 equity capital ratios due to fall to 10.9 per cent next year from 12.5 per cent last year, before recovering to 12.1 per cent by 2024, McKinsey estimated.
With banks expected to remain stretched, the consultancy outlined three ways for financial institutions to rebound. They must embed speed and agility into their practices, reinvent business models to sustain “a long winter of zero per cent interest rates” and weave in more environmental, social and governance practices into their operations.
“Banks will need to act quickly to return to pre-crisis RoE levels, in a far more challenging environment than the decade just past,” said Marie-Claude Nadeau, McKinsey partner and report co-author.
“The trade-off between rebuilding capital and paying dividends will be stark,” Ms Nadeau added.
Banks will also need to accelerate the shift to digital operations and reconfigure their branch networks, where demand has softened. The McKinsey report found that in the past year, the use of cash and cheques has eased; in most markets, about 20 to 40 per cent of consumers report using significantly less cash.
Although customer interest in digital banking has increased in many markets, this trend varies widely. In the UK and the US, only 10 to 15 per cent of consumers are more interested in digital banking than they were before the crisis, while in Greece, Indonesia, Mexico and Singapore, the “more interested” share ranges from 30 to 40 per cent, McKinsey research found.
“Banks will need to retrain some branch bankers, in part by conceiving flexible roles that mix on-site and remote work. Branch bankers can perform their traditional teller tasks with some portion of their time. With the remainder, they can get trained on new skills to become contact centre agents,” the consultancy said.
Company%20Profile
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Diriyah%20project%20at%20a%20glance
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UAE currency: the story behind the money in your pockets
Mohammed bin Zayed Majlis
Pakistanis%20at%20the%20ILT20%20
%3Cp%3EThe%20new%20UAE%20league%20has%20been%20boosted%20this%20season%20by%20the%20arrival%20of%20five%20Pakistanis%2C%20who%20were%20not%20released%20to%20play%20last%20year.%20%0D%3Cbr%3E%0D%0D%0D%3Cbr%3E%3Cstrong%3EShaheen%20Afridi%20(Desert%20Vipers)%20%3C%2Fstrong%3E%0D%3Cbr%3ESet%20for%20at%20least%20four%20matches%2C%20having%20arrived%20from%20New%20Zealand%20where%20he%20captained%20Pakistan%20in%20a%20series%20loss.%20%0D%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EShadab%20Khan%20(Desert%20Vipers)%20%3C%2Fstrong%3E%0D%3Cbr%3E%0DThe%20leg-spin%20bowling%20allrounder%20missed%20the%20tour%20of%20New%20Zealand%20after%20injuring%20an%20ankle%20when%20stepping%20on%20a%20ball.%20%0D%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EAzam%20Khan%20(Desert%20Vipers)%20%3C%2Fstrong%3E%0D%3Cbr%3EPowerhouse%20wicketkeeper%20played%20three%20games%20for%20Pakistan%20on%20tour%20in%20New%20Zealand.%20He%20was%20the%20first%20Pakistani%20recruited%20to%20the%20ILT20.%20%0D%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EMohammed%20Amir%20(Desert%20Vipers)%20%3C%2Fstrong%3E%0D%3Cbr%3EHas%20made%20himself%20unavailable%20for%20national%20duty%2C%20meaning%20he%20will%20be%20available%20for%20the%20entire%20ILT20%20campaign.%20%0D%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EImad%20Wasim%20(Abu%20Dhabi%20Knight%20Riders)%20%3C%2Fstrong%3E%0D%3Cbr%3EThe%20left-handed%20allrounder%2C%2035%2C%20retired%20from%20international%20cricket%20in%20November%20and%20was%20subsequently%20recruited%20by%20the%20Knight%20Riders.%26nbsp%3B%3C%2Fp%3E%0A
F1 The Movie
Starring: Brad Pitt, Damson Idris, Kerry Condon, Javier Bardem
Director: Joseph Kosinski
Rating: 4/5
Jetour T1 specs
Engine: 2-litre turbocharged
Power: 254hp
Torque: 390Nm
Price: From Dh126,000
Available: Now
David Haye record
Total fights: 32
Wins: 28
Wins by KO: 26
Losses: 4
Prop idols
Girls full-contact rugby may be in its infancy in the Middle East, but there are already a number of role models for players to look up to.
Sophie Shams (Dubai Exiles mini, England sevens international)
An Emirati student who is blazing a trail in rugby. She first learnt the game at Dubai Exiles and captained her JESS Primary school team. After going to study geophysics at university in the UK, she scored a sensational try in a cup final at Twickenham. She has played for England sevens, and is now contracted to top Premiership club Saracens.
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Seren Gough-Walters (Sharjah Wanderers mini, Wales rugby league international)
Few players anywhere will have taken a more circuitous route to playing rugby on Sky Sports. Gough-Walters was born in Al Wasl Hospital in Dubai, raised in Sharjah, did not take up rugby seriously till she was 15, has a master’s in global governance and ethics, and once worked as an immigration officer at the British Embassy in Abu Dhabi. In the summer of 2021 she played for Wales against England in rugby league, in a match that was broadcast live on TV.
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Erin King (Dubai Hurricanes mini, Ireland sevens international)
Aged five, Australia-born King went to Dubai Hurricanes training at The Sevens with her brothers. She immediately struck up a deep affection for rugby. She returned to the city at the end of last year to play at the Dubai Rugby Sevens in the colours of Ireland in the Women’s World Series tournament on Pitch 1.
THE LOWDOWN
Photograph
Rating: 4/5
Produced by: Poetic License Motion Pictures; RSVP Movies
Director: Ritesh Batra
Cast: Nawazuddin Siddiqui, Sanya Malhotra, Farrukh Jaffar, Deepak Chauhan, Vijay Raaz
Porsche Macan T: The Specs
Engine: 2.0-litre 4-cyl turbo
Power: 265hp from 5,000-6,500rpm
Torque: 400Nm from 1,800-4,500rpm
Transmission: 7-speed dual-clutch auto
Speed: 0-100kph in 6.2sec
Top speed: 232kph
Fuel consumption: 10.7L/100km
On sale: May or June
Price: From Dh259,900
The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
West Asia Premiership
Dubai Hurricanes 58-10 Dubai Knights Eagles
Dubai Tigers 5-39 Bahrain
Jebel Ali Dragons 16-56 Abu Dhabi Harlequins
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
UAE v Gibraltar
What: International friendly
When: 7pm kick off
Where: Rugby Park, Dubai Sports City
Admission: Free
Online: The match will be broadcast live on Dubai Exiles’ Facebook page
UAE squad: Lucas Waddington (Dubai Exiles), Gio Fourie (Exiles), Craig Nutt (Abu Dhabi Harlequins), Phil Brady (Harlequins), Daniel Perry (Dubai Hurricanes), Esekaia Dranibota (Harlequins), Matt Mills (Exiles), Jaen Botes (Exiles), Kristian Stinson (Exiles), Murray Reason (Abu Dhabi Saracens), Dave Knight (Hurricanes), Ross Samson (Jebel Ali Dragons), DuRandt Gerber (Exiles), Saki Naisau (Dragons), Andrew Powell (Hurricanes), Emosi Vacanau (Harlequins), Niko Volavola (Dragons), Matt Richards (Dragons), Luke Stevenson (Harlequins), Josh Ives (Dubai Sports City Eagles), Sean Stevens (Saracens), Thinus Steyn (Exiles)
ESSENTIALS
The flights
Emirates flies from Dubai to Phnom Penh via Yangon from Dh2,700 return including taxes. Cambodia Bayon Airlines and Cambodia Angkor Air offer return flights from Phnom Penh to Siem Reap from Dh250 return including taxes. The flight takes about 45 minutes.
The hotels
Rooms at the Raffles Le Royal in Phnom Penh cost from $225 (Dh826) per night including taxes. Rooms at the Grand Hotel d'Angkor cost from $261 (Dh960) per night including taxes.
The tours
A cyclo architecture tour of Phnom Penh costs from $20 (Dh75) per person for about three hours, with Khmer Architecture Tours. Tailor-made tours of all of Cambodia, or sites like Angkor alone, can be arranged by About Asia Travel. Emirates Holidays also offers packages.
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