The role of the banking sector in kick-starting the economy post-COVID-19

Deloitte Digital Dialogue – June 2020

The role of the banking sector in kick-starting the economy post-COVID-19© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 2© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 2

The role of the banking sector in kick-starting the economy post-COVID-19

As we continue to live in times of COVID-19, Deloitte is hosting a series of digital dialogues to provide insights for clients and assist decision-makers both within business and government to navigate through the world post-COVID-19.

The role of the banking sector in kick-starting the economy post-COVID-19© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 3© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 3

While South Africa has rightfully prioritised the health of its population during the COVID-19 pandemic, the impact of the lockdown has and will still be devastating for the South African economy across many sectors.

To kick-start the recovery, it is critical for industries, such as the banking sector, to play their part and to ensure that interventions are put in place to alleviate South Africa’s financial burden. This should be done by collaborating closely with government to accelerate growth post-COVID-19.

An industry at the coalface

The impact of COVID-19 is devastating and pervasive, threatening whole industries and putting customers in their individual and corporate capacity under pressure.

With South Africa, for example, at risk of losing seven million jobs and reaching an unemployment rate of over 50%,1

government’s capacity to cope with the financial burden by the pandemic is under the spotlight.

This makes public-private partnerships central to protecting real economies and ensuring that productive capacity is ready to be turned on as soon as possible following lockdowns.

Banks who themselves are impacted by low margins and compressed profits need to find ways to restructure and refinance unserviceable customer debt, while navigating an uncertain environment where only a percentage of businesses will bounce back in a reasonable amount of time.

1 Omarjee, J. 2020. SA risks losing 7 million jobs reach over 50% unemployment: Treasury’s grim worst-case scenario. [Online} Available: https://www.news24.com/fin24/Economy/South-Africa/sa-risks-losing-7-million-jobs-reaching-over-50-unemployment-treasurys-grim-worst-case-scenario-20200430

“The impact of COVID-19 is devastating and pervasive, threatening whole industries and putting customers in their individual and corporate capacity under pressure.”

- Lungisa Fuzile: Chief Executive, Standard Bank South Africa

The role of the banking sector in kick-starting the economy post-COVID-19© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 4© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 4

Some businesses will struggle and take an extended period to return to operating at pre-COVID-19 levels, or completely cease to exist.

This means that focused strategies are required to support small and medium-sized enterprises (SMEs) – the lifeblood of the real economy in many African economies – through this recovery cycle. Banks are well-positioned to assist with rebuilding capital, increasing infrastructure finance and stimulus spending.

The future of banks – accelerating change

While crises, like the COVID-19 pandemic, seem to entrench traditional banks and their perceived safety in the minds of customers, these banks must continue to prioritise digital transformation and

intentionally reimagine the way in which they service their clients and attract the unbanked.

The view towards technology is positive and incumbent banks recognise the role of ‘hyperscalers’ as well as new entrants in stimulating competition and driving innovation in the banking sector.

Not every customer, business or sector is equally vulnerable. As new information emerges to assist institutions manage through the crisis banking institutions should relook the way they manage risk and measure return. Banks must also continue to focus on integrating societal contracts into their business to drive a sense of shared value.

“Banks who themselves are impacted… need to find ways to restructure and refinance unserviceable customer debt...”

- Richard Kibble: Financial Services Consulting Partner, Deloitte UK

“Redefining how we look at risk and measure returns for institutions is an important driver to how the banking sector can embrace the recovery journey.”

- Yvonne Ike: Managing Director for Sub-Saharan Africa, Bank of America Merrill Lynch

The role of the banking sector in kick-starting the economy post-COVID-19© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 5© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 5

An African perspective to efficient banking

As the impact on international markets softens, the focus is on how South Africa and other African economies will address the effects of COVID-19 as a continent. Recovery from the effects of the pandemic are likely to only transpire in 2022-24, specifically given that South Africa and a number of African markets are opening up economies ahead of reaching the peak of the virus.

The banking sector as a whole is facing challenges such as impairments, credit loss and reduced profit margins, but the upside is that African banks remain strongly capitalised.

Fast-growing digital lenders are undertaking a more pan-African agenda

and areas like venture capital and the opportunities which exist in changing consumer behaviour are where banks should look in the coming months.

Although intra-African trade will not flourish overnight, banks should not lose momentum in collapsing barriers to trade and capitalising on the opportunities such as the African Continental Free Trade Area (AfCFTA) agreement over the long term.

As stakeholders in kick-starting of the economy, sustainable banks will be banks that are agile and that contribute to relieving the situation, rather than worsening it. This means working collectively, collegially and responsibly with governments in the countries in which they operate.

“Emerging information will help us better manage through the crisis… this means working collectively, collegially and responsibly.”

- Gert Kruger: Chief Risk Officer, The First Rand Group

The role of the banking sector in kick-starting the economy post-COVID-19© 2020. For information, contact Deloitte Touche Tohmatsu Limited. 6

Contacts

Dr Martyn Davies

Managing Director: Emerging Markets &

Africa Dean: Deloitte Alchemy School of Management:

Deloitte Africa

Email: mdavies@deloitte.co.za

This insights summary is based on a webinar with the same title that was hosted by Deloitte Africa’s Martyn Davies, Managing Director of Emerging Markets and Dean of Deloitte

Alchemy School of Management on the 10th June 2020. Speakers included:

Gert Kruger: Chief Risk Officer, First Rand Group Lungisa Fuzile: Chief Executive, Standard Bank South Africa Richard Kibble: Financial Services Consulting Partner, Deloitte UK Yvonne Ike: Managing Director for Sub-Saharan Africa, Bank of America Merrill Lynch Nina le Riche Traill: Deloitte Africa’s Financial Services Industry Leader

Dirk Kotze

Banking Sector Advisory Leader

Deloitte Africa

Email: dikotze@deloitte.co.za

Darren Shipp

Banking Sector Audit Leader

Deloitte Africa

Email: dshipp@deloitte.co.za

Mokibelo Magome

Marketing Manager: Financial Services Industry

Deloitte Africa

Email: mmagome@deloitte.co.za

Hannah Marais

Associate Director: Africa Insights

Deloitte Africa

Email: hmarais@deloitte.co.za

Authors:

Nina le Riche Traill

Financial Services Industry Leader

Deloitte Africa

Email: nleriche@deloitte.co.za

Richard Kibble

Financial Services Consulting Partner

Deloitte UK

Email: rkibble@deloitte.co.uk

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