The pandemic has changed the conversation in the banking industry.

At the beginning of 2020, it revolved around how to avoid being disrupted. In their blogs, my colleagues Justin Bradshaw and Rory Moore talk about the coming disruptions and what banks can do to prevent it.

The conversation now has changed to how to reduce costs. South African banks are looking at how to support customers, but with one eye on their balance sheets.

The question banks are asking is: how do we strike the right balance and do the right thing?

In calendar Q2 of the year, as the State of Disaster was declared in South Africa, banks were very proactive in doing the right thing by offering payment holidays and waiving fees on ATM withdrawals.

This inevitably has had an effect on revenue and profitability.

Fortunately, the regulations put in place after the 2008 crisis mean the sector is in much better shape to weather the coming credit crunch. With different banks having exposure to different industries, it’s impossible to predict what each bank needs to do. A bank with higher exposure to the once low-risk sectors of commercial property and tourism, for example, will have a different response to one with higher exposure to, say, technology and telecommunications, or healthcare and pharmaceuticals.

Our research has uncovered different phases that the banking sector will move through in the coming months.

I have found it a useful guide to conversations in the industry.

The first phase is a public stimulus.

In the US, the implication for banks is not as severe. Their unemployment is the highest in decades, but their government has approved trillions of dollars in federal aid to people and companies who qualify.

In our country, unemployment, already very high, has been pushed higher, and our UIF stimulus has not been as extensive. As the government stimulus dries up, consumers and small businesses will start to rely on credit from banks again. This is Phase 2 of the coming credit crunch.

How the industry responds to the demand for private-led debt provision holds reputational risk. Banks would like to position themselves as the heroes in this scenario. At the same time, they need to make sure they remain profitable so that they can continue to serve their customers.

Inevitably this will lead to the third phase, which will be how the banks re-structure their equity.

The balancing act they will need to manage is how much to invest in near-term recoveries, and how much to dedicate to future-proof their businesses.

The pandemic has tested business in so many ways. Leadership has had to adapt to teams working remotely. The industry has had to adapt to increased demand for and acceptance of digital channels. And boards have had to balance the need to cut costs because of a sudden dip in revenue with their strategy of insulating themselves against disruption.

All of these competing priorities need to be managed. Our research department has some thought-provoking ideas around how to do that, which I will be unpacking in future blog posts. How do you see these phases playing out, especially in South Africa? I am also keen to talk about our industry to knowledgeable insiders. Please contact me at If you would like to read our report on the looming credit crisis, you can download it by clicking here.

Jigyasa Singh

Jigyasa Singh

Managing Director – Financial Services, Africa

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