While we see Canada starting to slowly reopen businesses again, it’s time to reflect on the responses banks had to the pandemic so far, and their collaboration with both government and citizens.
Primarily, the focus has been shifted to the consumer, as demonstrated by the support for small business with extensions of credit and contributions to the CEBA program, providing small-mid sized businesses with 0% interest on up to $40,000 which is good until the end of 2022.
Cash flow from customers has also seized due to the pandemic, as unemployment rates have skyrocketed and decreased spending rates attributed to the nature of the pandemic lockdown. Bank lenders then lowered credit interest rates and gave clients options to defer their mortgage payments.
Since the beginning of the pandemic to the end of April, over 670,000 Canadians chose to defer their mortgage payments, which is presumed to be paid back at a later date, likely with increased interest.
On the physical front, banks have adapted their everyday practices to the covid situation. Socially distanced lineups, reduced store capacity, and protective screens are commonplace now in banks, and really anywhere. However, bank services are becoming overloaded with volume as clients have trouble navigating such a sudden and bleak financial situation.
Banks are forced to suffer through the losses. Now they have to look forward to the future and reassess short term goals and priorities.
For consumers, the thing that’s worrying is the unclear future. It’s a likely possibility that interest rates, along with Canadian federal and provincial tax rates, go up to compensate for the massive debts that the pandemic accumulated. Another reality the bank has to face is that some clients and businesses will be permanently affected as a result of the situation. Jobs people might never get back, businesses permanently closing, this all leads to loans and debts that the lender might not fully re-coop, much less make interest on.
Moving forward, lookout for new strategies and policies banks are issuing. Likely readjusting future goals, and recouping as much lost capital as possible.
A strategy could be possibly keeping low savings rates, but eventually down the line interest rates on loans and credit could see a general increase.
Nothing’s for sure yet, except for one thing: there will be lasting effects that can be felt for a long time because of the coronavirus.
How long can an economy last under lockdown procedures?
Any thoughts? Feel free to comment below