How Did Financial Institutions Play a Role in the Transition Period Post COVID-19?
This is a summary of Virtual Roundtable Series #31-Transitioning from Relief to Recovery.
Since COVID-19 pandemic caused economic damage to millions of SMEs, governments of different countries and financial institutions have implemented various adjustments to support SMEs during the crisis. However, many of those support programs have expired or are ending in the next few months. Angela V. Tinio (Rizal Commercial Banking Corporation), Aditya Sharma (Standard Chartered Bank), Alberto S. Navalpotro (Inbonis Rating), Syed M Omar Tayub (Prime Bank), and Joyce Tee (DBS) have participated in this virtual roundtable to discuss the role of financial institutions post COVID-19. This panel was moderated by Matthew Gamser, CEO of SME Finance Forum.
Angela V. Tinio was first invited to start the discussion by introducing the debt relief program the Philippines government put in place when the COVID-19 lockdown began. RCBC followed the government adjustments and provided assistance services for its customers. The country’s GDP went down nine percent last year. It has come up four percent this year, but it still has not recovered completely. For RCBC, there are still some bright spots in the digital space, such as online banking transactions which doubled compared to before the crisis. Customers embraced more the idea of digitalization, and digital banking became accessible to everyone. This troubled period has been in the end a good opportunity for RCBC and the Philippines to jump into the digital banking era.
Syed M Omar Tayub announced that Prime Bank and other financial institutions in Bangladesh are under severe stresses due to the second wave of COVID. Most of the small businesses in Bangladesh made only fifty percent of their total annual sales in the main three financial seasons, and the economy has actually been hurt in a big way. The banking industry is currently flashed with excess liquidity because the businesses are not expanding and some of the liquidity may cause asset bubbles in the mortgage market, the housing sector, or the capital market. The banking industry is on the stand of transitioning now. He agreed with Angela that the pandemic also brought some silver linings for Bangladesh too. The government has also made efforts to support small businesses and help the customers back to ordering.
Joyce Tee claimed that DBS adopted similar coping strategies and services like other financial institutions in other countries. It formed a partnership with government agencies and the SME industry association. DBS also put in place its own relief program ahead of the government as soon as February 16th last year. DBS played a strategic role as advisor to the enterprises in Singapore. It is one of the consultants that helped the government develop the different relief programs. DBS has been considered as an instrumental pivoting organization discussing the budget revisions with the government and helping SMEs out of the pandemic situation. Government-backed loans mostly went to social enterprises to make sure they did not get marginalized during this period. Therefore, DBS offered interest-free loans to those social enterprises in different regional markets.
Aditya Sharma also explained the challenges on the credit side that the government of his region and Standard Charted have been facing. Like in Bangladesh and India, they are still under the pressure of the second wave of pandemic. Relief measures and support measures came from governments and the banks across Asia, Africa, and Middle East Asia. However, those measures will eventually come to an end, and small enterprises, might not catch up and recover when those supports end. It will be a major challenge for those enterprises when the moratoria and relief programs end. Banks in Bangladesh will be required to continue to support SME clients, but there are a lot of clients in the line so that they also have to prioritize and step up to make sure they help the right clients first. The agencies like Standard Charted are also trying to work out specific tactics about how to migrate from relief to recovery.
Inbonis has chosen to be an unconventional rating agency because conventional rating information is proving problematic: it’s either distorted through the government programs, or in some countries, governments are instructing agencies not to report on certain data. Alberto S. Navalpotro demonstrated that in Europe, there were existing problems for SMEs before COVID. The main problem for Europe is how to provide the ecosystem for SMEs to continue investing in. There is a winner financial product in Europe called “equity loan”, which is a long-term and subordinated product that restores solvency of the company. It helps to ensure there is no liquidity crisis, but also that with viable business model, SMEs can continue investing. The corporate purpose of Inbonis Rating is to offer tailor-made opinions for small businesses in a very efficient manner so that SMEs can have the same opportunities as larger companies do.
Financial institutions have been playing an important role in the transition from relief to recovery of COVID-19. They will continue to support SMEs and help them survive the crisis. Along with the government programs, the financial institutions will implement more projects that will encourage small businesses to continue to invest. Meanwhile, SMEs should also consider their capacity and the challenges they will face once the supporting programs end.