This may last for a lesser time than cyclical downturns induced by economic -financial causes the forward-looking information update - in particular, the way in which new information must be incorporated into risk parameters needs to be carefully analyzed, given the peculiar nature of COVID-19.The primary aspects to be considered are: In order to continue financing the real economy and support its recovery, banks are called to distinguish between purely temporary phenomena, destined to be reabsorbed in a short time, and longer lasting impacts which would require actions of management and reclassification.
One of the immediate effects of the health emergency on the real global economy is the increased credit risk of corporate and retail clients of the banks. Financial institutions are thus shifting towards commission-based income from the likes of payments and tech businesses. The low interest rate scenario, along with the significant impact of the COVID-19, is reducing the core banking profitability in mature markets.
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