Are local banks resilient enough to weather COVID-19 induced crunch? Donah Mbabazi

Bank of Kigali head office. The bank has initiated what it calls 'Turikumwe Special Loan' to help its customers deal with economic challenges caused by the COVID-19 pandemic. / Photo: File.

By

Donah Mbabazi

The coronavirus outbreak has left businesses counting costs, disrupted trade and supply chains.

As a way of adjusting to the current crisis, investors as well as individuals are increasingly shifting
focus to banks.

In response, banks have developed approaches to support the economy. On top of slashing interest rates and easing loan repayment conditions, local banks have sustained their operations and have continued to inject money into the economy.

But as the pandemic continues to shut down large sectors of the economy, will banks be able to withstand the impending impact of Covid-19?

George Odhiambo, the Managing Director of KCB Bank Rwanda said whereas they are facing challenges, they are making quick decisions and are approving restructures.

He acknowledged the financial distress that arises when businesses get themselves in cash flow interruptions for reasons above their control, recognising that disruptions to their customers’ businesses and employment are automatically their disruptions.
“Our customers continue to make requests for support and we are listening. Several have asked for loans servicing holidays for periods ranging from three to six months. A few others are requesting more and we are listening,” he said.
“New requests for overdrafts to manage operations for fixed costs are also coming. I must however also acknowledge that some customers have cash flow buffers and we hope these will last throughout the pandemic period.”
Odhiambo disclosed that as a way of responding to emergencies that the pandemic has created, they have adjusted some requirements for access to restructure and new facilities.
“Even though our products are generally reviewed periodically, the current situation brought forward the need for several products’ reviews to align with needs from customers,”  he  said.
Digital financial services, he added, have seen an uptick in usage, with activation of customers to use phone based banking higher than the usual adoption
“We believe this is all driven by current limited movements and zero rating of charges by the industry on pull and push services between mobile phone wallets and bank accounts.”
Thierry Nshuti, Head of Marketing at Bank of Kigali, highlighted the need for banks as well as other financial institutions to resourcefully manage their fixed costs among other expenses because of the current business disruptions caused by the current pandemic.
He however noted that financial institutions are still firm noting that whereas trade is irregular, some other platforms are still operating and people are still making transactions.
Through loan repayments, transactions and commissions on money transfers, financial institutions are still able to make business and with this, they still hold a strong foothold.
Nshuti recommended the need for financial institutions to create new products as a way of dealing with the current crisis.
“We already have a product called “Turikumwe Special Loan” that will help our clients deal with economic challenges caused by the COVID-19 pandemic, and we will also be making business through interest payment,” he noted.
Implementing a dynamic and flexible operating model
Banks across the world are rapidly flexing their operating models to ensure business continuity.
While it is clear that all banks will have to adapt capacity as the model adjusts, at least in the interim, the most thoughtful institutions are doing it strategically.
Writer Ashwin Adarkar notes that while keeping the needs and well-being of both customers and employees at the forefront, banks can use this moment to experiment with radical redesigns of their operating models to achieve better efficiency.
Although the timing and shape of recovery is still unclear, we expect far-sighted organisations to begin both taking actions to mitigate the impact of the situation and positioning themselves to build momentum rapidly in the post recovery phase, he writes.
He proposed an increase in the use of digital abilities to boost customer engagement, promoting capabilities for supporting financial advice, encouraging relationship-based banking as well as rethinking the portfolio strategy for small business to achieve adeptness.

dmbabazi@newtimesrwanda.com