Instead of being the bad guys, the banks have joined an ensemble cast, supporting customers (and the government) to rise to challenges which – despite the overuse of the word – can only be described as unprecedented.
“In the 2007-08 crisis, the banks lost the trust of many people,” says Jonny Williams, Womble Bond Dickinson’s head of financial services.
“This time, it’s been very different. They have not had the same negative headlines and have largely come out of it well.
“Services and technology have on the whole held up, and the banks have been key facilitators of both credit and business support which is aiding the recovery.”
Williams’ colleague, Caroline Stevenson, legal director at WBD, agrees, saying: “No business continuity plan could have envisaged the crazy impacts of the pandemic. The banks have fine-tuned systems and processes in place to deal with crises, but this was on such a big scale.
“The fact that banks had robust plans in place was largely down to the regulation imposed after the last financial crisis – the aftermath of the 2008 crash has really helped the banks cope during the pandemic.
“This time, they also had to implement forbearance measures for those facing financial difficulty as a result of the pandemic. They have worked hard to implement these projects to short timescales, while at the same time having to adjust to the changes required to their own operating models.”
The scale of the banking challenge at the start of lockdown was monumental.
Staff absences and closures of overseas call centres reduced capacity at some banks by up to 40 per cent – at the same time that call numbers soared, as businesses sought emergency loans and mortgage-holders asked for payment holidays.
And this was as the banks were having to re-deploy an army of staff to work from home, away from packed call centres.
Alison Rose, chief executive of NatWest Group (now the official name for what was RBS Group) highlighted this in early April when she said: “Our call centres normally take 3,000 calls a day; we are now receiving 25,000, which is why I’m redeploying staff, retraining staff and getting people to help.”
Stevenson says that banks appear to have stuck to Service Level Agreements in call handling and similar areas – although they have faced some criticism of their performance, especially over the time it has taken anxious customers to get through.
In August, Laura Suter, personal finance analyst at investment platform AJ Bell, said: “With banks still restricting access for people to go into branches, they need to make sure customers can contact them online or on the phone without being on hold for hours.
“Businesses have had to adapt to the new normal and banks should be no exception.”
Research in June by Encompass, the regulatory technology (“regtech”) software provider, found 40 per cent of 200 business decision-makers were planning to change their banking provider due to the slow support offered during the pandemic.
Some 42 per cent had waited more than two weeks for a business loan application and 46 per cent noticed significant delays in their bank’s onboarding process.
And in mid-October, it was reported many banks had a delay of weeks to take on new business customers, with others not accepting any new business account requests, so they could focus on existing customers.
This need to service the current client base is unlikely to change soon as Covid-19 continues to affect the financial health of businesses (and individuals).
Banks have had a tough pandemic and this year promises to be pivotal. They are already operating in a world with very low – and perhaps soon to be negative – interest rates, their share prices are under intense pressure and they face significant bad debt in 2021. All this has depressed profitability, with NatWest announcing this summer that it had increased its provision for loan losses caused by the pandemic to £2.8 billion.
Just how the debt mountain will play out for the banking sector as a whole is hard to judge, but there is certainly a rocky path ahead. In the six months from the start of the crisis to the end of September, UK Finance said the UK’s banking and finance sector had deferred almost 1.1 million credit card payments and 738,000 personal loans and offered 27 million interest-free overdrafts.
What might 2021 look like? Chris McLauchlan, who leads the Scottish banking team at WBD, predicts a proactive approach by banks to address the risk of significant bad debt.
He says: “Banks have been much more collegiate in their approach to distressed borrowers when compared to previous recessions.
“As the various government Covid-19 reforms are unwound, we expect the banks to initiate more restructurings, rather than waiting until borrowers approach insolvency.
“They will also show willingness to make loans available where the borrower has collateral other than physical assets, such as customer invoices, which can be secured in favour of the banks.”
So can the banks retain their new-found role as good guys through the inevitable plot twists coming in 2021? Only time will tell.