Coronavirus or, COVID-19 has brought the world to a standstill and economic activities are down to their all-time low. The impact of Covid-19 is being felt by all of the business sectors, including the financial sector. Companies in the financial sector are facing challenges on several fronts due to a drop in commercial activity, customers unable to make payments, and more.
On the other hand, companies are still required to continue with their operations, keeping in mind social distancing requirements. With such requirements and a reduction in revenue sources, keeping operations alive during coronavirus is enough to drain the cash reserves of many companies.
On top of this, record numbers of people are contacting their financial services providers with all types of questions. People are concerned about their squeezing finances, the stimulus package, defaulting on loans, or missing mortgage payments. All this is putting additional strain on companies, in terms of customer support (both online and telephone).
During such challenging times, several companies in the financial sector have already revealed the impact that COVID-19 would have on them. Moreover, these companies have also detailed the measures they are taking to cope up with the crisis.
For instance, JPMorgan Chase & Co, the biggest bank in the U.S., announced last month that it is instituting a hiring freeze in most departments. More recently, the bank has also stopped taking applications for home equity lines of credit (HELOCs).
Talking of credit card companies, there are now reports that they are reducing the credit limits of their customers without any advance notice. A recent report from Bloomberg noted that Synchrony Financial, which manages credit cards for stores including Gap and as J.C. Penney, will re-evaluate the creditworthiness of its customers.
Some banks and financial companies are also providing relief to their customers struggling financially due to coronavirus. These companies are waiving late-payment fees, deferring interest charges, or not reporting a missed EMI or payment to the credit bureaus.
One such company that is allowing customers to skip payments, or delay the accrual of interest is Discover Financial Services. However, in a regulatory filing last week, the company said it expects to take a hit because of these customer-friendly programs.
Further, the financial services company said that it is reducing efforts to get new customers on-board. Also, the company revealed that it is evaluating the creditworthiness of its customers on a continuous basis.
Banks, meanwhile, are better prepared to face a financial crisis more so than they were a decade ago.
They are far better capitalized now than at the time of the 2008 financial crisis. Moreover, they are subjected to regular stress tests to ensure they can weather the toughest times.
In fact, JPMorgan Chase CEO Jamie Dimon, in a letter to investors earlier this month, informed that they ran stress tests of its own. Dimon noted that the bank would do fine even if the economy shrinks by 35%.
In all, we can say that Covid-19 would impact every company in the financial sector, some a bit more than others. However, most companies have learned from the last financial crisis, and thus, are now better prepared to handle the current crisis.