Global banking mkt cap plunges

THE GLOBAL BANKING INDUSTRY market capitalisation dipped 30.32 per cent during the second quarter of 2020 to $6.25 trillion as a result of the pressures brought about by the COVID-19 pandemic, official data have ....

THE GLOBAL BANKING INDUS TRY market capitalisation dipped 30.32 per cent during the second quarter of 2020 to $6.25 trillion as a result of the pressures brought about by the COVID-19 pandemic, official data have shown.

The global banking sector was experiencing a positive rise in its market capitalisation before the coronavirus pandemic hit, and with the crisis by the corner, most businesses began facing an array of challenges like fall in profits alongside lending facilities which in turn impacted the market cap negatively.

A breakdown of the statistics revealed that between the last quarter of 2019 and the first six months of 2020, saw a drop of 30.32 per cent from $8.97 trillion in Q4 2019 to $6.25 trillion in Q2 2020. The biggest plunge that was witnessed in the sector occurred at the time the COVID-19 crisis spread across the world, when it recorded a 91.3 per cent decline between Q4 2019 and Q1 2020.

Since the first quarter of 2016, the lowest market cap was recorded in Q1 2020 at $5.78 trillion, while it reached an all-time high during the last quarter of 2017, during which $9.32 trillion was recorded as the global banking market capitalisation.

Which banks recorded the highest and lowest TSR?

In a connected development, the statistics further revealed that the top and lowest Total Shareholder Return (TSR) (a measure of the performance of different companies’ stocks and shares during a particular period of time) performance among European banks during the second quarter of 2020 had the Dutch-based ING GROEP with the highest returns standing at 29.6 per cent. The data, however, further show that five top European banks such as: BNP PARIBAS recorded 28.6 per cent, Credit Agricole (26%), UBS Group (25%) and Credit Suisse (24.6%) had a positive return during the period under review.

On the flip side of the coin, we have HSBC Holdings with worst returns at -16.7 per cent while Standard Chartered recorded a negative return of -1.3 per cent. Other banks with low TSR include Societe Generale (-3.6%), Lloyds Banking (-2.6%), and Banco Santander (-2%) during the second quarter of 2020.

Impact of the pandemic on the sector and the long term effect

Against the backdrop of the coronavirus pandemic, the decline in the banking industry’s market capitalisation was directly hinged on the virus outbreak, which has caused widespread concern and economic hardship for, businesses, consumers, communities and the world at large. Similarly, the sector’s profitability was heavily affected as a result of the pressures from the pandemic.

The profitability of many facilities got affected by the pandemic as there was a rise in bad loans within the industry. Thus, lenders became forced to write-off bad loans. Regardless of the measures put in place to mitigate the adverse effect of the pandemic, the crisis brought about a higher credit risk for most banks plus the economic uncertainties resulting from the health crisis has had a meaningful impact on the real economy. Hence, the slump in economic activities raised bank loan losses.

Critically looking into the long term effect the plunge in the market cap may have on the industry, it is without a doubt to say that the traditional banks still have a long way to go after the pandemic. Recall that as the virus was spreading, some banks were forced to close physical branches with customers revolving to online banking. This has brought about some form of attention on challenger banks.

Although, some traditional banking institutions did not have the right online banking structures, giving way to FinTech platforms to play in that space with a domineering effect. An instance to this is that online banking is more efficient in promoting contactless payment. Consequently, traditional banks will definitely have to review their in-person banking system after the pandemic; this is a means to still remain profitable.

Fundamentally, traditional banks will have to borrow a leaf from digital financial institutions to be more ready to compete with challenger banks in a future date.