Challenging Times Ahead in this Uncertain Environment

December 1st, 2021    |   Related To: Bankers Association of Trinidad and Tobago

As a result of the COVID-19 pandemic, full-year sales for 2020 were 10.122 units, a 31% decrease when compared to 2019.

INTERVIEW – BANKERS ASSOCIATION OF TRINIDAD AND TOBAGO (BATT)

The Bankers Association of Trinidad & Tobago (BATT) sees a resilient banking sector continuing to meet and overcome the challenges posed by the COVID-19 health crisis while advancing digital transformation and managing issues of asset quality deterioration, loan delinquency and slowdown in credit.

“Overall, the sector remained well-capitalised, highly liquid and is well supported in no small measure by the Central Bank’s monetary policy measures,” BATT said. 

Outlook and challenges for banking sector in 2021/2022

While noting that the rollout of vaccinations provides a crucial anchor for positive medium-term expectations, in light of the ongoing impact of the COVID-19 pandemic, BATT said the near-term outlook may reflect: 

Asset Quality Deterioration. Payment deferral and forbearance programmes helped borrowers in the near term, but the lockdowns of 2020 and 2021 impaired companies’ finances, while rising unemployment ate into household incomes and weighed on borrowers’ ability to service their loans. This, combined with the phasing out of support measures, means that banks remain vulnerable to adverse credit risk movements, particularly in sectors hit hardest by the pandemic, such as tourism, hospitality and entertainment. Arising from this, asset quality risk could increase due to pandemic-induced repayment challenges. 

Non-Performing Loans. In December 2020, non-performing loans (NPLs) at 3.4% of total loans, up from 3.1% one year earlier, remained within reasonable proportions but were likely to be one of the most serious consequences of the pandemic for banks. The third wave of COVID-19 infections and the reimposition of restrictions in 2021 triggered a considerable slowdown in economic activity, weakening the ability of debtors to pay their obligations and placing strain on banks that serviced the sectors most affected. NPLs can be expected to creep upward, demonstrative of the financial impact of the pandemic, particularly as relief measures such as loan moratoria are eventually withdrawn.

Muted credit growth.  An environment of weak economic activity will weigh on bank loan demand as businesses struggle to survive, investment projects are put on hold and unemployment inevitably rises. Despite low interest rates, lending to businesses has been weak, falling by 4.6% year-over-year in September 2020.  Loan growth is very likely to be muted in 2021 and 2022 as businesses may be less inclined, in this uncertain environment, to seek new financing. 

Support of SMEs during and post-COVID

During this crisis, BATT noted that banks responded collectively and expeditiously to support those struggling to meet financial obligations by instituting various forms of relief, including reducing interest rates on all loan types, loan instalment deferrals of up to six months, and waivers of penalty charges and late payment fees on credit facilities.

“We continue to invite individuals and SMEs experiencing ongoing financial difficulties to have urgent discussions with their banks to develop tailored financial packages to meet their financial commitments, including loan restructuring, selective waiver of fees and charges on merchant services and specific credit facilities,” BATT said.  The banks also provide guidance to SMEs wishing to apply to the Government’s SME Loan Facility.

Other areas of support to small and medium enterprises, BATT said, include: 

• The introduction of an e-commerce platform to allow SMEs to operate online via social and other digital accounts thereby enabling them to create digital stores to facilitate business in the midst of the COVID-19 restrictions.
• Financing of commercial vehicles. Given the increased demand for customer deliveries, some banks created a specific financial package to enable SMEs to acquire these vehicles to evolve their business models.   
• Free consultations for existing and new clients to identify untapped opportunities for their businesses, as well as workshops for our SME clients in order to build their internal capacity and address a range of areas, from digital marketing to strategic planning, that are critical and important to their businesses at this time.

Digital transformation developments

Investment in new technologies has enabled banks to offer improved digital services.  Key developments include:

• The upgrade of debit cards to LINX _VISA EMV (Europay, MasterCard and Visa) chip cards using VISA chip technology.
• Growth of the e-commerce ecosystem by facilitating the use of LINX_VISA debit cards online.
• The introduction of contactless payments at the point of sale. In the pipeline is the “contactless” experience at the ATMS and the use of QR codes (matrix barcodes) as a purchasing tool within the retail space.
• Helping the underbanked to access services they need within mainstream digital banking.
• Continued improvement of digital legislation to advance the ability to conduct transactions both in the payments space as well as the credit/lending space.
• Improving the ease of conducting banking business remotely and safely via various digital platforms. 
• Modernising the electronic payment infrastructure to support Real Time Gross Settlement (RTGS) and Automated Clearing House (ACH) transactions as well as an electronic cheque exchange between financial institutions, which is currently in the pipeline. 

“Our banks are moving to phase out paper cheques in favour of digital payment mechanisms such as an electronic cheque clearing system which will allow financial institutions faster and more convenient access to cheque images, thus offering customers the benefit of having their cheques settled within a shorter time frame,” BATT said. 

Article by: Kay Baldeosingh-Arjune