For the CEO of APS Bank plc, Marcel Cassar, the situation the banks will face in the coming months rests on the economic effects of the pandemic, depending on how long it will take to find a cure or a vaccine.

In the meantime, he continued, Governments and health authorities the world over must all take reasonable measures to control the spread of the pandemic, balancing health concerns with the economic considerations.

For the foreseeable future, he went on, the banks will continue to carry moratoria on loans as permitted by regulations allowing them to also postpone impairment events in their books.

“However, as the economic impact of the pandemic deepens, affecting certain sectors – such as entertainment, catering, hotels and accommodation – more than others, credit quality will weaken.

“This would, in turn, lead to a classification of facilities that will inevitably result in higher impairment provisions,” he warned.

The CEO said the banks will also continue to carry the operational impact and cost of the COVID-19 effect, whether due to staff and business disruption, digital transformation or higher cyber risk.

He explained that the impact will be felt differently by banks according to their business model and financial condition.

APS Bank, Mr Cassar observed, entered 2020 with solid numbers after years of successive, outstanding financial performance. Even the first quarter of 2020 was going strong until the pandemic started making itself felt as business activity began to slow down dramatically.

He reiterated that pressure on asset quality is likely to increase as the pandemic wears on and the relief measures put in place to sustain economic activity fade away.

However, he sees other aspects of the bank’s business model that will mitigate the effects of the recession on its performance. “

But, of course, it all depends on how long drawn the effects of the pandemic will be. The longer the situation prevails, the more seriously certain areas will be hit, so it will then be inevitable that, for example, the slump in tourism will drag with it other sectors that connect with, or rely heavily, on tourist arrivals,” he asserted.

This is an extract of a feature first carried in the August edition of The Malta Business Observer

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