By Kim Bo-eun
The COVID-19 pandemic will make financial firms increasingly focus on the public good, as they are required by governments to contribute to financial stability, according to Moody's Investors Service, Wednesday.
The finance sector has in recent years been taking into account a wider range of stakeholders, including employees, society and the environment. This is a trend that began after the 2008 global financial crisis but will likely be reinforced in the COVID-19 era, a Moody's report stated.
"We expect the rising economic hardships caused by the pandemic to accelerate this nascent trend toward stakeholder rather than rentier capitalism," the report said.
As banks offer loan relief to the corporate sector and households and insurers accept delays in premium payments to lessen the COVID-19-triggered economic shock, this will "reduce a bank's ability to act in a purely commercial manner," Moody's said.
Financial authorities have been directing banks to cancel dividend payments and stock buybacks.
"This social aspect to banking, spotlighted under our environmental, social and governance (ESG) framework, highlights the fact that banks are likely to be constrained in their ability to act as fully free agents for some time, which may act as a constraint on a significant, sustained recovery in profitability for years to come," the report said.
Moody's also referred to persisting low interest rates and the acceleration of digitization as notable changes that will last for financial institutions in the pandemic era.
Central banks are expected to keep key interest rates low or even cut them to negative for now, as economies seek to boost liquidity amid a recession. For financial firms, this means squeezed profits, the report said.
The shift to digital services was happening before the pandemic, but "reluctant customers and businesses who have been slower to embrace digital commerce, banking and payments have been forced to do so in short order," Moody's said.
The shift is no longer considered an option, as it has become a necessity as businesses that failed to offer digital services have seen their revenues suffer.
For financial firms, social distancing has created a spike in demand for contactless payments and digital cash transfers.
"Financial institutions whose offerings lack digital functionality will either suffer more rapid franchise attrition as customers seek to replicate their needs elsewhere, or they will be forced to enhance their product offerings very quickly," the report said.
Work-from-home policies implemented to contain the virus have also raised fundamental questions about traditional work habits and may lead to a breakaway from these, Moody's said.