COVID-19 has come and is going. Let no one depress you. Humanity may yet survive this particular calamity as it did the Spanish Flu and the likes of it. The world is bracing up for the challenge of going ahead to “take back their lives”. That is the way a lot of people now think it should be. As for those who conspired to unleash this evil on humanity, assuming the conspiracy theories are valid, they have surely lost the gamble.
Evidently, people are determined neither to take the vaccine that became “available before a cure was found”, nor is there any evidence that the people of this world are going to leave their destiny in the hands of a few commercial interests. They are most likely going to guard it jealously, no matter how many they take from among us. Clearly, we must face the challenge, and own the responsibility of reopening our lives by going back to work in no distant time.
Graciously, we have been armed with new survival skills, from all kinds of sources, in mask-design and adornment, social distancing and hand sanitising and lots more. I think it will be both economically and socially very intelligible to reopen and restore socio-economic life; albeit in a measured fashion – constantly enforcing the safety guidelines and reopening in measured sequences.
Each passing week will provide a guide to the extent of unlocking that the following week should be granted. This, of course, is assuming that the security agencies do not continues to act in ways that make them the target of accusing fingers. Having been accused of partnering with enemies of the nation to circumvent the lockdown and endanger citizens in addition to aiding those moving able-bodied men at night to certain parts of the country, they must step up their image defence by acting right.
Having said that, I would like to comment on the state of the banking sector, and indeed, the financial system in general, post-COVID-19. The motivation for it comes from my enduring interest in the informal sector, which houses the Micro, Small and Medium Enterprises (MSMEs), and by implication, more than half of our population. In particular, I would like to note that given our experience with Ebola, the informal sector is most likely going to be hardest hit as it was during that crisis. We need to focus a bit more on MSMEs to help the sector to brace up for the impending hard times in the months ahead. The brunt of the impact of Ebola epidemic was borne by the poor and their micro- and small enterprises. Therefore, we must set out before dawn in our efforts to grapple with the incalculable harm that the pandemic has done to companies, jobs and supply chains across the world.
Truth is that the equilibrium of the global economy has been disturbed and needs to be re-established. As the Keynesians, in their battle with Classical economists contended, macroeconomic disequilibrium is not always automatically restored
One of the big amplifiers of the impact of COVID-19 is that it came when the world economy was significantly soft. The economies of many countries in the Global South (Africa, Asia and Latin America) were already down and contracting, due especially to the fall in commodities prices. The price of oil, for instance, had taken a beating, dipping well over 50 percent on several grounds, including the market share battle between Russia and Saudi Arabia. China had also cut production and reduced its demand for fossil fuel. The Purchasing Manager’s Index (PMI) – a major indicator of confidence and optimism – had receded in many countries and dropping rapidly in others. In Nigeria, the PMI reached 37.1 percent in April, sinking from a high of 50.3 in March. Moreover, there is evidence that the world is still struggling with the aftermath of the Global Financial Crisis of 2008, as the effects remain strong in some jurisdictions. The pandemic therefore simply exacerbated an already a bad situation.
The place of banking in the economy makes it one of the major victims of global catastrophes like the current pandemic. As the world recoiled from mounting deaths, several nations shut down economic and social life, and businesses took an unexpected bashing. As supply chains broke and consumer demand vaporised, cash flows dried up, leaving banks carrying the can. As if that was not enough, collateral securities backing the loans also failed from loss of value. The combined effects of vanishing cash flows and diminished collateral values was a “Double Whamming”. The result is an unusually high level of loan delinquency now in the pipeline.
Truth is that the equilibrium of the global economy has been disturbed and needs to be re-established. As the Keynesians, in their battle with Classical economists contended, macroeconomic disequilibrium is not always automatically restored. The events of the 1930s, and the subsequent failure of the economy to self-correct, has shown that there will be some monetary and fiscal policy actions to be taken if we are to return to economic prosperity. At the moment, the Nigerian Central Bank has been taken lot of action, some of them precipitate but others largely in line with the need of economic revival. More fiscal action should be contemplated.
Clearly, two key issues come out with regard to stabilisation and recovery in the banking sector: regulators and supervisors must focus on the prudential condition of financial institutions and work towards business continuity for their customers. In that regard, prudence anchored on benevolent firmness will be necessary to ride the coming waves. In other words, supervisors must be ready to show flexibility in the application of rules and regulations but must hold operators accountable, especially in the use of any financial support they may get. There is no question of whether banks will give accommodation to their customers. It is a question of how much and to whom. Regulatory forbearance will also be a fundamental part of the unfolding scenario.
Therefore, supervisors and regulators may well begin to adapt to the idea of a modified body of guidelines, tax laws and prudential ratios, which the present pandemic has drawn up. Things have been made worse by social distancing. The fact that supervisors may no longer enjoy the privilege of docking operators for person-to-person interrogation is big. Welcome to off-site examination 2.0 and other aftermaths of the pandemic.
