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[Dr. LZ Series] How 2017 Recession Will Affect The Banking Sector?
In time of recession, banks will get hit first but will also the fastest to recover. They will feel the largest impact because of their exposure to both business and personal area. Bank is also an important factor for an economy to recover.

The reason why bank felt he largest impact is because of the kind of business they are in. Basically banks are in the loan business and their product is cash. During recession, a lot of business may go bankrupt and left nothing for the bank to liquidate, however as a standard procedure legal letter still have to be sent. All the manpower cost, legal costs and other overheads will add into the bank's expenses. If this is not worse, SIBOR will increase because loan is in a higher demand, the mass market will slow down their lending and banks are forced to serve a smaller group of customers.

Many customers will not be able to fulfil bank criteria in term of financing, re-financing or apply for credit facility. This will become a butterfly effect that will worse the entire economy situation. Give you an example: Construction Company A have financial difficulty and the bank rejected their loan, their delay cause mandatory compensation and cause the company to go bust. Bank are unable to release the loan to buyers who are suppose to pay the developers because there is no progress to the existing construction. Due to that, the developer's cashflow will be strapped and bank cannot earn interest for the amount agreed to loan the buyers.

This is only a smaller example and imagine when all the trades are affected. Individuals will also have lesser deposits to the bank and it reduced their lending power further. This will continue to roll until some banks start to ease the lending criteria and be the leader in easing recession. Either way government will also need to step in (like the previous micro-loan from SPRING). Singapore's economy recovered fast enough is due to the government's input.

During this period the sales team will be more desperate and they will try to solicit more investments from the poor private banking customers. Likely these customers already have been burned by the banks but their salesperson is very good at pushing sales and erasing customer's past memories. DO NO invest in any thing to the bank at this moment of uncertainty. You will thank me than regret after everything is over.

Therefore bank decision makers should take bold move in recession to help the SMEs, not only it will create customer royalty but also additional income from the interest. We should not punish 80% of the people based on 20% of those whom made mistakes. A small amount of defaulter does not represent the rest of the good paying customers. To be fair, 80% of the customers can easily compensate the losses made in the 20%.

Last but not least, banks will increase their bank to bank trading activities during a downturn. Which means more paper money will be created. If anyone of you really cared about your descendant, start accumulating physical cash, physical gold bar and have at least a fully paid freehold property. We know the debt issues are rising and there will not be any resolution in the new centuries. Having securities is the best way to ensure your children's survivability.
Good to that......
Not only bank, But also banking sectors are used to recover economical recovery.....
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