Rethinking Finance: Are banks doing enough in the time of COVID?

The title of this column, “Rethinking Finance,” was born out of my obsession during the 2008 financial crisis with trying to make sense of how and why the financial industry became so greedy that it led to hundreds of thousands of people losing their jobs. From banks being institutions where trust is supposed to be paramount, they became the representation of deception. From bankers being the persons whose qualifications and expertise we believed surpassed our own, they became demonized as people who tore apart homes and families. It has taken very long for financial institutions to gain back the reputations they once had, as pillars of an economy, as lifelines for people, instead of as over-charging, hidden-fee laden, money-making institutions. Indeed, just ask anyone in the Philippines and they will easily complain about this bank or that having profited from their ignorance, or at the very least, having caused them some form of hassle and stress instead of reprieving them or assisting them in times of need. It’s just like customer service: we tend to be so used to bad service that when a good company answers the phone promptly, or gives a solution to an actual question, we laud this firm, even if that should not be best practice, but simply the norm. Such is the case with banks: “no hidden fees” seems like something to be praised, instead of status quo. I say this as a former investment banker, by the way.

It is hard for me to reconcile the banking sector that I deal with very closely, whether as guests I feature on my show, or close friends I have known my whole life, often coming from the most elite schools, with the on-the-ground, daily struggles of people simply trying to have access to finance. We talk about fintech, access to finance this, access to finance that, but it is so evident that people are intimidated and still do not have access. Despite my high amount of financial literacy and education, even I find it intimidating to ask questions about banking products and fees or dare to negotiate loan terms for fear of being rejected assistance or being charged even higher. I can only imagine how difficult it is for any given person with less understanding that I, to be part of this financial world. I got my household staff bank accounts at a certain bank, assisted them through the entire process; none of them could maintain the balance needed of P10,000. They were charged in perpetuity for having less than that amount, until we all gave up trying to be financially savvy and went back to cash.

The loan moratoriums and extensions on payments provided by Bayanihan I and II have since expired and the only help banks are now doing either come from their own initiative or are accommodating what the Bangko Sentral ng Pilipinas (BSP) is requesting which is to be helpful and reasonable. But this does not seem to be translating into loan growth, with people more willing to sell and save their cash for a rainy day (and by rainy day, we mean sickness with the threat of death) rather than invest in a dream via a mortgage they will be beholden to. As such, the banking sector, though managing to stay resilient with its lower-than-expected loan default rate and higher-than-Asian-average capital ratios, specifically during COVID, has not been rewarded when it comes to share price performance. Why? Because valuations are based on the future cash flows of the firm, and in this case, it is not harnessing the massive potential of financial inclusivity, that is, banking on those who to them are unbankable; because that is the true story of growth, unlocking this is unlocking the future of the economy. We will not have growth in the economy for as long as more than 60% of the population have no access to formal finance.

In times of COVID, banks are once again put in the spotlight, as they were in 2008. Could finance serve society, as it once did? Could the industry that brought people to their knees, help them back up?

Indeed, the past decade or so following the global financial crisis consisted of a massive overhaul of the industry, which was a long time coming. Bonuses were capped, governance was improved, regulation was put in place, and there was a big push towards sustainable investing, which in a way gave hope to people that the industry was taking steps towards becoming a partner in a more equitable distribution of wealth. Today, banks in the Philippines have the unique opportunity of having strong enough balance sheets to squeeze their margins just enough to accommodate the struggling cashflows of their patrons; they have the possibility to illustrate to the nation that they can operate below target-profit for a short time if this allows the general economy to get its gears up and running; they can trust the people whose documentation and whose assets and credit standing do not check out, provide reprieve to those who need it, understanding that for a very long time, these institutions had operated with our hard-earned money allowing them their incredible growth, they had benefitted from the ignorance and difficulties of people with low levels of financial literacy, and they had acted largely disconnected from a country who has needed more grassroots help than sophisticated investment products.

We need to rethink the purpose of financial institutions. They are not a place to park our money. They are not a place to simply keep our money safe to avoid theft. They are not places to beg for cash and cash advances for emergencies with the expectation of high interest rates. And they are definitely not services for only those who can illustrate they can afford them. No, they are the gatekeepers of the economy, they are tasked to — with best effort and highest efficiency (i.e., what we pay management fees for), not simply hold onto our money, but place it in instruments that will allow us to benefit from economic growth. They are tasked to be a place that connects people with money with people who can provide skills. They are tasked to be collective; to gather funds from different people, to invest in the real economy, to fund employment and create jobs, to form capital, to ease burdens in times of emergencies, and, above all, to make money enough on in the good time to help the hardest hit in these, the hardest of times.

Daniela “Danie” Luz Laurel is a business journalist and anchor-producer of BusinessWorld Live on One News, formerly Bloomberg TV Philippines. Prior to this, she was a permanent professor of Finance at IÉSEG School of Management in Paris and maintains teaching affiliations at IÉSEG and the Ateneo School of Government. She has also worked as an investment banker in The Netherlands. Ms. Laurel holds a Ph.D. in Management Engineering with concentrations in Finance and Accounting from the Politecnico di Milano in Italy and an MBA from the Universidad Carlos III de Madrid.