Oliver Wyman warns of coronavirus hit to banking in Middle East

16 March 2020 Consultancy-me.com

Management consultancy Oliver Wyman has warned of the impact of coronavirus on banks, which will have a bearing on corporate and personal finance in Dubai and the Middle East.

As the world scrambles to contain the growing coronavirus pandemic, leading management consultancy Oliver Wyman has drawn attention to the likely impact on banks active in corporate and personal finance in Dubai and the Middle East, predicting that the growing pressure on the liquidity of financial institutions and especially banks could lead to a potential period of reduced borrowing and lending.

The firm notes that while the region has shown resilience and a diligent response to previous viral challenges, such as the deadly Middle East Respiratory Syndrome (MERS) in 2012, current conditions present new challenges. Here, in the firm’s words, the growing anticipation of a cyclical economic downturn accelerated by the impact of COVID-19 has worsened credit quality and limited funding.

This limited funding due to impaired liquidity in the banking sector of course then creates a potential barrier to business growth and personal finance relief, with Oliver Wyman concerned that this could in turn lead to a detrimental cycle in the region. Already, the Central Bank of the UAE  has formally requested banks to implement special measures, including deferrals on monthly loan payments.

Oliver Wyman warns of coronavirus hit to banking in Middle East

Spelling out the situation, the analysts from Oliver Wyman write: “The banking sector requires capital to lend in order to function and operate a sustainable business. For companies and individuals, credit quality reflects their ability to repay debt. Poorer credit quality increases the reliance on the banking sector to provide loans and fund development, placing greater pressure on liquidity levels.”

The overall regional and global economic impact of the coronavirus remains to be seen, but fellow management consultancy McKinsey & Company recently laid out three broad economic scenarios, ranging from a quick recovery to a global slowdown and possible pandemic-driven recession. In the latter scenario, global GDP growth for 2020 could fall from estimates of 2 percent to just 0.5 percent.

Both Oliver Wyman and McKinsey are quick to point out the highly fluid nature of the situation, with Oliver Wyman stating that it’s monitoring events in real time and has set up a special ‘Coronavirus hub’ on the firm’s website to provide updates. For now, the firm believes the impact will depend on its outbreak’s duration, how far it spreads, and the extent that quarantine disrupts the labour market.

“For organisations, especially multinational businesses, the outbreak can have extensive implications, some of which have already been felt. Hotels have been forced to close, airlines have cancelled thousands of flights, and supply chains have been hit hard, while financial markets have been volatile,” states the firm, adding that it will continue to put forth fresh perspectives to support clients.