A report issued by the International Monetary Fund expected that the profits of banks in the economies of 9 developed countries would decline “violently” until 2025, stressing the need for targeted measures to be taken to alleviate the vulnerabilities arising from excessive risk and ensure sufficient credit flow to the economy to reduce the repercussions Covid-19 pandemic.
Banks were strongly affected by the consequences of Covid-19, as the top 5 American banks incurred losses during the first quarter of this year, and the International Monetary Fund ruled out the profitability of banks quickly recovering.
The report said that the profitability of banks is under pressure in the medium term due to the implications of Covid-19, and that a large percentage of banks may fail to achieve profits higher than the cost of their capital until 2025.
These pressures are due to the long period of low interest rates, which will negatively affect banks’ net interest margins for years, despite the regulatory standards that have been approved by central banks to limit the impact of Covid-19 on the banking sectors.
Although reducing costs and raising the value of fees may contribute to improving the profit margins of banks, the International Monetary Fund believes that these measures will not be sufficient to compensate the damage.
The Fund warned of the trend of banks in the next few months to accept higher risk rates to reduce damage.
The Federal Reserve also reached results similar to those issued by the International Monetary Fund, where the first warned banks of the strong losses expected from the restrictions that the Covid-19 pandemic will impose on their resources.
Banks suffered strong losses from the Covid-19 virus during the first quarter of this year, as the profits of Morgan Stanley fell by 30%, and the profits of Citigroup and Goldman Sachs decreased by 46%, while Bank of America profits decreased by 45% and 69% for the profits of G P. Morgan compared to the same period in the past year, while banking giants began to consolidate credit reserves to prepare for the expected losses.