Impact of coronavirus on operational risk: ORX News round-up

  • 2 September 2020

As the effects of coronavirus (Covid-19) spread across the globe, ORX has decided to provide a round-up of the operational risk impacts of coronavirus on financial institutions worldwide to help you manage this risk.

These summaries and stories are sourced by the ORX News service, and cover significant new developments and media stories. Follow the links to read the articles in full.

Latest coronavirus & op risk news:

Updates, 1 September

Impact on operations

CaixaBank raises liquidity coverage to maximum to shield itself against the pandemic crisis

Expansión (paywall), 13 August

Auckland banks close to prepare for lockdown

As the city of Auckland, prepared to go back into lockdown on 12 August, NZ Herald reported that four major banks (ANZ, BNZ, Westpac and Kiwibank) would close their branches in order to ensure they were ready to comply with lockdown operating protocols.

UK insurer Royal London pays out £8.5m on coronavirus-related deaths

The Guardian reported on 10 August that the UK’s largest mutual insurer, Royal London, had paid out £8.5m in life insurance claims to families of victims of coronavirus, over 1,200 customers. The insurer has also set aside £10m for future claims. This follows £36m paid out by both L&G and Aviva on policies held by coronavirus victims. While sales of pensions have fallen, sales of life insurance, illness, and income protection policies have risen due to the pandemic.

Egyptian insurance market predicted to see 15-20% decrease in premiums in FY21

According to the Middle East Insurance Review on 6 August, the chairman of Insurance Federation of Egypt, Mr Alaa El Zoheiry has stated that the coronavirus pandemic has proved particularly challenging for travel and aviation insurers and motor insurers.

Dutch buyers facing coronavirus questionnaire when applying for mortgages

On 2 August, reported that some consumers were facing difficulties when applying for new mortgage lending from Dutch banks – particularly those employed in sectors affected by the pandemic. Many lenders are now requiring applicants to complete a “corona questionnaire” which explores how vulnerable their employment is due to coronavirus. According to “Entrepreneurs, including freelancers, must show that they can absorb any blows with a financial buffer and explain why they think they will have a stable income in the coming years. Salaried homebuyers are asked whether current income will be negatively impacted by the consequences of the coronavirus crisis in the next twelve months.”

Actions to help clients

South Korea: Banks may extend loan repayment deferrals amid coronavirus resurgence

The Korea Herald reports on 18 August that major lenders are expected to extend loan repayment deferrals in light of the ongoing economic impact of the pandemic. The estimated value of these deferred payments at the country’s top five lenders totals KRW39 trillion. These measures were originally implemented in March and are due to expire in September.

Heightened risk

South African insurer Old Mutual’s earnings tank two-thirds due to R2.8bn hole created by coronavirus

News24, 1 September

Kenya’s top seven banks set aside Sh31.7m for loan defaults

Business Daily Africa, 31 August

Uganda: Stanbic Bank Uganda profits drop by $1.80m

AllAfrica, 26 August

Santander and BBVA reopen debt market

Expansión (paywall), 21 August

India: Axis bank to continue with conservative policy on loan provisions in light of coronavirus

Economic Times, 18 August

Kenya: Co-op Bank half-year profit drops 3.6% on coronavirus-linked bad debts

Business Daily Africa, 13 August

USA: Nine individuals charged in $24m coronavirus relief loans fraud

Law360 reported on 6 August that Federal prosecutors had announced charges against nine individuals for allegedly defrauding a coronavirus relief program (Paycheck Protection Program). Prosecutors stated that the group behind the scam used falsified documents, including bank statements, to apply for lending worth over $24m with a number of banks. More than $17m worth of loans were eventually approved and paid out - however the affected banks were not named.

ING profits plunge almost 80% on virus-induced loan defaults

Financial Times (paywall), 6 August

UniCredit’s profits slump as coronavirus restrictions weigh on fees

Financial Times (paywall), 6 August

Allied Irish Banks takes €1.2bn coronavirus loan loss charge

Financial Times (paywall), 6 August

Coronavirus crisis provides an opportunity for money-laundering

On 5 Aug, L’Echo reported that the Belgian anti-money laundering unit expects criminal enterprises to take advantage of the coronavirus pandemic to launder dirty money. Spokesperson for the unit, Kris Meskens, stated that the economic pressures faced by companies could make them more vulnerable to money launderers as they are in desperate need for cash to keep businesses afloat. One example of a technique being used is the “compensation” mechanism, where criminals will pass illegally obtained cash through the business which is then compensated via bank transfers.

UK: Metro Bank falls to £241m loss after sharp rise in loan provisions

Financial Times (paywall), 5 August

Insurers report mixed results from coronavirus

The coronavirus pandemic presents a broad range of impacts on insurers reported the Wall Street Journal (paywall) on 4 August. For example, Allstate Corp. had seen profits rise due to fewer motor vehicle accidents, while Prudential Financial had suffered as a result of low interest rates.

Itaú Unibanco announces 40% drop in recurring profit in Q2 20

Investimentos e Notícias, 4 August

Caixa blocks emergency aid to 1.3m suspicious individuals

According to A Voz da Serra on 3 August, Caixa Econômica Federal has been requested by the Brazilian Ministry of Citizenship to block accounts linked to 1.3m Individual Taxpayer Registration Numbers on the basis of suspected fraud. These accounts have been opened for the purposes of emergency aid payments and, in many cases, the blocks may be due to missing documentation.

Financial stability & regulatory

Fraudulent activity brought on by pandemic related initiatives may result in enforcement actions later in 2020 and into 2021

Regulation Asia, 20 August

ASIC provides new guidance for lenders on when loan deferrals end

The Australian Securities and Investments Commission published on 13 August a set of expectations for lenders as loan repayment deferrals begin to come to an end, adding to previous guidance. This includes “how lenders should approach consumers who cannot resume repayments on their mortgages”. ASIC also stated that they are working closely with the Australian Prudential Regulation Authority (APRA) in this regard.

Bank of Russia decides to extend relaxation of some regulatory measures

On 10 August, the Central Bank of Russia announced that measures implemented to ease the effects of the pandemic would be extended beyond the original end date of 30 September 2020, while others would be terminated. This decision was made in light of the economic downturn in Russia, with the view that gradually lifting measures is necessary for long term sustainability of the financial sector. Also included in this statement was an announcement that new countercyclical measures would be implemented in order to support the economy.

Updates, 3 August

Impact on operations

Monzo: coronavirus casts 'significant doubt' on ability to continue operating

UK challenger bank Monzo reports a loss of £113.8m, according to its annual report. Social distancing and travel restrictions as well as delay in the launch of new products have greatly affected the bank’s revenues, Finextra reports on 30 July. 

UK Standard Chartered (StanChar) set to commence a new round of job cuts after 33 per cent drop in profits for the first half of 2020

The bank joins HSBC and Deutsche Bank in restarting a redundancy programme that had

previously been paused due to the coronavirus pandemic, Finextra reports on 30 July.

Citigroup shores up for bad loans with $8bn provisions

Financial Times, (paywall)

NatWest more than doubles loan loss provisions on gloomy UK outlook

Financial Times, (paywall)

Lloyds sets aside another £2.4bn to cover potential bad loans

Financial Times, (paywall)

BBVA incurs losses of €1,157m in the first half of 2020, 30 July

Deutsche Bank reports a loss of €120m in first half of 2020

Expansión, 29 July

Cielo, controlled by Bradesco and Banco do Brasil, reports unprecedented net loss of BRL 75.2m

Istoé, 28 July

Millennium bcp reports 55.3 percent drop in profits in first half of 2020 compared to the same period in 2019 

Jornal Economico, 28 July

ECB asks banks not to pay dividends until January 2021

The European Central Bank (ECB) recommends banks in the euro zone not  to pay dividends or buy back own shares until January 2021.

Le Monde, 28 July 2020

Airtel Money in Kenya loses 91.9 per cent of subscribers in one year

Business Daily Africa, 15 July

Pandemic preparations cut JPMorgan’s second quarter earnings in half

The bank revealed that it had earned $4.7bn during the months of April, May and June, just under half of what it earned during the same period a year ago, as it diverted billions of dollars to a reserve fund in order to prepare for a potential economic shock, the New York Times reports on 14 July.

National Bank of Malawi temporarily closes Chichiri branch for fourteen days following coronavirus cases among staff

Nyasa Times, 14 July

Nairobi: Stima Sacco restructures Sh450m of customer loans

Business Daily Africa, 13 July

Guardian bank temporarily closes one of its Nairobi branches following reported cases of coronavirus among members of staff

The Standard, 8 July

Actions to help clients

Stanbic Bank Zimbabwe introduces anti-coronavirus app

The bank launched SlydePay, which allows account holders to pay bills and make instore purchases on their phone using QR code scanning technology so that customers do not have to use their bank cards, All Africa reports on 20 July.

Brazilian Development Bank BNDES approves a BRL12bn debt relief as temporary measure to aid businesses during the pandemic  

The measure is being granted for a period of up to six months to more than 28.5 thousand companies, in approximately 77.7 thousand financing contracts. Around 2.5 million people will benefit from this measure, reports on 19 July.

Heightened risk

Maryland governor announces $501m unemployment insurance fraud case

Maryland uncovered a massive criminal enterprise involving identity theft and more than 47,500 fraudulent unemployment insurance claims in the state adding up to more than $501m. Employees at the state’s unemployment insurance website detected an unusual increase in out-of-state federal pandemic unemployment assistance claims, Insurance Journal reports on 17 July.

UAE: Insurance brokers say they are hurting from the impact of coronavirus

Digital operations and online sales by insurance companies have affected insurance broking business, especially in individual motor and health insurance, Middle East Insurance Review reports on 13 July.

ABN Amro sees surge in suspicious transactions

The bank has come across thousands of transactions in recent months considered to be suspicious. For instance, entrepreneurs who had not been active for a long time suddenly applied for emergency support while others had their salaries raised significantly in March to get more wage subsidies. Cases of CEO fraud have also increased, reports on 29 June.

Financial stability & regulatory

The Financial Conduct Authority (FCA) takes Europe’s largest insurers to court to establish whether they should pay out pandemic-related claims

Hiscox Ltd., RSA Insurance Group Plc, Zurich Isurance Group AG and five other companies will represent the industry at the eight-day trial. The FCA’s lawyer, Leigh-Ann Mulcahy, disputed attempts by the insurers to portray companies shutting during lockdown as a voluntary decision, Insurance Journal reports on 20 July.

NBA Netherlands demands that banks explain their half year reports in more detail

The Banking Sector Committee (SCB) of the NBA has put guidelines together for this purpose, reports on 13 July.

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ORX News coronavirus operational risk news round-up 1 September 2020

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