Banks Report Losses in 2020

The pandemic-fueled lockdown that has propelled the growth of digital banking has hit banks’ bottom lines, with the majority reporting finer profit margins – or straight up losses – for the first eight months of the year.

A report published by El Financiero today states of the 50 banks surveyed in Mexico, “26 reported a contraction in profits, 14 registered losses and only 10 achieved an increase in profits.”

Of the banks included, Banco Azteca reported the greatest losses, some MX$4.394 billion (around US$210 million), while Citibamex’s profits showed a 50.2 percent drop in profits and Scotiabank endured a 47 percent drop. Meanwhile, Barclays, JP Morgan and Bank of America all showed a strong performance over the last eight months, enjoying 362 percent, 105 percent and 57 percent growth in profits respectively, said the article.

The banking sector faced a multitude of problems presented by the COVID-19 virus that has swept across the globe since it was declared a pandemic by the World Health Organization on March 11.

Aside from the widespread closure of local branches and the subsequent drop in trade, partially offset by the onboarding of many users into digital channels, income from credits and loans is likely to have dropped as sections of the population and businesses braced themselves for reductions in income and job losses.

The situation of banks in Mexico is far from unique. In July, a report from consulting firm Oliver Wyman Group reported that European banks were preparing themselves ahead of expected losses, including €400 billion (around US$472.4 billion) in credit losses, and said that banks will need to look at cost reduction measures over the next several years.

This is a scenario that may also play out given BBVA’s expectations from its 3Q20 financial report that Mexico’s economy will take four years to recover from the economic impact of COVID-19. While there were positives to be seen in the last few months, underlying problems remained.

“Despite the supply-driven economic rebound in Q3, formal employment continues to show signs of weakness. We anticipate a slow recovery and pre-pandemic employment levels will not be reached until 2024,” said the report.