Covid-19 was considered to be detrimental to many sectors, including the economy. When Covid-19 first spread across the Middle East, Europe, And United States, many financial sectors felt the strain as customers and businesses were ravaged. As a result, there was a reduction in the repayment rate among the clients. Despite this reduction, more borrowing was witnessed in order to improve businesses that were affected adversely due to the impacts of the pandemic.
Impacts from clients Financial Positions:
Since loans are the major services that banks offer to both businesses and individuals, the Covid-19 pandemic has led to the decline in the financial positions of such clients. As a result, most of the clients who had active loans were affected negatively and they were unable to repay. However, despite banks having insured their loan facilities and having the ability to go after the customers to repossess properties, the sailing has not been as good as before the pandemic (Demirgüç-Kunt et al, 2021)
Working from home:
Most financial services initially required financial service providers to work in physical establishments to serve customers. However, during the Covid-19 pandemic, this caused a high risk of infections. Therefore, there was a tremendous need to ensure that a schedule to work from home was established. This affected the morale of most of the employees and made it hard to supervise service delivery (Aldasoro et al.2021)
The growing use of IT:
After the working from home schedule was introduced, there was a need to change the credit approval system, which was facilitated by introducing an advanced IT system. However, not all companies could afford this, and profit margins declined. Approval rates of loans were also reduced, which affected customer relations, especially where stress levels had risen to high levels. The use of IT also increased customers’ vulnerabilities to cybercrime, particularly the theft of passwords and hacking.
On a more positive side, many people started taking out loans which boosted the businesses of financial institutions such as SACCOs and banks. This caused an increase in the interest rates that the companies obtained as the economic times became tougher in Saudi Arabia and worldwide.
From this graph, the Q1,Q2,Q3 and Q4 of 2020 saw a rise in lending the non-financial private sector as people struggled to make their businesses afloat. This led to an increase in profit-making capacity among the financial companies even through this did not really raise the position of the non-financial sector as most of the amounts were used in overhead cost as salaries.
Mitigation of the Impacts:
When governments worldwide realized the financial strains that people and businesses underwent. This caused a need to develop plans that reduced borrowing interests and extended repayment periods to protect the citizens (Wójcik & Ioannou,2020).
Sadly, such mitigation plans affected the financial sector negatively. For example, In Saudi Arabia, banks were not allowed to auction properties owned by clients who defaulted on their loans as the government had put in place incentives and amnesty to protect the public.