Deloitte: Banks Should Brace for Losses, Think ‘Boldly’ About Future

With COVID-19 continuing to have a widespread effect on the economy, banks could see steep losses in the years ahead—but that shouldn’t stop them from “reimagining the future and making bold bets,” according to a new report released by Deloitte today.

U.S. banks could see $318 billion in net losses—representing about 3.2% of loans—the report said, with the most acute losses expected within credit cards, commercial real estate and small business loans, the report said. However, that expected loss ratio remains well below the 6.6% loss rate seen during the last global financial crisis. Deloitte estimated that for U.S. banks, average return on equity could decline to 5.6% in 2020, but noted that it is expected to recover to 11.7% in 2022.

The report also found that the pandemic accelerated several global megatrends in banking, including digitalization and a virtual workforce. “In the short term, banks will need to confront ongoing challenges from the pandemic and boost their resilience—whether it is capital, technology, or talent,” the report said.

As part of that effort, the report found that 48% of the firms surveyed said they have started accelerated the digital transformation of their business services, while 44% said they plan to do so over the next six to 12 months. Meanwhile, 46% said they have already enabled a “work-from-anywhere” talent plan, and 47% said they plan to do so.