Community banks, credit unions and community development financial institutions (CDFIs) – often seen as the most vulnerable during a crisis – have been early movers in their response to the Covid-19 pandemic, showing their key role in banking responsibility and resilience.
Marcos Eguiguren is the director of the Global Alliance for Banking on Values (GABV), which is made up of 62 banks and credit unions across the world.
“The core business of our members is lending and they have community-based finance at their core,” he says. “As such, they’re more on top of their clients’ situations because they know their clients personally so can respond quicker to their needs.”
The GABV is gathering the best practices of its members and will put out a white paper in the coming days.
“Things are obviously fluid right now and banks are taking action as their central banks and governments react, but we are seeing responses from our members that have been astonishingly quick – sometimes in areas where the virus impact is still early,” says Eguiguren.
He points to banks in Paraguay, Nepal, Bangladesh or Peru as examples of early movers.
“Some of our members there have already taken measures to give moratoriums to loans or mortgage repayments and some have working on transforming part of their SME loans into longer-term loans,” says Eguiguren.
Banks are also going beyond their traditional remit to offer additional services such as webinars, he adds.
“For example, in Italy we have seen one bank that is offering webinars for SME clients to train them on the way they may financially deal with the crisis,” says Eguiguren. “These banks excel at being able to pivot quickly.”
Taking the lead
Some are also taking the lead in discussing a collective response from their national banking associations.
One example is Southern Bancorp, a CDFI in the Mississippi Delta. It has $1.5 billion in assets and some 65,000 customers located primarily in underserved markets in the mid-south USA.
“We live in the markets we serve and have grown up with our clients, so we know what they are facing at this moment,” says the bank’s CEO Darrin Williams.
“For example, we have some hotel customers and we know they are down to 15% occupancy right now, so we have looked at how we might provide them some relief. It’s case by case, but because we know them intimately, we know what might work best.”
Southern Bancorp is waiving fees to deposit checks and extending interest-only loans for a reasonable period to those being impacted, such as hospitality and restaurant customers.
“And we’re looking at debt restructuring, or letting some customers skip payments, while understanding what this would mean for the loan documents,” adds Williams. “Above all, we are trying to move out customers onto the mobile platform where they are not.”
Although many of its customers are rural, smartphone penetration stands at about 60%.
Southern Bancorp has also moved all business to its drive-through lanes or by appointment only within the branch to adhere to social distancing.
Opportunity Finance Network, the US CDFI network, has highlighted the responses of other US CDFIs such as those creating an emergency loan fund, which provides loans of up $50,000 at 3% interest with six-month deferment of principal and interest.
Another is focused on “over-communicating in an evolving environment” with both their staff and clients, and a third has modified an existing loan product to allow for faster underwriting times.
Keith Mestrich, CEO of Amalgamated Bank, which is headquartered in New York and Washington DC, says his bank, which is a B Corp bank – certified as balancing positive social and environmental impact with profits – has also been taking action.
“We are waiving overdraft fees, as well as breakage fees on CDs so that customers can get cash,” he says. “We’ll be waiving late payment fees for smaller businesses and non-profit clients as well. Additionally, where we cannot offer help, we want to be a hub where we can link clients with government and philanthropic programmes.”
Mestrich adds that the bank has been focused on how to support its employees.
“It’s easy to lose sight of this and skip straight to talking about loan relief, but we have 400 people who work for us and they need our support,” he adds.
Mestrich says that support is both financial and emotional.
“We recognized early that this new isolated environment can negatively impact mental health, so we are trying to create a digital community so that people continue to feel mentally supported and maintain a sense of belonging,” he explains. “Working alone can be very challenging for some people.”
Amalgamated is also looking at how it might support the communities it works in philanthropically – something that the larger banks in the US have begun to announce themselves.
The private sector will do its part, but it needs the heft of governments around the world
– Keith Mestrich, Amalgamated Bank
JPMorgan and Citi announced donations in mid-March.
Citi Foundation has said it will provide an initial $15 million to support Covid-19-related relief activities. Of that, $5 million was to the Covid-19 Solidarity Response Fund, established by the UN Foundation and the Swiss Philanthropy Foundation at the request of the World Health Organization (WHO).
One third will be directed to emergency food distribution in the US and the remaining $5 million is earmarked to support international efforts.
JPMorgan Chase has similarly earmarked $15 million for humanitarian relief, to non-profit partners and also to aid small businesses.
“A further $35 million will be deployed over time to help the most vulnerable communities and people recover from the crisis, and have an opportunity to benefit from future economic growth,” says the bank.
What more can be done?
Southern Bancorp’s Williams is confident about the broader financial industry’s ability to cope with the crisis.
“While we’re obviously watching this situation closely because it is evolving rapidly, we believe our industry is fairly well situated to handle our customers’ needs, in part because our industry has the highest capital levels seen in 80-plus years, and also that we have an array of tools to help people,” he explains.
Williams says there are a number of proposals being floated that may add some support, such as whether the federal government could purchase some distressed Covid-impacted loans from community banks, but allow them to service those loans and repay them when the loan pays back.
“That means it would not negatively impact our books,” he says.
Mary Houghton and Ron Grzywinski, co-founders of South Shore Bank – the template for CDFIs – put forward the idea of rewarding banks with extra Community Reinvestment Act (CRA) credit for making Small Business Administration (SBA)-guaranteed loans and lending to certified CDFIs to reach minority and low-income communities.
US president Donald Trump recently stated that the SBA would serve as a clearing house for “up to $50 billion” in available loans to help struggling small businesses weather the coming storm.
Williams says: “While a helpful idea, we are concerned that the SBA will not have the manpower to get those disaster-relief loans out. It would be great to let banks be part of that process – we have the manpower and SBA teams that could help.”
Amalgamated Bank’s Mestrich points out that the banks are relying on government programmes to help them better respond.
“The private sector will do its part, but it needs the heft of governments around the world,” he says. “They’re throwing everything they can at this, and that is great, and the private sector can help supplement these efforts, but there are larger ramifications coming, such as how we will collectively deal with the resulting unemployment.
“It won’t just be restaurants – this is going to be firms who suddenly realise in a few weeks when things have settled that they don’t want to pay for real estate anymore and can run more cost effectively with home working.”
It is expected larger global banks that have not already done so will begin to offer more concrete actions during the next two weeks, as they discuss their options with regulators.