I sincerely apologize that I have to address you in this awkward way. But a quarantine after a positive covid test is in control of my life till next Wednesday. By the way, I caught the virus after participating in an international investor conference in London. So be careful.
Anyway, today’s conference is the postponed version, due to covid, of an originally planned Febelfin event in the fall of 2021. At that time, October, November last year we were living on high hopes. We thought that covid, in its Omicron variant was on its way out. We would, as it was called, regain back our freedom. It was just a matter of time before we could go “back to normal”.
“Back to normal” meant amongst others that the Covid health risk would be under control (ok, there was still a risk of getting infected, but the mortality risk was remotely low), that economic growth would rebound further from the lows in 2020. Even inflation which was quite high , was not really a worry. Wasn’t that inflation mainly energy price driven and, as a consequence, to be temporary in kind ? It was almost certain that inflation was going to go back to its more normal levels, around 2 percent, by year end 2022. Moreover, given this higher inflation, central banks, including the ECB, were considering or were even increasing their policy rates. Financial Market’s reactions steepened the yield curve, which is beneficial for the banks amongst us. That outlook, after years of low interest rates, would generate extra revenues for our banking sector. Revenues on top of already stellar 2021 results. The future was looking bright…
Unfortunately, on the 24th of February Russia invaded Ukraine.
The current war in Ukraine and the increasing geo political tensions in the world, make us realize that “back to normal” is in the short term no longer a viable option and is, for sure, no longer applicable to our current situation. The financial industry, us, we are back again in the high alert mode.
Dear colleagues, the challenges we are facing today are multiple and significant. Let me name a few :
- While we are showing our solidarity with the victims of this Ukrainian/Russian war and express our absolute aversion and disgust for this agression, we have no certainty how this war will evolve and when it will end. We hope it ends rather sooner than later, say in max 6 months, but can we exclude a longlasting conflict, an Afghanistan type of war ?
In case of the former, the expectation is a negative impact on the economic growth of up to 100-150 bps, in case of the latter, it would mean almost certainly a recession.
- The war, the sanctions and embargos push up the energy and commodity prices, which are translated into more sustainable inflationary effects. High inflation is here to stay for a longer period than originally anticipated. Stagflation is looming around the corner.
- Central banks are forced to react because it is too late to anticipate. The FED, Bank of England and many others have already announced countermeasures such as ending unconventional monetary support measures and increasing policy rates. The ECB is challenged to do same.
- In the meanwhile, governments have outsourced their responsibility on AntiMoneyLaundering to the banks. Outsourcing is a nice word for what happened in reality, because let’s face it : banks are left alone in the fight against Money Laundering. Investments in AML systems and compliance people by financial institutions dwarf similar investments on the public side. Same can be said about exchange of crucial information for AML purposes : what about the quid pro quo ?
- I hope that the same is not going to happen with the fight for climate change. Agreeing on maintaining the warming up of our planet under 2 degrees, is one thing, but achieving it is another. Yes mr Enria, I listened carefully to your speech and I fully agree with you when you said in your speech that we need to have meaningful and accurate data for assessing climate risk. I fully agree with you when you state that we need to have standards for assessing climate risk. But let’s face it : There is no concrete, action nor political plan how to deal with and achieve this 2 degrees target, nevertheless all SSM banks are bashed in the same way by a senior representative of the ECB for ‘whitenoising and providing little substance on what markets and supervisors want to know’. When I see the efforts put into place by banks active in Belgium, for anticipating climate change and adapting lending and investment policies accordingly, that this statement on white noising is not justified or at least preliminary. And on top : what’s the added value by stating this ? Does it bring us closer to the solution ? Seriously ? All of us, we are in the middle of transition period and believe me, “a push on the button”-solution does not exist for the environmental challenge, not within the Banking sector and definitely not with our customers.
During the panel debate, my colleagues and the professor stated that , as a matter of fact, a lot of our customers have the data not available, or do not want to share the data because they fear the consequences. Clients, financial institutions, supervisors and regulators have to support each other and work harder to make the transition of the environmental change happen. Fingerpointing and isolating one of the participants in this extreme difficult task will only make things worse. Isolation makes the other feel getting off the hook.
Cyber threat, digitization, the war for talent, PSD2, GDPR, Schrems, fintech and other big techs,… are a couple of other challenges we are facing in the financial industry.
In this challenging environment, financial institutions like banks, asset managers, leasing companies and insurance companies have to stand firm. We will continu to serve our customers, grant them loans to build their dreams and to support the economy. We will continu to manage the deposits and other investments of our customers to saveguard their financial well-being. Just like we did quite successfully during the covid crisis.
My call towards all of you, colleagues, but also to politicians, policy makers, supervisors and others, my call is simple : we are into all of these challenges together and we are all part of the solution. Let’s work together to create a better future rather than pointing to each other for shifting responsibilities. Rome was not build in a day, neither will be the new normal. Let’s put all our energy and all our effort into creating a stimulating, energizing working environment that triggers progress, step by step, ultimately achieving a prosperous new normal.
Ladies and Gentlemen, every dark cloud has a silver lining. I wish all of you a pleasant evening, a great continuation of the event and remember : united we stand strong, united we will prevail.
- Johan Thijs, Chairman of Febelfin