A swift and coordinated response from monetary, fiscal and regulatory authorities has been key to address the consequences of the COVID crisis. These measures (heterogeneous by countries) have supported credit growth and have mitigated the initial negative impact on the economy and also on the banking sector). A premature withdrawal is a risk to the recovery.

How has the banking sector entered and is withstanding the shock? a) Adequate efficiency levels driven by lower costs; b) Weak profitability, especially in developed countries; c) There are no signs of deterioration in asset quality yet despite large loan loss provisions in DM; d) Capital indicators are sound; and e) Abundant liquidity and cash hoarding. How countries deal with private sector indebtedness will be key for the aftermath of the COVID crisis.

Post COVID, we assess the relevance and impact on the banking sector of 7 key trends: a new monetary policy, digitalization, regulation, economic growth, new entrants, competitive landscape and government support. The evolution of these factors and the intensification/reduction of their underlying trends will identify post COVID winning strategies which we summarize in 4 points: a) digitalization; b) adapt to clients' needs; c) increase efficiency; and d) revenue diversification. The regulatory landscape and how institutions deal with these trends will be key for the future.

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This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

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