Study Shows That Digitized Banks Have Greater Flexibility in Granting Loans

In addition to the millions of victims around the world, the Covid-19 pandemic also caused numerous socioeconomic impacts. In a reality where thousands of Brazilians faced unemployment, business closures, and recessions, the School of Public Policy and Government at Fundação Getulio Vargas (FGV EPPG), located in Brasília, analyzed the role of banking digitalization in loan issuance during the first year of the pandemic and found that more digitized banks were able to maintain their lending levels and other operations even during crises like the pandemic.

To identify this causal effect, the study examined loan activity before and after the arrival of the SARS-COV2 virus, covering data from 2019 to 2020 in cities that were more severely affected by Covid. It found that during the pandemic, more digitized banks faced fewer restrictions in offering credit compared to less digitized ones. In other words, in areas with higher Covid-19 intensity, there was less economic activity compared to municipalities with lower intensity.

Researcher Benjamin Tabak, who conducted the study, explains that digitized banks have the advantage of offering credit and other services online, and this digitalization helps reduce disparities in access to financing. Although the study focused on banking institutions, Tabak believes the findings are applicable to other types of institutions that provide services to society.

“The study compared branches of the same bank in cities that experienced varying levels of Covid-19 impact. Municipalities in the North of the country were more affected than those in the South. From there, we collected loan data from the Central Bank and health data to identify which cities were most impacted by the virus,” Tabak explained, emphasizing the importance of developing the Information Technology (IT) sector within banking.

According to Tabak, more digitized banks were more resilient. In a delicate moment like the pandemic, with various movement restrictions, institutions needed to withstand financial challenges such as mass layoffs and reduced wages. “Digitalization gives banks a competitive edge, allowing individuals to access financial services and apply for credit without leaving home.”

Read the full study [here].