Most of the economic consequences of the COVID-19 pandemic are yet to come.

This includes bankruptcies and loans that are not repaid, which will put banks to the test in the near future.

That's what President Klaas Knot of De Nederlandsche Bank (DNB) thinks.

As a second wave of corona is spreading across the country, concerns about the resilience of the financial sector are also growing.

Although the banks have so far been perfectly able to absorb the blows of the pandemic, according to Knot, the second wave of contagion has created additional uncertainty.

DNB points out that the economic impact of corona has yet to become largely visible.

For example, banks can be affected by the increasing number of bankruptcies and by loans that, partly because of this, cannot be repaid to the banks.

This can lead to risks, especially if the cabinet is phasing out temporary support measures.

“Banks are already taking into account that loans to companies in hard-hit sectors will not be able to be paid off in the future and have increased their bad loan provisions accordingly,” said Knot.

Fear of a perfect storm

Knot is confident that the banks can also handle a second wave.

However, a so-called stress test earlier this year showed that in a 'perfect storm', in which everything goes against the grain, banks should probably be more cautious about taking out new loans.

According to him, it remains of great importance to prevent the economic crisis from spilling over to the financial sector.

If banks have to be more economical with their lending as a result, companies can invest less, which in turn has consequences for employment, for example.

The DNB president is therefore pleased that the cabinet has decided to maintain the support measures, such as the wage subsidy (NOW) and the Tozo scheme for the self-employed.

Phasing out this too quickly would inevitably lead to more bankruptcies.

“It is logical that in such a crisis, the government is responsible for a large part of the shock,” says Knot.

Stopping the bailout too soon would have been a bad choice.

"The costs for stopping too early are higher than continuing for too long."