Most retail banks have several methods of making money. Fees on current accounts. Fees and interest on credit cards. Through lending to businesses. And through mortgage lending to households.
Of all these, the biggest chunk of profit comes from mortgage lending.
Typically the bank will charge an arrangement fee for the mortgage that is usually north of £2000. And the interest rate on the loan will usually be at least 2% higher than the bank base rate. Borrow at zero from the central bank, and lend it out at 3% or higher. Nice work if you can get it.
Except the coronavirus has put a kibosh on this business too.
Real estate sales have been put on hold by the lockdowns. No property sales = no need for new mortgages.
When the lockdowns are lifted, you are going to see a much more cautious buyer. People will move home only if they have a secure job and a big deposit. In this market, those types of people are going to be rare.
In addition, there are going to be a lot of distressed sellers in the buy-to-let landlord business and the Airbnb letting business.
If you have borrowed to buy one of these flats but you can't find a tourist on Airbnb willing to rent from you, you are in trouble. You could try the local rental market, offering the place for six months at a time. But if other Airbnb landlords are doing the same, then there is a downward pressure on rents in general. This affects the existing local landlords as well. Some of their tenants will lose their jobs and default on the rent. Getting a new tenant in for at least the same rent will be tough. And all the while the landlord needs to meet their mortgage payments on the property.
Some will sell, and this in turn will depress property prices.
That threatens another part of the mortgage business: remortgaging. Lots of lenders got used to mortgagees remortgaging every five years or so, and collecting nice fat remortgage fees every time this happened.
But remortgaging depends on the value of the property at least staying static. If the value falls too much and the mortgagee is underwater (experiencing negative equity), then they can't remortgage, and will likely grit their teeth and stick with trying to pay their existing mortgage down.
The sum of all of this is that new mortgage activity drops sharply. And retail banks need new mortgage activity because every month, someone comes to the end of their mortgage (usually people in their late 50's) and the mortgage comes off the books. So the total income from receiving interest starts to drop unless you can find a new mortgage to replace it.
Of course lenders can always turn to another source of income: lending to business. But despite governments around the world guaranteeing 80% of lending to small businesses, the banks refuse to lend to them. Instead they're sitting on their hands hoping the mortgage market comes back. Which it won't.
For the above reasons, I don't think bank shares are a good investment at the moment. As always, do your own research before undertaking any investment.