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How Severe is the impact of Coronavirus on the Global Banking Sector?

How Severe is the impact of Coronavirus on the Global Banking Sector?

As the crisis due to COVID-19 continues to rise at an exponential rate, the road ahead looks more perilous for the financial institutions all across the world. The first case of the virus was detected in Wuhan based in China in December 2019 and since then it has infected over 110,000 people in no lesser than 110 countries all across the globe. With each passing day, the fatalities are mounting and have forced governing bodies to take measures as drastic as the complete lockdown of several major countries involving one-third of the global population. With the sudden stop on economic movement due to the pandemic, a great amount of trouble has been posed upon the financial institutions placing acute credit pressure on borrowers all over the world. Due to these pressures, various problems and defaults would come to the fore, but the intensity and magnitude will depend upon the geography, existing economic prowess and so on. 

                       Now, which are the countries that are more vulnerable than the others? 

To begin with, the analysis and estimate are based on the prevailing situation as to how severely and at what level the outbreak has impacted the financial sector. Evidently developed countries are capable of exercising more effective stimulus keeping in mind their wealth and funding accessibility whereas the developing countries will have to come across bigger challenges due to limited access to funds. However, one thing is certain that whenever this crisis is over, most countries will be left with the weaker economic condition. 

To further make it clear, given below is the detailed estimation of the possible state of the financial institutions in several major countries: 

USA: In U.S. most of the banks are in a good position to meet the cash demand of the corporate borrowers. However, due to larger drawings, the liquidity of the bank can be put to test. Never the less the situation will be manageable. 

China: in the aftermath of the coronavirus outbreak, the peak questionable loan ratio may increase to double and NPL is likely to get flexible to help businesses and communities. 

Australia: the Reserve Bank of Australia will provide a term funding facility to all domestic banks at a fixed rate of interest which is 0.25% in order to tackle liquidity crisis and fund margins. 

Italy: although Italy had a stronger start, the precarious environment has persuaded them to bring change in their plans. The banks’ revenue generation and asset quality will get affected due to an increase in credit losses and reduced business. 

India: with the pre-existing economic slowdown, Indian banks will undergo a lot of challenges with a slower growth rate of GDP. 

Singapore: In Singapore, there will be a manageable impact on the banks keeping in view their healthy level of profits, financial strength and effective governance. 

Also, there are other major countries such as the Philippines, Korea, Honk Kong, Malaysia, Taiwan, Thailand and major European countries that will be undergoing a serious financial crisis and their banking industry will also suffer a major setback. 

                                                                        Conclusion                                                        

 Everyone knows that the banks play an indispensable role to keep the economy functioning. They are not merely commercial enterprises but also act as credit grantors, deposit gatherers, payment facilitators and render essential services to an individual and communities. Thus, the health and safety of the workforce working into this sector is of utmost importance for the continuity of the operations. 

Although the prevailing crisis is completely outside of the banking industry, however, it enables an opportunity for the banks to manifest their importance as systematic stabilizers and take calculative measures in terms of digital adaptation and proactive communication.

At BankQuality, you can review and write down suggestions that could help banks in improving their services especially keeping in mind the current scenario.