Impacts and Implications of COVID-19 on Banking Industry (Research Paper Sample)

Contents TOC \o "1-3" \h \z \u ABSTRACT PAGEREF _Toc70511050 \h 2INTRODUCTION PAGEREF _Toc70511051 \h 3BACKGROUND INFORMATION. PAGEREF _Toc70511052 \h 3IMPLICATION OF COVID ON THE BANKS. PAGEREF _Toc70511053 \h 5THE POLICY RESPONSE PAGEREF _Toc70511054 \h 6WHAT TO EXPECT DURING THE RECOVERY PHASE PAGEREF _Toc70511055 \h 7THE LONG-TERM IMPLICATIONS OF THE CRISIS PAGEREF _Toc70511056 \h 7POLICY INTERVENTIONS PAGEREF _Toc70511057 \h 8LIQUIDITY SUPPORT PAGEREF _Toc70511058 \h 9MONETARY POLICY PAGEREF _Toc70511059 \h 9PRUDENTIAL MEASURES PAGEREF _Toc70511060 \h 9BORROWER ASSISTANCE PAGEREF _Toc70511061 \h 10PRACTICAL STEPS FOR RESPONDING TO THE CORONAVIRUS CRISIS. PAGEREF _Toc70511062 \h 10CRISIS MANAGEMENT AND RESPONSE PAGEREF _Toc70511063 \h 11WORKFORCE PAGEREF _Toc70511064 \h 12FINANCE AND LIQUIDITY PAGEREF _Toc70511065 \h 14TAX AND TRADE PAGEREF _Toc70511066 \h 16STRATEGY AND BRAND PAGEREF _Toc70511067 \h 18CONCLUSION PAGEREF _Toc70511068 \h 19REFERENCES PAGEREF _Toc70511069 \h 21
ABSTRACT
The aim of this paper is to assess the impact of Covid-19 on the banking industry. The paper will examine the global policy responses during the crisis. The results will show that the expected countercyclical lending role of the banks is placing them in compromising situations and under significant stress. The pandemic has led the bank stocks to underperform in their domestic markets in conjunction with other financial firms. The paper also seeks to look at the effectiveness of the policy interventions. It will also touch on the some policies and mitigation strategies aimed at reducing the wrath of the pandemic. Borrower assistance, monetary easing, measures of liquidity support, among other have moderated the impact of the pandemic. However, the situation and applicability is different from one bank to the other. The paper will analyze some steps aimed at mitigating the effects of the pandemic. It will also emphasize on the need to monitor banking facilities in different countries and developing tailored solutions since some prudential measures may exacerbate the effects especially for banks that are undercapitalized and operated in countries with little fiscal space. Loopholes will need quick attention to help take care of vulnerabilities as the pandemic continues to disrupt the world economies. This paper considers taking a deeper interest in assessing the potential effects and impacts of the pandemic on developing and emerging economies in the banking industry. The paper provides valuable contributions and mitigation techniques towards the implication of the pandemic, especially in emerging economies.
INTRODUCTION
The pandemic has proved to pose a huge threat in the financial sector as it wrath spans to the global economic. The effect was last witnessed in the 2008–09 global financial crisis (GFC) that struck the industry hard. One of the development banks predicts that the entire global cost that will be triggered by the pandemic will stand between $5.8 and $8.8 trillion which is almost equivalent to about 6.4–9.7% of the world’s GDP (Park et al. 2020). The macroeconomic disruption caused a system’s shock in the financial sector all over the world. As the numbers surge and the pandemic continues taking a toll on the financial sector the aggregate demand, trade, production and economic activities will go down. On the other hand, the unemployment rate will rise and more people will lose their sources of livelihood. The financial institutions (FIs) are weary that there might be a fallout risk and a decline in government support (IMF 2020). There are reports from recent studies that suggest that the pandemic’s wrath has started kicking in the several economies by causing a turbulent in the macroeconomic world with indicators of production, demand, supply, employment, savings, and investments narrating the severity of the situation. The heightened wrath could cause poverty and trigger a possible depression and recession (Coibion et al., 2020).
BACKGROUND INFORMATION.
In a post pandemic world the aftermath would still linger and cause fresh wounds on a healing economy (Chen et al., 2020). The unfavorable environment could threaten the sustainability and survival of the FIs as well as security and financial stability of developed or developing economies (Stiller, 2020). The financial institutions especially banks will receive the biggest blow. The main reason why banks feel the effect firsthand and intense compared to other Financial Institutions (FIs) is because banks are exposed to a wide array risks which include credit, market, reputational, interest rate, and liquidity risks. Banks are also closely involved in a country’s economy as well as funding the everyday activities of the government, firms, investors and individuals (Stulz and Carey 2006). The wide exposure to risks will trigger an increase in credit squeeze, reducing returns from loans and investments, liquidity crunch, nonperforming assets and default rates, and declining market interest rates (Larbi et al. 2020).
The impact tends to be more severe in most developing countries where the banking industries serve a huge number of firms and individuals with most banks having relatively less economic and financial capability. The bank also operate under hostile environments that are marred with weak policies and aggressive market competition (Wilson 2020). Developing countries could suffer major setbacks if the effects of the wrath persist. The banking industries in developing countries will face major issues such as mass-default of loans, exhaustion of savings by customers, depressed new investment demand, delays in loan recovery process, and decreased availability of loanable funds (Lagoarde, 2013). Undoubtedly, banks are the engine of economic growth in most emerging and developing economies. They are synonymous with both short and long term capital financing. The banks’ roles are immense especially in countries that have an underdeveloped financial system mainly because of inadequate legal infrastructure, weak securities markets, lack of advanced technology and ideal financial instruments (Barua et al., 2017). The pandemic has the potential to threaten the survival, growth and performance of financial institutions in developing countries (Damak et al. 2020).
There is need to perform a case by case analysis in emerging economies to help single out the main effects and implications of the pandemic. There are a growing list of literature highlights that discuss about the potential COVID-19 implication for the banking industry. However, most of these practices are only applicable in already developed countries (World Economic Forum, 2020). This paper considers taking a deeper interest in assessing the potential effects and impacts of the pandemic on developing and emerging economies in the banking industry. It would best if we concentrated on the impacts of Covid by taking a developing country as an ideal case study. A developing country has the potential to grow and drive the economy. Secondly, a developing country depends on the banking industry as a major source of long term funding to the country’ economy. Thirdly, a developing economy’s financial sector is underdeveloped because of the unstable securities markets and limited scale. Finally, the banking industry of any developing country is overwhelmed by high loan default rates. Working with such an economy would provide a valuable lesson and insights of how closely related economies could improve and learn from each other.
IMPLICATION OF COVID ON THE BANKS.
There are several implications