The global pandemic of Covid-19 has left adverse and immense effects on the global economy which are complex to overcome but it is showing its tremendous impacts on the banking and finance sector. From maintaining cash and liquidity to normalizing financial operations, the global banks and FIs are in extreme need of navigating complex government aid measures to pace up with the existing crisis.
Though banking services can be provided remotely and do not involve any direct customer contact, the link of the banking sector with the real sector in providing payments, savings, credit, and risk management services increases the negative effects of Covid-19 emergency to banks and other financial institutions.
Additionally, the banking sector also has a contributory role in supporting firms and households of lower revenues and incomes which has given rise to essential policy measures by financial experts and governments.
Impacts Of Coronavirus Pandemic On Banking Sector
The very first and foremost reason behind the immense impacts of the pandemic on the banking sector is the inability to repay the loan of the firms due to the stopped working and missed out revenues. Similarly, the household members who have lost their jobs during the lockdowns and suffering from less income make them incapable of paying the loan. It demonstrates the lost revenues and thereby has negative impacts on the profits and bank capital.
Second, banks have significantly negative impacts due to the lost value of bonds and other related trade financial instruments resulting in an extended loss for the banks.
Third, due to the global pandemic of Covid-19, more and more firms are seeking additional cash requirements to cater to their business and other needs. It ultimately results in the increasing demand for credit for the banks. Last but not the least, banks are struggling with non-interest revenues as there is a decrease in the demand for their different services. For example, the decline in the execution of payment and transactions due to the lower economic support.
What Can Be Done For A Pandemic Recovery In The Banking Sector?
The financial experts, Ngulminthang Lhanghal said that shifting towards digital banking is the only solution for the global economic recovery from the pandemic. Most global trade finance banks have already started investing in digitization with emerging technologies such as Blockchain, Artificial Intelligence, and Optical character recognition to develop a digital platform for storing essential information and data since lockdown has caused a dramatic gap in the finance market. According to the expert, the focus on digitizing the supply chain from end to end will help users with increased visibility and will provide them with real-time data on supply and demand. By applying improved digitized and remote customer transactions, the banks can ensure uninterrupted processes with limited disruptions.
Apart from digitization, various safety measures have also been taken by the government across the globe for the banking sector. For example, the government is offering direct payments to firms and workers to overcome their lost revenues. Though it does not have a direct impact on the banking sector, it will enable borrowers to continue offering their loan repayments and thereby have an indirect positive impact on banks. Secondly, it also includes direct support measures such as loan guarantees.
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