IMPACT OF COVID-19 ON BANKING SECTOR
Author Pankaj Kolekar
MMS- Roll No.92
Kohinoor Business School
Literature Review
COVID-19 Impact on Banking Sector of India
Dr. Manohar Das Somani. et al. (2020) says that COVID-19 virus has disrupted economic activity all across the world due to the lockdown that the government implemented in an effort to stop the virus’ transmission, but its effects on the global economy and financial sector in particular are mostly still unclear. They aims to determine how COVID-19 will affect the Indian banking sector. It has found that Moody’s has changed the outlook of the Indian banking system to negative, that credit costs and non-performing assets have increased, that profitability has continued to be muted, that credit growth has slowed, and that there has been a significant rise in e-banking problems due to cybercrime. These are major areas where Indian banks are getting hurt due to coronavirus outbreak.
The Impact of the COVID-19 Pandemic on the Banking Sector
Mihaela Roxana MARCU (2021) says that they compared the 2008–2009 financial crisis to the crisis brought on by the COVID-19 pandemic in order to better understand the economic effects of the pandemic. The COVID-19 pandemic has had a profound influence on most enterprises and completely transformed the global economy. Although the necessity for innovation and digital methods was a critical component in banking even before the COVID-19 pandemic began, the COVID-19 pandemic has hastened its adoption in the banking system. On the basis of a narrative literature study and a synopsis of the key components that reconfigure the banking system in a pandemic setting, we also give an opinion. Since the pandemic is a recent event for the world, the literature on it and its effects on the banking system is still being developed.
Impact of COVID-19, Political, and Financial Events on the Performance of Commercial Banking Sector
Ghulam Ghouse. et al. (2022) says that in order to assess the potential impact of COVID-19, political, and financial events on the returns and volatility of commercial banks, this study uses a structural empirical model. They notes that insured and run-prone uninsured depositors can select from a variety of commercial banks, with the current pandemic appearing to have had a substantial impact, particularly on Pakistan’s commercial banking sector. The GARCH model estimates the volatility series for commercial banks, which helps to understand the current state of financial and political hardship in the event of COVID-19 shocks. In order to identify the structural breaks created by these occurrences in the returns and volatility series of commercial banks, we calibrate by Impulse Indicator Saturation (IIS). They observed that the calibrated model possesses almost all financial events that have had a prominent impact on the returns and volatility series whereas two out of eighteen political events are unimpacted.
Banking financial performance during Covid-19
Rulyanti Susi Wardhani. et al. (2021) states that every company has improved its business processes as a result of Pandemic COVID-19, and they now run smoothly and generate good financial performance. The purpose of this analysis is to compare differences in financial performance between Covid-19 and recent times while also examining the effects of the recommendations made in the Dupont framework strategies, specifically the Net Benefit Edge (NPM), Total Asset Turnover (TATO), Financial Leverage Multiplier (FLM), Return on Assets (ROA), and Return On Equity (ROE). The population of this study is an Indonesia Stock Exchange (IDX) listed banking sector company for the 2019–2020 academic year. The test’s findings indicate that there was no difference in the sector’s financial performance before and during COVID-19. As a result, banks can continue to preserve their financial stability even during a pandemic.
The impact of COVID-19 on consumer behavior in retail banking.
Baicu Claudia Gabriela. et al. (2020) says that the worldwide economy has been significantly impacted by the COVID-19 pandemic. Their paper’s goal is to examine how the COVID-19 issue has affected consumer behaviour in retail banking, with a focus on the Romanian banking industry. Consumers who use retail banking in the metropolitan area provided 738 valid responses for the final sample. The study verifies a theoretical model for the acceptability of internet and mobile banking services and offers new insight into how retail banking services were used during the pandemic. The study’s findings showed, among other things, that the variable measuring how consumers perceive the COVID-19 pandemic’s impact on their way of life has a direct and favourable impact on the variable measuring how they feel about online and mobile banking services, with other variables like trust in banks and the security of online and mobile banking acting as intermediaries.
Banking Sector Performance During the COVID-19 Crisis
Demirguc-Kunt,Asli. et al. (2020) says that they examines bank stock prices throughout the globe to see how the COVID-19 pandemic has affected the banking industry. The research also investigates the influence of financial sector policy announcements on the performance of bank stocks using a global database of policy responses throughout the crisis. Overall, the findings point to the banking systems being under severe stress as a result of the crisis and the countercyclical lending role that banks are supposed to play, with bank stocks lagging their home markets and other non-bank financial companies. The negative effects of the crisis were mitigated by measures of liquidity support, borrower aid, and monetary easing, but this was not always the case for all institutions or under all conditions. For example, borrower assistance and prudential measures exacerbated the stress for banks that are already undercapitalized and/or operate in countries with little fiscal space.
Global banking stability in the shadow of Covid-19 outbreak
Elnahass, Marwa. et al. (2021) says that In 2020, the ongoing Covid-19 pandemic is having a detrimental impact on a number of economies. Therefore, it is crucial to investigate how this pandemic has affected global banking stability and to look for potential recovery signs. This analysis is timely because it takes into account 1090 banks from 116 countries for quarterly intervals in 2019 and 2020. The findings offer compelling empirical evidence that the Covid-19 outbreak has negatively impacted financial performance across a range of performance indicators (i.e., accounting-based and market-based performance measures) and financial stability (i.e., high-risk indicators such as default risk, liquidity risk, and asset risk) in the global banking sector. Moreover, our trend analysis, based on bank average performance and financial stability over quarterly periods, identifies a signal of recovery for bank stability during the second quarter of 2020.
The Banking Industry and COVID-19: Lifeline or Life Support?
Madeline Finnegan. et al. (2020) states that the American financial sector entered 2020 in sound condition by many standards. However, the widespread COVID-19 viral outbreak and the ensuing economic disruptions have increased unemployment and forced many enterprises to halt or drastically scale back operations. In this article, we discuss the effects of the pandemic on the stability of the banking industry, including the usage of banks’ regulatory capital buffers and the potential effects of dividend suspensions on bank capital ratios.
Changing The Perspectives Of Banking – Covid-19 Pandemic And Its Effects On The Romanian Banking Sector
SITEA Daria Maria (2021) says that What truly occurred, though, both prior to and during the COVID-19 pandemic? What about the banks, then? This study paper offers a thorough examination of the effects the pandemic had, looking at them both from the perspectives of customers and banks. As a result, banks are under pressure to find a solution right away. E-banking has so advanced to a new level. 2020 saw an unanticipated development that banks had only previously imagined.
COVID-19 implications for banks: evidence from an emerging economy
Bipasha Barua. et al. (2021) says that the COVID-19 pandemic is harming economies around the world in all conceivable ways, including financial markets and institutions. This essay investigates the potential effects of the pandemic on Bangladesh’s banking industry using that nation as a case study of a developing economy. The pandemic is anticipated to make the high level of non-performing loans (NPLs) in Bangladesh’s banking industry worse. The paper examines the effects of the COVID-19 pandemic under various NPL shock scenarios on three specific dimensions—firm value, capital sufficiency, and interest income—using a state-designed stress testing model. Findings point to a potential decline in risk-weighted asset prices, capital adequacy ratios, and interest income for all banks at the sectoral and individual bank levels.
Conclusion
The pandemic produced a global economic slowdown, which resulted in lower economic activity, job losses, and decreased corporate earnings. As a result, loan defaults have increased significantly, notably in areas such as travel, hospitality, and retail. Customers are increasingly turning to digital banking channels as a result of lockdowns and social distancing measures in place. Banks that had already invested in digital infrastructure were better prepared to deal with the increase in online transactions. Remote work: The banking industry, like many others, has turned to remote work, which has offered both benefits and drawbacks. While it ensured operational continuity, it also raised worries about cybersecurity and employee productivity. The pandemic has resulted in regulatory and policy adjustments, such as reduced capital requirements and more government assistance for lending. However, this has raised concerns about potential long-term financial stability problems. Overall, the pandemic has expedited the banking sector’s transition, notably in terms of digitalization. Banks that can adapt to these changes and prioritise customer requirements are more likely to thrive in the post-pandemic era. To summarise, the COVID-19 pandemic has had a tremendous impact on the financial sector, both positively and negatively. The long-term impact of these changes is unknown, but it is apparent that banks will need to adapt and innovate in order to compete in the post-pandemic environment.
References:
• Baicu Claudia Gabriela & Gârdan Iuliana Petronela & Gârdan Daniel Adrian & Epuran Gheorghe, (2020). “The impact of COVID-19 on consumer behavior in retail banking. Evidence from Romania,” Management & Marketing, Sciendo, vol. 15(s1), pages 534-556, October; https://ideas.repec.org/a/vrs/manmar/v15y2020is1p534-556n8.html
• Bipasha Barua & Suborna Barua, (2021). “COVID-19 implications for banks: evidence from an emerging economy,” SN Business & Economics, Springer, vol. 1(1), pages 1-28, January; https://ideas.repec.org/a/spr/snbeco/v1y2021i1d10.1007_s43546-020-00013-w.html
• Demirguc-Kunt,Asli & Pedraza Morales,Alvaro Enrique & Ruiz Ortega,Claudia, (2020). “Banking Sector Performance During the COVID-19 Crisis,” Policy Research Working Paper Series 9363, The World Bank; https://ideas.repec.org/p/wbk/wbrwps/9363.html
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• Elnahass, Marwa & Trinh, Vu Quang & Li, Teng, (2021). “Global banking stability in the shadow of Covid-19 outbreak,” Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C); https://ideas.repec.org/a/eee/intfin/v72y2021ics104244312100041x.html
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• Madeline Finnegan & Sarah Ngo Hamerling & Beverly Hirtle & Anna Kovner & Stephan Luck & Matthew Plosser, (2020). “The Banking Industry and COVID-19: Lifeline or Life Support?,” Liberty Street Economics 20201005, Federal Reserve Bank of New York; https://ideas.repec.org/p/fip/fednls/88834.html
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