BANKING ON BANKS

Although the Covid-19 situation is straining financial institutions, banks have a major role to play in keeping economies buoyant during the current crisis and beyond

- AARTI NAGRAJ

The Covid-19 pandemic has pushed the world into a recession. For 2020, it will be worse than the global financial crisis, according to the International Monetary Fund (IMF). The economic damage is mounting across all countries as containment measures are put in place by governments to slow the sharp rise in new infections.

Looking specifically at the banking sector, the pandemic could be the “most serious challenge to financial institutions in nearly a century”, a recent report by PwC said.

“Pressure on the banking system is growing and higher defaults on debt are imminent. And many now expect a shock to the financial sector similar in magnitude to the 2008 crisis,” the IMF said. “Supervisors [policymakers] must combine the tools from their playbooks for dealing with natural disasters, operational risk events, and bank stress episodes,” it advised.

As companies collapse and people lose jobs, governments across the world have introduced support measures to alleviate the economic impact of Covid19, including a range of stimulus initiatives. Some of the measures taken include guarantee programmes for bank loans and payment moratoria, to ensure that banks can continue to lend to households and businesses to shore up economies. According to the IMF, central banks have announced plans to expand their provision of liquidity — including through loans and asset purchases — by at least $6 trillion and have indicated a readiness to do more if conditions warrant.