Global Effects Of Coronavirus On International Banking and Economy — Banks Must Take Necessary Steps -

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As the coronavirus hit worldwide, the concepts of social distancing and shelter-in-place have been speeding up by the global administrators with an agenda to stop the further spread of the virus in people and ensure their health safety. Although the strategies are quite effective for decreasing the number of infected people worldwide, at the same time, it also causes several inconveniences and struggles not only for the public but also many public utility services such as domestic and international banks. The digital-only banking startups that provide their services to small business clients are trying to find out the prominent solutions to eliminate their customer’s struggles.

The worldwide spread of the new coronavirus has become one of the biggest threats to the global economy and financial markets. First seen in the Chinese city of Wuhan last December, the virus has infected more than 1,10,000 people in at least 110 countries and territories globally as per the reports of the World Health Organization. According to the RBI governor, Shaktikanta Das, the banks must take emergency steps to face the challenges in the wake of the coronavirus outbreak. In his speech at the 13th edition of Mint’s Annual Banking Conclave, he says“A slowing global growth would add to the stress on the Indian corporate balance sheet and thereby on banks”. He adds, “Slowing domestic growth is another challenge due to the coronavirus outbreak and the banks should strongly focus on credit off-take. According to Das, the credit offtake has dropped to 7% in recent months and banks should take emergency steps to improve their operational efficiency.

Bank of America CEO Brian Moynihan said, “Banks are in a great position on capital and liquidity”. The threats of coronavirus impact the global economy and can be seen in the results with locked-down markets worldwide. Here are some key points that can show you the impacts of corona outbreaks on the world’s economy. Let’s have a look:

1. Cash Flow Management — There is no doubt that cash flow is essential for the survival of the banks and other small & medium-sized businesses but the recent outbreak of the virus has put a question mark on the bank’s availability of necessary cash as well as among customers. The customers are worried about whether they need to carry cash on hand as the virus has blocked both the ways — ATMs and banks.
2. No boost in Average Rate — Due to the virus outbreak, a recent drop has been noticed in the average rate on a 30-year mortgage to a low of 3.29% last week. It could give the economy a required boost to fight against coronavirus fears. According to some economists, housing is also damaging the economy, it never fully recovered from the 2008 financial crisis and these low rates are giving another threat to the global economy.
3. Downgrades in Economic Forecasts — Due to the outbreak, many major institutions and banks are forced to cut their forecasts for the global economy. The recent organization to do so is the Organization for Economic Co-operation and Development. According to the OECD, it downgraded its 2020 growth forecasts for almost all economies in the March report.
4. Slow Manufacturing activities — The manufacturing sector is also not untouched by the coronavirus outbreak. A survey of private companies — The Caixin/Markit Manufacturing Purchasing Managers’ Index, shows that the factory activity of China contracted in February came in at a record-low reading of 40.3. This huge slowdown in China’s manufacturing has affected close economic links to China which are Asia Pacific economics including Vietnam, Singapore, and South Korea.
5. The contraction in Global Services — The huge outbreak of the virus has also affected the services industry of the countries in the form of reduced customers for retail stores, restaurants, and aviation, etc. According to a report, it came in at just 26.5 in February. China is not the only country with such service reduction, it also includes services sectors in the US — the world’s largest consumer market. The reason behind this service contraction in the US is the new business from abroad according to the IHS Markit.
6. Decreasing Oil Prices — Due to the reduction in the global economic activities, the demand for oil has lowered as well as the oil prices are also declining even before the disagreement on production cuts between OPEC and its allies. According to the analysts from the Singaporean bank, the reduced old demand due to the corona hit and an expected increase in the supply are a setback for oil markets especially for China — the epicenter of the coronavirus outbreak and the largest crude oil importer in the world.
7. AML Fee — The UK government is planning to impose a 100 million levy on companies subject to money laundering regulations. The fee will be used in new technology for law enforcement and hiring financial investigators. It includes banks, accountants, estate agents, and solicitors.
8. Effects on Stock Market — The global outbreak of the novel coronavirus on the worldwide economy has also affected the investors by bringing the stock prices down in major markets. According to Cedric Chehab, head of the country risk and global strategy at Fitch Solutions, “There are three ways the coronavirus outbreak could work its way through sentiment in markets”. There are a slowdown in China, the slowdown from domestic outbreaks, and the third channel was financial markets stress.
9. Delayed Date Of Reprivatization — Recently, the UK government has delayed the target date for its Reprivatization of the Royal Bank of Scotland due to the sudden breakdown of coronavirus. Now the government is expected to fully dispose of its 62% stake in the bank by the end of March 2025, a year later than it was planned.
10. Declining Bond Yields — The global spread of the new coronavirus has also forced investors to bid up bond prices which results in lower yields in major economies. The yields on all of the US treasury contracts have come below 1% in the past week.

“A sup-tech initiative is being implemented as a part of the integrated compliance management and tracking system. This will facilitate transparent and efficient monitoring of all pending compliances of supervised entities through a web-based interface, automate the inspection planning process and cyber incident reporting, and ensure seamless collection of data,” said Das.