Impact of COVID 19 on individuals, communities, and organizations is rapidly sprouting. A recent article posited four different scenarios for the global economy resulting from COVID-19, which ranged from a mild and temporary hit to the worst-case scenario, a global financial crisis. Here are the few notable concerns.
- Indeed it is unfortunate that COVID-19 arrived when the global economy was already showing signs of a slowdown.2
- Apart from the effect on the supply and demand side, COVID-19 has already shaken financial markets. Since February 21, 2020, bond yields, oil, and equity prices have sharply fallen, and trillions of dollars, across almost all asset classes, have sought safety.
- In the United States, 10-year bond yields have tumbled below 0.5 and equity prices on major stock indices around the world have fallen.
- It appears, as of now, that the markets are trying to price using the worst-case scenario, which has increased volatility recently.
- With the continued shocks to the supply and demand side, there is potential for further market disruption.
- Institutions and individuals may be experiencing liquidity stress, including limited access to credit.
- This might, in turn, increase the probability of default, especially near or in the speculative grade of corporate debt. Private debt, including corporate and household debt, has reached record levels recently, and approximately one-half of the investment-grade market currently holds a triple-B rating.
- Many banks are also acting as responsible citizens by extending loans to hard-hit borrowers, renegotiating credit terms, and even donating face masks to their clients.
- Beyond the operational actions already underway, banks and capital markets must remain hyper vigilant.
- They need to also actively consider the short- and medium-term financial, risk, and regulatory compliance implications that are resulting from the continuing uncertainty around COVID-19.
Effect of COVID 19 on Banks and Financial Markets:
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HOW COVID 19 HAS AFFECTED THE NON-BANKING FINANCIAL COMPANIES
Here is an article to show its effect on NBFCs: