Question

What is the effect of Covid-19 pandemic on the credit risk faced by a commercial bank.

Answer 1

Answer -

The Covid-19 pandemic becomes the most serious challange to banking and financial sector. Because of this Covid-19 pandemic, world economy is affected .

All economic activities are stopped. There is no production, no recruitment, no income, no investmennts. In short, all economic activities are stopped.

It also has affected badly to the commercial banks.Their borrowings arr reduced as no one can make new investments in business. Existing customers will soon become increasingly insolvent because of stoppage of economic, industrial and marketing activities.It becomes very challenging for commercial banks to recover loans and advances in this crisis.

Due to non recovery of loans by banks, NPA i.e. Non performing Assets of the commercial banks increases. It affects liquidity and financial position of the commercial banks.

Because of low incomes, there is also decrease in deposits by people in commercial banks so availability of funds for giving loans will become less.

Commercial banks faces all the above credit risksrisks by the adverse effects of Covid-19.