Question

As we continue to feel the effects of the global pandemic, the banking sector, like many other sectors, now faces unprecedented uncertainty. While banks are generally going into this pandemic in a stronger position than the global financial crisis of 2008, the current environment presents challenges for standard accounting procedures and processes that could impact a bank's risk profile.

(a) Discuss the risks being posed to the banking sector because of the global pandemic.                                                                                  [12 marks]

(b) Propose key risks management policies that banks need to adopt in such a situation.         [apart from basel 3]                [13 marks]

(c) How BASEL III measures can help banks to minimise the consequences of this crisis.                                              [10 marks]

    

Answer 1

a) As the current situations prevail, there is a great risk to the banking sector because of the pendemic.

Banking sectors are facing increase in loans and NPAs being increased by a great rate.

As there is increased number of unemployment in the country, people are withdrawing their money being invested in banks. Resultant the economy is going down.

It has been seen that in this situation, people are facing crisis of money, and it is expected that banks are going to face increased amount of debts in coming future.

Thus this can be concluded that banks has most of risk from NPAs and loans.

2) In such situation it is important that banks should try their best to increase the liquidity. Banks should take measures to preserve cash.

Following risk management policies needed to be adopted by the bank :

• It should be properly assessed the size of the fund required and timing of cash requirement.
• Liquidity should be properly monitored and should have a proper reporting.
• Process should be made to be implemented so that it can efficiently be responded to the regulatory inquiries. Reporting changes should be implemented accordingly.
• Cash flow forecasts needed to be revised and assumptions should be prepared regarding liquidity model assumptions.

3) Measures taken by BASEL III to minimize the consequences of this crisis.:

• It has been providing banks with operational capacities additional for the proper working, providing resources for maintaining financial stability.
• They have presented a revised frameworks on credit risk and market risks. Requirement of credit valuation adjustments is being made.

These all measures help banks in arranging capitals and providing to banks for conducting their services.

It helped in improving the liquidity of banks contributing to enhance the economy of the banks across countries.