Effect Of Covid-19 On The Banking Sector

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Effect Of Covid-19 On The Banking Sector


Abstract


This study was carried out on the effect of corona virus (covid-19) on the Nigeria bank sector. The Covid-19 pandemic has generated shocks that have caused economic fluctuations globally, calling for an understanding of the behaviour of macroeconomic variables. This study presents an early review of the macroeconomic impact of the Covid-19 pandemic in Nigeria. The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are staff of First Bank Nigeria PLC, Lagos State.

The study concluded that; first, firms that have stopped working miss out on revenues, and therefore might not be able to repay loans. Similarly, households with members who have lost their jobs or are furloughed have less income, and therefore might not be able to repay their loans.


Chapter One


Introduction

1.1 Background of Study

The COVID-19 outbreak is a global pandemic. It originated in December 2019 in the Chinese city of Wuhan, and has rapidly impacted to a greater extent in most parts of the world (James 2020). COVID-19 has affected and continues to affect all global areas and regions due to its highly infectious nature (Ayomide 2020).

COVID-19 popularly known as Coronaviruses (CoV-19) are a large family of viruses that causes health abnormality from the common cold to more immensed diseases such as Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV). A novel coronavirus (nCoV) is a new strain that has not been previously identified in humans. More so, it is said to be zoonotic, meaning they are transmitted between animals and people.

As a result of the deadly nature of this virus, and the need to assume responsibility, the governments of most countries were forced to undertake restrictive measures and limitations, which are necessary to contain the virus that has changed the lives of many people, organisations, and institutions (Ezeh 2020). These restrictions includes; restriction of movements, shutdown of many organizations (including personal businesses), lock-downs and more. However these restrictions had unpalatable effect in several sectors of the economy such like, small and meduim businesses, social organization and banks.

A bank is a financial institution, which deals with money and credit. It is an institution that provides a great variety of financial services. It accepts deposits from the public and mobilizes the fund to productive sectors. It also provides remittance facility to transfer money from one place to another (Simion 1998). in the view of Chiowen (2000), a bank is a financial institution licensed to receive deposits and make loans. Banks may also provide financial services such as wealth management, currency exchange, and safe deposit boxes. There are several different kinds of banks including retail banks, commercial or corporate banks, and investment banks.

Banks suffered several downturns as a good number of its services were not patronized during the Covid-19 restrictive measures. Hence this research is aimed at ascertaining how Covid-19 has affected the banking sectors in Nigeria.


1.2 Statement of Problem

The outbreak of Covid-19 emanated the shutdown of individual businesses, business organizations (both national and international), academic institutions etc. Hence this scenario affected banking industries as many of its services which generates revenue were not often patronized, some of these services includes; Business Investment, Business loans, Loan for rents, School fees loans, moreso, Naira to Dollar transactions dropped and loans granted to businesses not being refunded was among the factors suffered by banks. Based on this note, this study is channeled towards examining the effect of Covid-19 outbreak on Banking sectors.


1.3 Purpose of the Study

The apex grail of this study is to examine the impact of Covid-19 on Banking sectors. Other significant objectives include;

  1. To assess the effect of Covid-19 pandemic and widespread on Banking sectors.
  2. To identify the extent to which banks revenue was affected by Covid-19.
  3. To investigate if Covid-19 affected banking operations.

1.4 Research Question

  1. What is the effect of Covid-19 pandemic and widespread on Banking sectors?
  2. To what extent was banks’ revenue affected by Covid-19?
  3. Did Covid-19 affected banking operations?
  4. Were all banking services patronized during the Covid-29 restrictions and lockdown?

1.5 Significance of the Study

This study on the impact of Covid-19 on Banking sectors will in doubt be of great significance to the the entire banking sectors as the study was carry out the unviel the truama banks suffered as a result of this unforeseen outbreak of Covid-19. Moreso this study will reveal suggestions on how banking contain the hit of any subsequent pandemic. Furthermore, this study will serve a source of information to all academic personnel who may likely carry out academic studies related to the topic under study.


1.6 Scope of the Study

This study is limited to an investigation on how Covid-19 affected Banking sectors of Nigeria. Therefore the study was carried out in First Bank Nigeria Plc in Lagos state where the case of Covid-19 was more severe.


1.7 Limitation of the Study

Time, funds and availability of materials on this research domain and validating of respondents’ responses to interviews and questionnaires were the major constraints the researcher encountered at the course of this study.


1.8 Definition of Terms

Covid-19:

Coronavirus disease 2019 (COVID-19) is a communicable respiratory disease caused by a new strain of coronavirus that causes illness in humans.

Banks:

A Bank is a financial institution licensed to receive deposits and make loans. Two of the most common types of banks are commercial/retail and investment banks.

Banking Operations:

Banking operations involves the practices and procedures that a bank uses to ensure that customers’ transactions are completed accurately and appropriately


Chapter Five


Summary, Conclusions and Recommendation

5.1 Introduction

This chapter summarizes the findings on the effect of covid-19 on the banking sector, First Bank PLC in Lagos State as case study. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was on the effect of covid-19 on the banking sector, First Bank PLC in Lagos State as case study. The study is was specifically focused on assessing the effect of Covid-19 pandemic and widespread on Banking sectors , identifying the extent to which banks revenue was affected by Covid-19 and investigating if Covid-19 affected banking operations.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 100 responses were validated from the enrolled participants where all respondent are staff of First Bank Nigeria PLC, Lagos State.


5.3 Conclusions

With respect to the analysis and the findings of this study, the following conclusions emerged;

First, firms that have stopped working miss out on revenues, and therefore might not be able to repay loans. Similarly, households with members who have lost their jobs or are furloughed have less income, and therefore might not be able to repay their loans. This will result not only in lost revenue but also in losses (if repayment capacity is permanently impaired), negatively affecting profits and bank capital. And as a swift recovery becomes less likely, banks can expect further losses, resulting in the need for additional provisions, further undermining their profitability and capital position.

Second, banks are negatively affected as bonds and other traded financial instruments have lost value, resulting in further losses for banks. There might also be losses from open derivative positions that have moved in unexpected directions due to the crisis.

Third, banks face increasing demand for credit, as especially firms require additional cash flow to meet their costs even in times of no or reduced revenues. In some cases, this higher demand has presented itself in the drawdown of credit lines by borrowers.

Fourth, banks face lower non-interest revenues, as there is lower demand for their different services. For example, there are fewer payments and transactions to be done with lower economic activity, and fewer security issues by corporates reduce fee income for investment banks.

Losses and lower capital buffers in banks can have negative spillover effects, which might make banks’ solvency position even worse and might also undermine the broader economy. Banks might sell bonds and other traded financial instruments to improve their liquidity position or to make up for losses, with prices of these instruments falling as a consequence and negatively affecting other banks that hold them.

Banks might reduce credit provision to the economy, thus negatively affecting firms relying on such buffers, undermining their survival. We saw similar spillover effects during the 2008/09 global financial crisis. This could make the economic shock even worse.


5.4 Recommendation

Based on the findings the researcher recommends that;

These different supervisory and fiscal policy measures have helped to avoid any bank failures over recent months. They have also helped to support the banking sector in its critical function of keeping the economy running.

But they will not avoid the losses that will result from the failure of some businesses, the necessary restructuring of balance sheets of others (implying write-down of some debt) and the inability of some households to serve their loan repayments. The critical question is who will bear these losses. In some cases, and to a certain extent, these losses might be covered by the government guarantees discussed above. In other cases, banks might incur these losses directly.

As banks will have a critical role not only during the pandemic containment phase but also during the economic recovery phase, sufficient capitalisation will be important as economies will have to reallocate resources across sectors from ‘losers’ to ‘winners’.

For example, sectors that rely heavily on physical provider-client contact will decline in their importance, while sectors focusing on remote and/or digital service delivery will grow. Banks will have an important role funding the expansion of the winner sectors, but they can only do so if losses incurred on loans to shrinking sectors does not impair their lending capacity.

Once economies have returned to a ‘new normal’ and it has become clear which firms (and thus borrowers) are viable and which are not, it is important that non-viable firms are liquidated quickly, loan losses recognised swiftly and banks recapitalised where necessary, be it by private investors or with government support.


Effect Of Covid-19 On The Banking Sector


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