Historically, there have been many black swan events across the globe, such as the dot-com bubble, the bird flu outbreak, the 2008-09 financial crisis, and so on, with wide-ranging economic impacts. The COVID-19 pandemic is the latest such phenomenon to have engulfed the entire world, resulting in a worldwide health crisis and bringing the global economy to a near standstill. As of this writing, the WTO has estimated that global trade could plunge by a third. Just like its peers, the financial services industry is grappling with severe challenges posed by the COVID-19 crisis. Banks’ lending business has been heavily disrupted, and their risk function is being tested to the hilt. In the near term, we expect an upsurge in loan defaults because of which there will be a spike in non-performing assets. Decrease in collateral values will trigger a call for new margins. Defaults and downfall in business will force credit rating agencies to downgrade customer rati...
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