Impact of Coronavirus on Australian Banks: FIN 958 Analysis

This essay examines the significant impact of the coronavirus pandemic on the Australian banking system. It analyzes the elevated risks faced by banks, including credit risk (specifically concerning residential mortgages and commercial customers), market risk (stemming from price fluctuations in financial instruments like bonds and equities), reputational risk (considering moral obligations and governmental compliance), and operational risk (focusing on human resource challenges). The essay further suggests various mitigation strategies banks can employ to reduce these risks, offering a detailed discussion of how to navigate the financial challenges posed by the pandemic. It emphasizes the need for banks to adapt and proactively manage risks to maintain financial stability. The essay adheres to the assignment requirements including a word limit of 3000 words, and the use of at least five references.

Running Head: FINANCE
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Name of the Student
Name of the University
Author Note

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Part A
Pandemic Coronavirus is a global crisis which can be seen both in financial and
economic terms. The rapid increases in cases of this disease have troubled the most important
sectors, which is the banking sector in the world. The world trading system related to
transportation and industries have been paused and the productivity of financials of banking
system have been stopped. Banking sector, which is the most important financial transactions
sector which controls the overall financial system of the world economy. They offer all type
of deposits, loans, cash and credits. This process drives the entire economy. Coronavirus
pandemic has a great impact on this financial sector. Banks have been substituted by various
risks that has brought down the entire economy of the world constraints. Some of these risks
are:
 Credit Risk- Credit Risks is related to the risk of debt that the borrower fails to do
payments of the loans. Coronavirus has a huge impact on the global and financial
economy. The macro-economic slowdown the overall world businesses and financial
problem in households. The borrowers are unable to meet their daily financial
requirements. Pandemic Coronavirus has affected the businesses to stop down. People
are not allowed to go outsides. The quarantine period has forced the government to
bring new policies and procedures for the safety of the people. People are not advised
to stay quarantine. This affected the business sector. The banks are exposed to credit
risks due to financial problems. It creates vulnerabilities for the industries and
individual person (Hafiz et al. 2020). The borrowers will be not able to pay their loans
due to affected financial problems. Banks will cause a huge effect in their Non-
performing assets. The long-term loans that has been provided to the borrowers will
have a huge impact. Most of the borrowers borrow the loans in terms of residential
mortgage (Gossner et al. 2016). This type of loans is used for the commercial

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purposes. This type of long-term loans are financed on a huge amount. The
installment rate of these type of loans is also very high. The borrowers has to pay
interest on the loans. Banks are able to generate a high rate of return from these type
of mortgage loans. The demand for residential mortgage is very high and the
borrowers considered this as the best form of debt security. Investors are attracted
towards this type of loans because, banks protect the investors from different type of
inherited risk for the borrowers. But, coronavirus pandemic has done major effect on
residential mortgages. The government policies has delayed the loan payments due to
financial problems. This enables the banks to credit risks. The risk of this debt default
may cause failure in installment payments. Hence, banks face majority of risk from
residential mortgages. Other type of credit risk is related to the commercial customers.
Banks also provide financial services to the commercial customers. They provide
loans and other type of debts to the business entity for doing the business. Business
issue loans and deposits from the bank through saving accounts, certificate of deposits
and checking accounts. Coronavirus has also affected the business sectors. This
pandemic diseases has stopped the business trading process and has affected the
industries profitability. The performance of these industries goes down in the stock
market. Most of the business sectors like manufacturing sectors have undergone
failure in these few months. Hence, the commercial customers are not able to pay
back their debts to the retail banks. The retail banks have been affected by these
consequences (Lea 2020). They are not able to receive credits from commercial
customers. This type of credit risks has affected the commercial banks of all over the
world.
 Market Risk- Market risk involves the risk of investor with respected to the
performance of the business in the financial markets. This is a type of systematic risk

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which cannot be eliminated in pandemic case. Banks arise its market risk from the
loss of trading accounts. This happens when the value of financial assets gets declined
in the financial market (Barua 2020). This type of risks is related to the investors who
suffer from financial loss. Pandemic coronavirus has affected the trading business of
the business. The trading from other countries have totally stopped and hence, the
trading of financial assets like bonds, shares and options have been stopped.
Businesses find huge losses in trading this financial assets (Fernandes 2020). The
pandemic diseases has raised the interest rates of these financial instruments. The
credit quality of the financial market has been declined. It results in poor liquidity
conditions. Hence, due to the above factors the value of financial instruments have
declined and affected the capital markets. The investor’s donot find secure to invest in
this financial assets that are held in the bank portfolios. They find it riskier to invest in
the financial assets which can suffer from market price volatility. The investments in
financial instruments is a major contribution to the capital market. Hence, coronavirus
pandemic has affected the financial institutions like banks and also the capital
markets. Banks suffer a loss from trading of financial instruments in the global
financial market within a few months (Ramasamy 2020). Market risk is the primary
risk of this pandemic disease.
 Reputational Risk- This type of risk refers to the negative image to the public sue to
uncontrollable event. Pandemic coronavirus has become uncontrollable. Banking
sectors have to manage the liquidity, credibility and operational position of its
activities. They have to manage the brand & reputation of the bank to allow more
individual to deposit and seek loans from them (Jull 2020). Coronavirus financial
crisis has allowed banks to become more challenging for managing the overall
liquidity and operation of the business. The coronavirus pandemic may affect the

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banking sectors to become disrupted. Bank face challenges in managing its liquidity
positions and the suspicious transactions (Buheji and Ahmed 2020). Banks will have
to monitor the loans. Due to inflation in the global market, the bank suffers from
supply disruptions. The growth in inflation rate may affect the reputation of the bank.
A time may come, when the bank will be unable to manage their liquidity position.
There may be a case of growing rates of NPA or non-performing assets (Shao 2020).
Hence, it may affect the brand and reputation of the bank. They may be forced to
generate new NPA rules in the new emerging scenario of coronavirus and hence the
reputation of the banking sector will be affected. In order to manage the reputational
risk, banks will have to sustain with new government obligations to manage its
reputational risk. Following the government regulations may allow the bank to
manage its reputation. Banks should follow the new policies and procedures as
declared by the World Bank (Lai et al. 2020). World Bank is the international
financial institution that provides loans and other banking services to the poor
countries and countries suffering from financial problems.
 Operational Risk- Operational risk is related to the loss of the bank’s internal control.
The pandemic coronavirus has influenced the overall economy and human life. This
disease is rapidly growing and has threatened many of lives from all over the world.
The pandemic disease has forced the government to change new policies and
procedures for the businesses, people and financial sectors (Ozili and Arun 2020).
This external event may disrupt the financial sectors like banks. Banks may face
difficulty in controlling their internal control. There may be loss of client’s assets in
the banking sectors. This will also affect the business reputation. The pandemic
disease is affecting the environment. The financial institutions find it complex to
control the overall internal system of the business. Risk is related to improper risk

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management in the banking procedures (Energy et 2020). There may be issues related
to the leadership potentials. The leaders may not be able to properly direct the bank
employees due to complex structure. The disease is rapidly growing at a growing rate.
Banking sectors may find difficult to manage its credits, loans, deposits and other
accounts. The bank managers and leaders have operations risk to direct the employees
in the business. There may be a situation in which the work culture of the bank may
change. It will affect the human resource performance. They may find difficult to
work on the complex structure of the banking system. Due to rapid growth, the
leaders may not find time and situation to train the employees related to new business
structure. The human resource will not be able to properly do the work. They may
find difficult to adjust in the new working environment (Namwat et al. 2020). Due to
lower turnover in the banking sectors, the human resources will affected related to its
compensation scheme. The overall productivity of the banking sector may go down.
The managers may not aware of the circumstances that can happen due to coronavirus
(Karabag 2020). This can affect the overall turnover of the banking sectors and will
affect their activities. The regulation system may change and banks may not properly
control their business system. Hence, the overall performance of the employees and
the banks may be decline due to operational risk.
Part 2
It is very necessary for the banks to mitigate the risks in order to control the
overall financial system. They should address and forecast the current & future situation
of the global economy and accordingly upgrade their models for risk management. This is
epidemiological uncertainty that can impact the demand and supply of the entire global
economy. Banks should prepare themselves to mitigate the above and handle the
situations properly. They should focus on prioritizing their measures to avoid the market

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stress of this diseases in the global market. Banks must take following measures to reduce
the risks associated in the banking activities:
 Credit Risk- Banks can replace the credit risks by following the new policies and
procedures. The credit risk that is associated with the bank should be mitigate the risk.
They should provide essential services to the clients and the communities. They
should prepare their backup plans in case of any financial triggers. They can start
rebooting their technologies that can easily mitigate the credit risk. They should
assess to consumer demands to minimise this services (Khan et al. 2020). They should
encourage the customers that have affected in paying loans. Due to lack of
employment, banks should provide support to the customers in providing the financial
benefits through credits. Long-term loans of rich people should be generated at a
particular rate to use the amount for providing the credits to the customers. They can
connect with other global banks to mitigate this risk. The businesses have been
affected with huge loss of their demand and supply. Bank should start preparing
payment schedules for the customers. In addition to this, they should start preparing
the availability of credit on the basis of customer’s income, areas and customers
demand. This measure will help the banking sectors to protect from credit risk that
might occur in future due to pandemic coronavirus (Igwe 2020). They should
basically focus on improving the customer base. If banks will support the customer in
this critical situation, then the customers can assure them to pay back the loans or
debts to the banks whenever it is possible. They should reduce strictness of monetary
policy in this situation. The credit lines can support the businesses to perform their
business activity and hence, commercial customers will be able to pay their debts.
This will help in mitigating the credit risk of the bank. Bank should upgrade their risk
model to measure the liquidity position of their banking activity. Liquidity measures

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should support the customer in providing residential mortgage rate. They can do this
by applying testing tools to monitor the credit risk that may happen in the future.
 Market risk- The market risk should also focus on mitigating the risks related to
market risk. The pandemic disease has affected the economic landscape of the global
trend. The economic stress is continuously emerging in all the global market (Isaifan
2020). The risk related to financial instruments for the banks should be mitigated with
related to financial institution in the process. It must be planned according to the
revenue and expenses. Market risk can be protected by providing essential services
for dealing with the price movements of financial instruments in the global market.
They can do continuous monitor of the customer demand to reduce the risk related to
the financial instruments. Pandemic coronavirus can stop the international trading of
financial instruments. They can encourage the customers to do digital trading of
financial assets. Bank can introduce digital trading system for trading of financial
assets. This will allow the investors to prevent from any kind of financial loss that can
happen due to uncertainty of coronavirus (Khan et al. 2020). The global market will
be suffering from purchasing delays. The manufacturing industries will be affected
due to its rapid spread in all across the world. Though the trade war among the trading
partners cannot be solved, still the business can go through testing process to reduce
the market risk. They can prepare future forecast of the expected financial loss from
the pandemic disease. New financial policies related to financial instruments can be
initiated. Banks can give additional discounts on the financial instruments to attract
the investors invest in bonds and shares. This might somewhat bring the capital
market in better position. They can apply the strategy of incident management.
Different schedules can be prepared with related to incidence of the disease with the
financial assets. This indicates that the planning can be done by doing the business

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analysis. The current business can be analysed for identifying the changes that is
required for mitigating the market risk.
 Reputational risk- Banks should focus on improving the customer base to enhance the
customer relationship for the banks. Banks should provide all types of services to the
customers in difficult situation. The reputational risk mitigated by providing all type
of deposit, payments and credit extension service to the customers. Banks should
make arrangements to do digital services. They should keep ATM services open for
the safeguards of the customers. The needs of the consumers should be met according
to their scheduled segments. The consumer demand should be monitored and the
capacity should be adjusted. They should initiate customer friendly approach and
encourage them to go virtual channel for doing transactions. They can use remote
channels to reach with the people in the remote areas (Sikich 2018). They can launch
safety oriented messaging scheme to reduce the impact of cash transactions. This will
allow them to go digital transaction. They can improve the functionality system. This
means that they can make limit for doing the online activities. Bank should seek ideas
from the risk professional to develop their controlling system. They should properly
communicate it with the customer regarding changes in policies and procedure of the
banking system. Improving the customer base also indicates that fulfilling the support
to the household & businesses by providing them credit. Banks should support the
customers and businesses in providing every type of liquidity need. They should
identify those sectors which have been affected the most and accordingly support
them with credits.
 Operational Risk- This is the most important risk of the banks. Banks can mitigate
this risk by providing measures for the human resources. They should create a
workforce management approach in the banking system. This will allow the

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workforce or the employees to get exposed to the risk. Special attention should be
given to the employees and banking staff related to training and preparation of the
employees related to the uncertainty of the pandemic disease (Roy 2020). They
should properly review the new policies and practices to the employees. The banks
should concern that the system is appropriately controlled related to the risk appetite.
They can also take pressure test for the employees. They can do restaffing of the
employees and staff members according to the work hour to maintain the branch
performance. This will allow the workers to get engage in the work during the
pandemic disease crisis and improve their performance. Hence, the overall
performance of the banking sector. In this way the human resource can be more
engaged with respect to the uncertain environment (Burton et al. 2020). In addition to
this, they should support the human resources by paying extra wages during the
quarantine time. Hence, the operational risk can be mitigated by focusing on the
human resource perspective of the banking sectors.

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