Efficacious Scrutinizing of COVID-19 Impact on Banking Using Credit Risk Metrics

Abstract

COVID-19 (coronavirus disease 2019) pandemic has affected the length and breadth of various industries and banking is one of the most distressed sectors. The main objective of the paper was to manifest the influence of COVID-19 on the credit exposure of a bank. Conventional risk management of a bank is having its business intelligence dashboard to monitor credit exposure and make vital decisions based on it. But because of uncertainty like an epidemic, COVID-19, those visualizations/information fail to convey the impact of an epidemic on the business of a bank and create a gap, which in turn hurts the institution being not able to make accurate and strategic decisions. To bridge that gap, this study uses a statistical technique-Multivariate analysis of variance to choose and find out risk metrics for a bank which has a significant impact because of COVID-19 and developed a COVID-19 risk indicator parameter, which is the integrated measure of both COVID-19 data and credit risk metrics. The analysis uses a business intelligence tool, Tableau, to visualize geographically impact for a bank as per selected risk metrics and also displays industry-wise impact by integrated results of COVID-19 data, which extracts summarize version of most/least impacted counties and most/least impacted industries concerning bank exposure because of an epidemic. The study concluded that having this methodology and visualization of information available to risk management department or senior management of a bank, this will help them to make decisions like industry-wise relaxation on the credit products, before an asset becomes substandard take proactive measures such as debt restructuring, by looking at most impacted industries and banks credit exposure, appraise the provisioning factor and many more critical decisions.