Banking can be classified as the lifeblood of trade, commerce, and industry.[1] The banking industry plays a vital role in the foundation of a modern enterprise. Prior to the advent of banks, money lenders and individuals conducted the financial transactions. In today’s ever-changing competitive world, a country’s economic progress is determined by its ties with other countries and the prospects for international trade and financial activity. Therefore, International Banking has been developed because of globalization and growth of economies all over the world. As a result, in a highly volatile business climate, the concept of International Banking System is utterly critical. International Banking can be classified as the process of banks engaging with money and credit between the countries that have been segregated by the political borders. But, owing to the deadly pandemic of Covid-19, the performance of the banking sector has been severely impacted thus resulting in a sluggish business growth.


The Covid-19 pandemic has plunged the world economy into an induced slumber a decade after the Great Financial Crisis. The Great Financial Crisis had first impacted the financial markets, and then slowly migrated to the actual economy, whereas in contrast, the Covid-19 pandemic has put the world’s biggest economies into lockdown, thus drastically decreasing the output more than the Great Financial Crisis. [2]The tussle against Covid-19 is not only about protecting the country and its people but it is also about ensuring that the banking channels are readily accessible round the clock to cater the needs of the public, as the banking industry can be classified as the cornerstone of any country, and its failure could result in a slew of problems in the development of a country.

Liquidity shortages had characterised the early stages of the crisis, which were accentuated by volatility in securities and foreign exchange markets, wherein both cross-border and local claims were resilient in both advanced and emerging economies. Countries with higher economic activity and fewer financial vulnerabilities had borrowed more, while banks with better capital lent more. Due to the economic downturn in the pandemic, the borrowers in advanced economies drew on pre-existing loan facilities from the international banks. In anticipation of the pandemic, the international banks of various countries had set up corporate bond purchasing programmes. The European Central Bank had enlarged eligibility to non-financial commercial paper, and the US Federal Reserve had procured investment grade bonds for the first time, and had later extended eligibility to successively downgraded bonds, either directly or through exchange-traded funds. Furthermore, the Bank of England had indicated that the corporate bonds would account for at least 10% of the GBP 200 billion in extra purchases under its Asset Purchase Facility. [3]During the pandemic, the International Banks had implemented policies to ensure that the credit continues to circulate to businesses and households. [4]

The financials of the corporate sector have suffered a significant impact as a result of lower production and the imposition of lockdowns. Supply chain interruptions, manufacturing stumbling blocks, and crippled health care systems all require a large stimulus to maintain their operations running in an efficient manner. Owing to the pandemic, the investor confidence is at all-time low, and it’s becoming apparent how challenging it will be for the international banks to retain healthy assets and earnings. The deterioration of these economic conditions have severely impacted the International Banking System. Due to the nationwide lockdowns and declining income, many loan payments in Europe have been leaving the banks barren. After China began to recuperate from the massive economic shock, Europe had already emerged as the historic epicentre. Since the deadly virus has invaded the country, Italy-the world’s finest health care country has been in a socio-economic disaster. The bank stocks have been plummeting, thus indicating a loss of faith in the International Banking System. Following the economic downturn which has been caused by Covid-19, the banks in the country are anticipated to witness a 1.9% increase in the non-performing assets and a 130-basis point increase in the credit cost ratios.[5] Furthermore, many of the bank assets are loans to the businesses and households, and the banks rely on the inflow of the loan repayments to generate money and fulfil their commitments to depositors and creditors. As a consequence of the Covid-19 pandemic, the repayments have decreased considerably due to substantial unemployment and business closures all around the world. In the long run, if the current economic conditions ensure and the borrowers are unable to repay their loans, the International Banking System without further assistance from financial regulators, will be forced to fully realise the loan losses. As a result, banks that have suffered losses but avoid bankruptcy may take longer to rebuild capital reserves after Covid-19, since they will rely on future earnings and on the recovery of their investment portfolios. Therefore, the capital rebuilding process could stifle future lending and have a significant impact on the International Banking System.

With the economic growth projected to decelerate, the International Monetary Fund has downgraded India’s GDP growth forecast to 1.9% for the year 2020-21-the banking and the financial sector whose prospects have been directly linked to the economy is likely to confront the burden.[6] The slowdown in the economy of India will result in widespread unemployment, thus putting pressure on the bank’s retail lending portfolios. The Indian economy has already been devastated by income from tourism and the entertainment industry, and all these factors together are exerting a burden on the global economy, which may have to face the ramifications in the coming years. The Coronavirus literally makes the money ‘dirty as the virus can live on the surface of banknotes and coins. As a result of which, the fear of infection will fuel the next wave of digitalization and a move away from the currency. This would assist to promote India’s fast digitalization during the last few years. However, given the probability of a prolonged economic slowdown in the medium run, both the value and the volume of the transactions are likely to fall. The rise in the digital transaction penetration will be mitigated by a drop in the transaction activity.

As the global economy continues to encounter the ill effect of the economic activity restriction, many people throughout the world have resorted to international banks as the most probable saviours who can restore financial stability swiftly. The economic halt was a significant jolt to the corporate sector, which had been obliged to scrabble for funds to pay operating costs as a result of the income deficit, thus necessitating a swift and a massive policy intervention from the international banks. Therefore, under these unparalleled circumstances, the International Banks had enacted policies aiming to reduce the sharp constriction of financial conditions in the short term,[7] while others sought to support the flow of credit to firms, either through direct credit market intervention or by relaxing constraints on the issuance of credit.

When confronted with an emergency crisis, the operational and technical obstacles for both clients and employees revealed a flaw and a general lack of agility in the financial systems. Covid-19 has prompted us as a civilization to focus on innovative remedies to old problems in order to enable us to live our lives during the pandemic and some of these innovations will be permanent. The immediate lessons learned from the Covid-19 scenario will assist the bank digitise and optimise its backend processes, which is the need of the hour as it will eliminate the need for manual input, personal-led reviews and employee interaction.[8]  However, while some aspects of service sectors such as banking will evolve, but the human element will persist, especially where complexity and reassurance is essential.


The Covid-19 pandemic has posed substantial health and economic concerns. The economy is anticipated to endure a prolonged period of decline as a result of the nation-wide lockdown, global economic slump and the concomitant disruption of the demand and supply networks. While saving lives is the primary priority, the essential containment measures have resulted in a significant drop in the International Banking System. The crisis has brought to light the shortcomings in the operation and risk management of many banks as well as their regulatory deficiencies. Such shortcomings have made it easier for the disruptions to spread quickly across the global financial system vis the internationally active banks. As a result of which, the banking industry has been compelled to streamline their operations, refocus their efforts strive to restore the economy.

Author(s) Name: Sanya Kapoor (Bennett University, Greater Noida)


[1] Des Raj Raj, ‘Role of Banking Sector in Indian Economy’ (2020) < > accessed 17 December 2022

[2]‘What is the Global Financial Crisis of 2008-2009?’ (CFI) <> accessed 17 December 2022

[3] Bryan Hardy and Előd Takáts, ‘International banking amidst Covid-19: resilience and drivers.’ (2020) BIS Quarterly Review <> accessed 17 December 2022

[4] ‘How COVID-19 is Impacting Central Banks’ (International Banker, 24 December 2020) <> accessed 17 December 2022

[5]‘COVID-19: Banks in India to Witness Spike in Credit Costs, NPAs in 2020, Says S&P Report’(News Click,  06 April 2022) <> accessed 17 December 2022

[6]‘India to grow 1.9%, global economy to shrink 3%: IMF’ (Times of India, 15 April 2022) <> accessed 17 December 2022

[7] Bryan Hardy (n 3)

[8] ‘Tackling Coronavirus (Covid 19): Contributing to a global effort, The impact of the coronavirus crisis on development finance’ (OCED, 24 June 2020) <> accessed 17 December 2022

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