In a report published on May 22, the International Monetary Fund (IMF) said that the COVID-19 pandemic has exposed and worsened pre-existing financial vulnerabilities. The report noted that the profitability will be a persistent challenge for banks until 2025.
The International Monetary Fund (IMF) said, “Beyond the immediate challenges associated with the COVID-19 outbreak, a persistent period of low interest rates is likely to put further pressure on bank profitability in the coming years…Even once the global economy begins to recover from the current shock.”
It added that the “Banks’ earnings challenges emerged prior to the recent COVID-19 episode and will extend to at least 2025, well beyond the immediate effects of the current situation.”
The IMF advising the authorities to take up “structural’ challenges faced by the bank said, “For example, financial sector authorities should incorporate the potential impact of low interest rates in their decisions and risk assessments. Supervisory capital planning and stress testing should include “lower-for-longer” scenarios, and the strength of business models in such an environment should be evaluated. Supervisors should also remain vigilant and prevent any buildup of excessive risks that could reduce the banking sector’s resilience.”
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