Pandemic exposes banks to credit risk, cyber security threat management: report

The corona pandemic has exposed banks in Pakistan to various challenges including muted credit risk increase, reduced fee income due to slowdown in economic activity, branch closures and cyber security threat management, revealed the quarterly report of MCB Bank, ending 31 March 2020. Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments. Therefore, the risk management function of the bank is regularly conducting assessments of the credit portfolio to identify borrowers most likely to get affected due to changes in the business and economic environment, the report added. The report said the bank had further strengthened its risk appetite and related credit review procedures in the light of Covid-19 which would insulate the bank from any unforeseen shock. It said the financial risk management objectives and policies adopted by the bank were consistent with those disclosed in the consolidated financial statements for the year ended December 31, 2019. These risk management policies continue to remain robust and the bank is reviewing its policies regularly and conducts rapid portfolio reviews in line with emerging risks. The Covid-19 pandemic has taken a toll on all economies and emerged as a contagion risk around the globe, including Pakistan. To reduce the impact on businesses and economies in general, regulators/governments across the globe have introduced a host of measures on both the fiscal and economic fronts.

The State Bank of Pakistan (SBP) has also responded to the crisis by cutting the policy rate by 225 basis points to 11 percent in March 2020 and again by 200 to 9 percent on April 16, 2020. Other regulatory measures to provide an impetus to economic activity include a reduction in the capital conservation buffer by 100 basis points to 1.5 percent, increasing the regulatory limit on the extension of credit to SMEs to Rs180 million, relaxing the debt burden ratio for consumer loans from 50 percent to 60 percent, allowing banks to defer borrowers' principal loan payments by one year; and relaxing regulatory criteria for restructured/rescheduled loans for borrowers who require relief of principal repayment exceeding one year and /or mark-up. According to the report, during the current quarter, the Pakistan Stock Exchange fell by 28 percent, triggering an impairment of Rs3,053.209 million. The bank has only recorded an impairment of Rs765.363 million in the first quarter.