COVID-19 AND its impact on  Nepalese Banking Sector and Stock Market; A quick peep from eyes of an MBA scholar

Today, as the coronavirus – and governments’ responses to its chilling consequences – infects the global economy to the point of virtual shutdown, daily predictions of GDP decline in the second quarter are getting worse by the day.  Predictions that the world’s output could decline by at least 25% might be optimistic.  Buffers were designed to help banks withstand an unprecedented downturn. As it turns out, the scale of what was coming was far beyond the imagination of even the most hawkish regulator. 

The COVID-19 pandemic has caused an unprecedented human and health crisis. The measures necessary to contain the virus have triggered an economic downturn. At this point, there is great uncertainty about its severity and length. The latest Global Financial Stability Report shows that the financial system has already felt a dramatic impact, and a further intensification of the crisis could affect global financial stability.

Since the pandemic’s outbreak, prices of risk assets have fallen sharply. At the worst point of the recent selloff, risk assets suffered half or more of the declines they experienced in 2008 and 2009. For example, many equity markets—in economies large and small—have endured declines of 30 percent or more at the trough. Credit spreads have jumped, especially for lower-rated firms. Signs of stress have also emerged in major short-term funding markets, including the global market for U.S. dollars.

As the Nepalese Economy is fully dependent on other country and import, the Impact of Corona virus miserably effect the economy. Highly increased in economic and social isolation cost, effect in labor market and education system, higher unemployment rate, decline in remittance. Close down of education center are not enough to get the real picture of impact on economy of Nepal. Due to the crisis the economy and the financial sector are on enormous strain. The Nepalese economy which was projected to grow by 8.5% has been re-forecasted to grow only by 5.4% in the current fiscal year 2019/2020.The long-term effects of the event may follow if a substantial number of large and small businesses especially SMEs, banks and financial institutions (BFIs) or other financial sector participants find themselves in deeper difficulties. Therefore, to ensure smooth handling of the crisis, its safe landing and to minimize long-term negative implications in the economy, adequate timely measures and actions should be taken by the government and the central bank.

The Nepalese share market was in bullish run when COVID-19 incurred. In the second month of 2020 the market saw big Bull Run. This attracted huge turnover as projected return from the secondary market looked more attractive than the return from other alternative avenues. Massive rise of index again of 500 points (1100-ish to 1600 +) within the time lap of 3 month was leading the share market in recovery phase. But the growing pandemic in global market brought the storming in the mind and heart of Nepalese investor. The multiple circuit breakers on March 10 immediate reflection and declination of the index. This leads the fall in confidence level of investor and trader due to declining volume of trading.

Jagadish Panta, MBA student, Boston International College, Chitwan, Nepal