University of Barishal

Report ON:

Covid 19 Impact on Tourism and Banking Sector

Course Title: Quantitative Business Analysis

Course Code: MKT-322
Submission Date: 02/
07/2022

Submitted To: Submitted By:

MD. Mahiuddin Sabbir GLADIATORS GROUP

Assistant Professor 7th Batch

Department of Marketing Department of Marketing

University of Barishal University of Barishal

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July 2, 2022

MD. Mahiuddin Sabbir

Assistant Professor

Department of Marketing

University of Barishal

Subject: Letter of Transmittal

Dear Teacher,

With due respect we, the students of group GLADIATORS have reported on
“Covid 19 impact on tourism and banking sector”

Though we are in learning curve, this report has enabled us to gain insight into
the core fact of business. So it becomes as an extremely challenging and
interesting experience. Thank you for your supportive consideration. Without
your inspiring this report would have been an incomplete one.

Lastly, we would be thankful once again if you please give your judicious advice
on effort.

Your sincerely,

Group, GLADIATORS

3th Year, 2nd Semester,

Department of Marketing

University of Barishal
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Table of contents
Executive summary ............................................................................................................... 5
Introduction........................................................................................................................... 6
Effect of COVID-19 on the tourism industry in Bangladesh ................................................ 11
How the COVID-19 crisis hits world tourism ...................................................................... 12
Sectoral impacts .................................................................................................................. 16
Employment impacts ........................................................................................................... 17
COVID-19 Impact in Banking Industry ............................................................................... 19
Growth of financial sector ................................................................................................... 19
The allocation of COVID-19 response funding by the government ...................................... 21
Moratorium Facility for businessmen .................................................................................. 21
Mapping the impacts of the COVID-19 pandemic for banks ................................................ 22
Ways of recovering ............................................................................................................. 22
Covid-19 and its impact on the global Banking sector ......................................................... 23
How did the Covid-19 crisis affect the banking sector? ....................................................... 24
What has been the policy response? ..................................................................................... 24
Developing smart governance ............................................................................................. 25
What needs to be done during the recovery phase? .............................................................. 26
What are some of the long-term effects of the Covid-19 crisis on the banking industry? ...... 27
The road ahead .................................................................................................................... 27
Conclusion .......................................................................................................................... 29
Reference ............................................................................................................................ 30
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Executive summary
The purpose of this report was to discuss the effect of the COVID-19 pandemic on the
tourism & banking industry in Bangladesh. The COVID-19 outbreak has significantly
affected global travel and tourism. Bangladesh has also experienced an adverse impact on
inbound and outbound tourism. International and domestic tourists have cancelled
bookings in Bangladesh, Inbound and outbound tourism activities have also been banned.
Airlines have cancelled flights, while hotels are almost completely vacant, and as a result,
supporting tourism agencies are facing huge economic losses and employment cuts in
Bangladesh. The amplification of COVD-19 is predicted to cause a long-term adverse
impact on tourism in Bangladesh. Besides, Covid-19 pandemic has arrived at a
widespread risky situation in our individual, financial and communal lives. Now the
whole world is thrilled by the cruel clutch of the corona virus and its victim is the global
economy. In the critical moment of lockdown, Bangladeshi banking sector faces huge
financial losses, increasing on-performing loans, individual investment and decreasing
operating prof-its. Bank employees are affected seriously for performing their daily
activities. They are passing their days with great fear.
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Introduction
The present pandemic COVID-19 has resulted in global challenges, economic and
healthcare crises, and posed spill over impacts on the global industries, including Tourism
and Banking that the major contributor to the service industry worldwide.

The tourism and leisure industry has faced the COVID-19 tourism impacts hardest-hit and
lies among the most damaged global industries. The leisure and internal tourism indicated
a steep decline amounting to 2.86 trillion US dollars, which quantified more than 50%
revenue losses. In the first step, the study explores the consequences and settings of the
COVID-19 pandemic and how innovation and change can contribute to the tourism
industry's revival to the next normal. Thus, the study determines that tourism enterprises
and scholars must consider and change the basic principles, main assumptions, and
organizational situations related to research and practice framework through rebuilding
and establishing the tourism sector. Besides, the Banking sector also survives. The low
interest rate scenario, along with the significant impact of the COVID-19, is reducing the
core banking profitability in mature markets. Financial institutions are thus shifting
towards commission-based income from the likes of payments and tech businesses. One
of the immediate effects of the health emergency on the real global economy is the
increased credit risk of corporate and retail clients of the banks. Covid-19 epidemic also
creates financial risk within the banking sector of Bangladesh and in order to continue
financing the real economy and support its recovery, banks are called to distinguish
between purely temporary phenomena, destined to be re-absorbed in a short time, and
longer lasting impacts which would require actions of management and reclassification.

COVID-19 and Tourism Industry in Bangladesh

Tourism is a way for most of the human movement in the modern world. According to
WTO (2020) the international tourism has showed continues growth for the 10 th
successive year reporting 1.5 billion international tourist arrivals in 2019. It is projected
to be reached by 1.8 billion international tourist by 2030.
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The tourism industry in Bangladesh is a growing economic sector which is comprising

4.4 percent of total GDP in 2018 (World Bank, 2019). The international tourism
expenditure in Bangladesh was US$ 1208 million which is relatively reasonable value
among the South Asian countries. Figure 1 shows international tourism expenditure in
South Asian countries.

Figure 1: International Tourism Expenditure in South Asian Countries

Tourism Expenditure (US$)

30000

25000

20000

15000

10000

5000

0
India Pakistan Sri Bangladesh Nepal Maldives Bhutan
La

Source: Light Castle Analytics Wing (2020).

The tourism sector of Bangladesh has been negatively impacted by the COVID-19
outbreak since the beginning of March. The number of patients in Bangladesh with
COVID-19 has continually increased since the beginning of April. From the mid-March,
local governments of Bangladesh initiated strict embargos on visiting tourist spots.

Hotel and motel owners were asked to discourage tourists from residing in their
establishments. Therefore, travel- and tourism-related activities stagnated. Moreover, a
multitude of domestic and international flights were cancelled, worsening the current
economic situation. To prevent the spread of COVID-19, all on-arrival visas for tourists
from all countries were suspended.

From the beginning of the pandemic, China's temporary suspension of trading in

response to the COVID-19 outbreak will impact not only China's GDP, but also the
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global economy, as China accounts for approximately 15% of global GDP and has trade
ties with nearly all countries worldwide. In terms of both goods and services, Bangladesh
has an exceptional trading relationship with China. Bangladesh has exported goods
worth USD 861 million to (2.2% of total exports) and imported goods worth USD 15.1
billion from (34% of total imports) China. The tourism sector of Bangladesh may face a
loss of Tk 60.00 billion from January through December this year due to COVID-19
outbreak, as thise sector is was the most affected by the pandemic. TOAB has reported
that tour operators have lost close to Tk 15 billion as of April 2020, as well as cut 5000
jobs. However, losses of Tk 3.40 trillion were reported followed by a ticket value of Tk
3.05 trillion, and losses of Tk 1.86 trillion and Tk 1.00 billion during the last three
months were mostly from outbound tour operators (TOAB, 2020). In Bangladesh, about
4 million people are directly or indirectly worked in tourism and travel sector. PATA
(2020) estimated that about 0.3 million jobs in this sector are currently at risk because of
COVID-19. Figure 2 shows the estimated number of jobs at risk in tourism sector.

Figure 2: Estimated Number Of Jobs At Risk In Tourism Sector.

Source: PATA Bangladesh Chapter (2020)

Tourism industry in Bangladesh has largely developed based on the major cities i.e.
Dhaka, Sylhet, Chittagong, Cox’s Bazar, Khulna are the major cities and tourism
destinations in Bangladesh along with other destinations. Moreover, Cox’s Bazar is
known as the tourism capital in Bangladesh. Most of the tourism infrastructure and
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superstructures are developed on these cities and these cities largely contribute to the
tourism economy. Both the inbound and outbound tourism market has increased
significantly in the last few years. International inbound leisure travel trips tourists’
arrival in Bangladesh recorded 1.02 million tourists in 2017 and also recorded 0.83
million in 2016. Bangladeshi residents' outbound leisure trips are projected to
approximately 2.6 million trips by 2021, compared to the 2016 estimate of 2.3
million. The pandemic has an adverse effect on inbound tourism in and outbound
Bangladesh because of the coronavirus (Covid-19).

While the global impacts of the COVID-19 outbreak persist, both the hotel/motel and
tourism industries have been badly affected in Bangladesh. Due to fear over a large-
scale COVID-19 outbreak, many overseas tourists have cancelled their hotel
bookings, resulting in significant financial losses for the hotel and tourism industries
due to the lack of tourists, particularly in Dhaka, Cox's Bazar, Sylhet, Chittagong and
the other part of the country. According to The New Nation (2020), hotels were
previously 80% booked by expatriates and tourists from Bangladesh and abroad.

The IATA projects that global air transport revenue will be abridged by 11% in 2020,
which means a loss of US$163 billion dollars (IATA, 2020). More than two million
flights have been cancelled until 30 June, 2020. Approximately 65.5 million jobs are
associated with the aviation sector, and the IATA (2020) forecasts that approximately
25 million aviation-related jobs are at risk globally. Figure 3 shows the change in
occupancy level of luxury hotels in Bangladesh due to COVID-19.
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Figure 3: Occupancy Level of Luxury Hotels in Bangladesh

Source: Light Castle Analytics Wing (2020)

The global airline industry of Bangladesh has suffered huge losses due to the COVID-19
pandemic. Concurring to the International Air Transport Association (IATA), revenue
losses could reach USD 252,000,000 for airlines this year compared with the earlier
$113,000,000 estimates, due to the COVID-19 Outbreak.

The global outbreak of COVID-19 has greatly affected airlines in Bangladesh. The global
travel ban directly affected the airlines and placed operators under extreme financial
pressure. Global travel restrictions have a direct impact on the airline industry and create
extreme pressure on financial conditions. Hossain (2020) identified that Biman
Bangladesh Airlines, the national flagship airline carrier of Bangladesh, experienced a
loss of USD 30 million from January to March 2020.

This figure will be two to three times when including other domestic airlines. Biman
Bangladesh airlines have implemented some initiatives to reduce their losses, including a
10% reduction of basic salaries for employees, the suspension of overtime pay, and the
reduction of all extra allowances. Biman representatives have stated that Taka 270 crore
had been from was lost between February to March this year (Hossain, 2020)
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Effect of COVID-19 on the tourism industry in Bangladesh

Bangladesh tourism industry largely depends on domestic tourists. About 10 million
domestic tourists travel every year and the turnover is around 250 billion a year. The
international tourist arrival is also growing at a gradual rate. But all types of tourist
activities are stopped due to COVID-19 situation.

Hundreds of travel and Tour Companies will close, a significant number of small hotels,
motels, resorts, restaurants will shut down, thousands of people will be jobless just after
COVID -19 effect.

Table 1 shows the forecasted data of the first six months of the tourism industry.
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Source: PATA Bangladesh Chapter (2020)

To overcome this situation, all the public and private sectors company should act
closely to fight with the COVID-19 situation. Bangladesh should look forward to
struggling this combat with cooperative efforts from the public and private sectors. In
this situation, rebuilding confidence among public and private sectors are vital for the
recovery. While designing any special stimulus packages, industries should be ranked
as their economic vulnerability. The government of Bangladesh has already declared
a stimulus package for various industries but the effectiveness of the package for
tourism industry is questionable. Moreover, policymakers of Bangladesh should
introduce an inclusive package to ensure the post COVID-19 recovery and
sustainability of the tourism business.

How the COVID-19 crisis hits world tourism

Tourism is one of the fastest growing economic sectors and is an important driver of
economic growth and development. In 2018 there were 1,407 million international tourist
arrivals, a six per cent increase on the previous year.4 Tourism receipts amounted to
$1,480 billion, an increase by 4.4. per cent, higher than global GDP growth as in the
previous 8 years. Passenger transport is worth another $250 billion. Tourism exports
account for seven per cent of global trade in goods and services, or $1.7 trillion. In 2019,
the most popular destinations were France, Spain, the USA and China.

Tourism is a major source of employment globally. The labour market has some
distinguishing features. The industry is labour-intensive in nature. A high proportion of
the jobs are undertaken by women, 54 per cent, significantly higher than in most other
sectors, and young employees, meaning the industry is seen as inclusive. However,
women are more likely to be entrepreneurs in tourism than in other sectors and most
women hold low skilled jobs in the tourism sector, making them vulnerable to shocks.
There is also a significant amount of indirect employment in construction and
infrastructure development, plus supplying food and drink and souvenirs to tourists.
Furthermore, many employees have direct contact with tourists in travel agencies,
airlines, ships, hotels, restaurants, shopping centres and various tourist attractions.
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COVID-19 is a health and economic crisis on a global scale. While little is known at this
time about many aspects of the disease (such as asymptomatic transmission, preventative
measures, possible treatments, the likelihood of a vaccine and long-term effects), it is
generally agreed that the virus is easily transmissible and that the fatality rate is low when
compared to previous pandemics such as SARS, Ebola and the bubonic plague. Fatalities
are heavily skewed towards older people and those with existing ailments.

To slow the spread of the virus, many countries have encouraged or mandated the use of
sanitary practices such as hand washing, social (spatial) distancing and isolation.
Government have introduced a slew of policy measures such as targeted testing and
tracing, lockdown measures, upgrading public health facilities and closure of borders.
The measures have impacted many industries and the delivery of personal services,
resulting in demand and supply side shocks.

International tourism is among the economic sectors most impacted by the COVID-
19 pandemic. The United Nations World Tourism Organization (UN WTO) estimates
a loss of 850 million to 1.1 billion international tourist arrivals, $910 million to $1.1
trillion in export revenues and 100-120 million jobs, depending on whether the
borders are opened in July, September or December. Most destinations were entirely
closed in April and May 2020, opening only in some regions slowly for the northern
summer. UN WTO projections reflect considerable uncertainty about the duration of
the pandemic, in addition to the government response to support economic activity.

For Least Developed Countries (LDCs), tourism is also an important sector

contributing 9.5 per cent to their GDP on average.6N For 42 out of 47 Least
Developed Countries, tourism is considered a key sector of the economy.7 Some
larger high- or middle-income countries, such as Croatia, Greece and Thailand, also
depend significantly on tourism with a share of inbound tourism between 8 and 18
percent.

Countries most dependent on tourism include many small economies and notably,
SIDS (Coke Hamilton, 2020). This is illustrated in Figure 1 which shows the inbound
tourism as a share of GDP in the 20 most dependent countries. Common
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characteristics among these countries include small domestic markets, a low degree
of export diversification and remoteness. As a result, these economies are highly
vulnerable to external shocks and thus, are among the most impacted by COVID-19.
It is anticipated that the economic blow to SIDS will result in record amounts of
revenue losses without the alternative sources of foreign exchange revenues
necessary to service external debt and pay for imports.

Figure 4. Inbound tourism expenditure as share of GDP, selected economies,

2018

Source: UN WTO (2020)

In addition to inbound tourist expenditure, tourism also has indirect effects on the
economy. Tourism employs labour, capital (ports and airports), and a host of intermediate
inputs such as financial services, education, food and alcohol, and domestic travel. Due to
the remoteness of many SIDS, travel to these destinations is expensive for consumers in
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important export markets such as North America, Europe and Asia. Consumers are
limited to air and sea travel to reach these destinations. Given the current public health
and safety concerns, these transportation options are not feasible at this time for many
international tourists. The dramatic reduction in global demand for international travel
has caused significant setbacks in key industries, most evidently the cruise and airline
industries. Amid travel restrictions, the cruise industry has suspended sailing until
September 2020. The industry has seen record losses in share prices amongst the top
three cruise lines - Carnival, Norwegian Cruise Line and Royal Caribbean Cruises.9 For
example, Carnival’s share price dropped 70 per cent in the first quarter of 2020,
However, booking for 2021 are 40 per cent up on 2019, according to data from industry
sources, but this may reflect postponed booking from 2020.10 As of April 2020, the
airline industry (IATA) has recorded an 80 per cent drop in flights when compared to the
same period in 2019. In the IATA financial outlook for the global air transport industry, it
showed that airlines are expected to lose $84.3 billion in 2020.11 Frankfurt’s passenger
numbers, home of Europe’s biggest airline Lufthansa, dropped by 97 per cent in April.
The situation is even worse in some other airports, such as Lima with a drop of 99 per
cent. Chili’s LATAM airline, Latin America’s biggest carrier, filed for Chapter 11
bankruptcy protection, and Lufthansa survived only with a €9 billion bailout. IATA
reports that passenger numbers may not recover to 2019 levels until 2023-24. Domestic
flights will recover much sooner, reflecting the closed international borders and
uncertainty about the safety of long-distance air travel. Some 40 per cent of respondents
to an IATA survey said they would wait at least six months after restrictions were lifted
before resuming travel (IATA 2020). Tourist travel is discretionary spending and a global
recession will dampen consumers enthusiasm for international travel. In particular
because ticket prices may increase if social distance measures have to be observed in
planes and airports. The bankruptcy of several airlines may also increase the cost of air
travel. Taken altogether, the availability and accessibility of transportation will have a
profound impact on the financial recovery for many tourism dependent economies. Many
predictions do not anticipate a return to normal levels in the short term for the tourism
sector.
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Sectoral impacts
Turning to the sectoral impacts of the COVID-19 pandemic, the computable general
equilibrium (CGE) model GTAP covers the global economy and links all sectors through
input-output tables and production functions. The advantage of CGE models is that it
allows analysis on intersectoral linkages and takes limitations of the availability of
primary factors, capital, land, labour and natural resources, into account. Tourism
employs labour, capital, and a host of intermediate inputs. The major endowments are
capital and labour. Capital comprises hotels, ports and airports, rental cars, and specific
tourist facilities. The capital used in tourism is to a large extent immobile, it can hardly be
used in other sectors. Labour, however, may be more mobile, depending on the
specificity of the required skills. The main intermediates that are used in tourism are
services, including health, financial, construction, trade, air transport and communication.
Intermediate goods include food and alcohol, motor vehicles and plant-based fibres. The
intermediate goods are used in other sectors as well.

By way of example, the Croatian “Accommodation, food and services” sector uses
labour, capital and intermediate inputs as shown in figure 1. Croatia is a European
country highly dependent on tourists, by European standards at least. Total inputs amount
to $3,414 million, with labour accounting for 20 per cent of the costs and capital about 13
per cent. Intermediate inputs account for $2,224 million, of which $650 million are
imported in this example. Of course, much of the sector caters for domestic consumers as
well as tourist

Figure 5. Inputs used in Croatian Accommodation, food and services sector ($m)
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Source: GTAP V10 database.

Intersectoral linkages worsen the impact of a decline in tourism. A fall in tourist arrivals
has a negative impact on the suppliers to hotels, food and recreational activities. Table 2
shows the sectors that are strongly affected by the contraction in tourism. Focusing on the
15 most affected countries, in terms of share of GDP (Figure 3), the table depicts the
contraction of output in each sector as a result of a fall in international tourism under the
moderate scenario. The table highlights the level of interconnectedness between the
tourism industry and other economic sectors. The more connected the sector is, the
stronger the impact of a negative shock in the tourism industry. Table A5 in the Appendix
depicts these linkages for a wider number of sectors and economies under the Moderate
scenario. The majority of sectors in almost all countries are affected negatively with most
losses ranging between -1 per cent and -20 per cent. Results are qualitatively similar but
with higher magnitudes in the Intermediate and Dramatic scenarios. However, it is
important to note that some sectors such as construction, metals, minerals, machineries,
electrical equipment, electronic products, rubber and plastic products, may experience
gains in some countries, as labour and capital are reallocated away from tourism for use
in other productive sectors and away from tourism. The negatively affected sectors lose
due to their complementarities with the tourism sector, as well as the sheer magnitude of
the shock. This may be especially applicable to countries that are most dependent on
tourism. The indirect losses due intersectoral linkages in the tourism industry produce a
multiplier effect throughout the economy. Findings show that the losses in GDP are
approximately 2-3 times higher. As a result, a $1 million loss in international tourist
revenue can lead to a fall in national income of $2-3 million. It is these intersectoral
linkages and corresponding losses which lead to the large indirect losses when the
tourism sector contracts

Employment impacts
The pandemic is characterised by an almost unprecedented increase in unemployment,
disguised somewhat by government support measures in some countries. For this reason, the
labour market is modelled assuming fixed wages for unskilled workers with all the
adjustment occurring in the quantity of labour employed. For skilled workers, it is assumed
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that the adjustment occurs in wage rates, the standard closure. Further, there is a net loss to
the economy due to unemployed labour and capital. Due to the dramatic contraction in the
tourism industry, many workers may become unemployed or displaced. Displaced workers
can move to other sectors within countries, but it may be difficult to find employment in
other sectors or industries during the economic downturn. Employment can increase in
sectors not closely linked to tourism, absorbing some of the displaced workers from the
tourism industry. In many developing and least-developed countries tourism provides an
opportunity to enter the job market, though often with precarious working conditions.
Tourism often serves as a first entry point into work especially for women, youth, migrant
workers and rural population (ILO, 2013). A majority of tourism workers are under 35 years
(ILO, 2017). A report by the UNWTO (2019) states that “Women’s work in tourism is
dominated by informality, through high staff turnover, long working hours, subcontracting,
flexible working conditions, the prevalence of casual workers and seasonal variations in
employment”. Low-skilled, casual and temporary workers are likely to be the first to lose
their jobs and may find it difficulty in seeking employment in other sectors of the economy.
GTAP data are not disaggregated by gender or age but it can be assumed from this discussion
that unskilled women, as well as youth, are disproportionately affected by lay-offs in the
tourism sector resulting from the COVID-19 crisis.14 Negative employment and wage effects
are highest in countries reliant on tourism. Due to the possible mobility of labour, wage
effects can spread across the economies. The changes in real wage rates for skilled staff is
shown in figure 6. The steepest drops are in Thailand (-12 per cent), Jamaica (-11 per cent),
and Croatia (-9 per cent), in the optimistic case, and two to three times this in the worst case.

For unskilled workers, the resulting level of unemployment is seen in figure 7. Once again,
the worst affected countries are Thailand, Jamaica and Croatia. In the most extreme case
employment falls 44 per cent in Jamaica if the entire tourism sector is stopped for 12 months.
The case in Jamaica is extreme due to a high share of unskilled workers in its tourism
industry, and the contribution of the industry to GDP. The high unemployment contributes to
the significant losses in GDP. It can be expected that other SIDS reliant on tourism may face
similar dramatic challenges in the labour market.
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COVID-19 Impact in Banking Industry

Worldwide economy has been adversely affected by COVID-19 pandemic, causing
slowdown of business activities and economic contractions. As a consequence of this,
banking industry of Bangladesh has already been mired in lots of scams and irregularities,
such as high volume of nonperforming loan, escalation of loan write-offs, lack of corporate
governance, increasing capital shortfall and slow loan recovery. Amidst this situation, this
industry are experiencing like an addition of salt to the wound for covid-19 pandemic. New
challenges are ahead for the whole nation as well as banking industry as ramifications of
covid-19 are continuing this year also. .

Growth of financial sector

Bangladesh Bureau of Statistics shows, the growth of financial intermediation are indicating
downward trend over the years but drastic fall is observed in 2020 compared to previous year

Figure 6. Financial Intermediations’ Growth (in %)

10

YTD 2017 YTD 2018 YTD 2019 YTD 2020

Impact on Banker
According to Bangladesh Bank statistics, 27,237 bankers of Commercial banks affected
by corona virus and 143 bankers died from covid-19 upto June 2021.

NPL condition
The volume of NPLs grew by more than 7% to Tk. 950.85 billion during the January
March period of 2021 from Tk. 887.34 billion in the preceding quarter despite providing
policy support by the central bank in relation to loan classification. The BB also predicted
that the weaker asset quality due to higher level of non-performing loans (NPLs) and poor
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profitability condition may further worsen the banking sector performances in the coming
quarters.

Liquidity Excess in banking sector

Generally, banks want to hold enough liquidity to make payments and convert excess
liquidity into assets that provide returns. Bangladesh Bank statistics show that excess
liquidity in the banking sector has nearly doubled from Tk 1.03 trillion in January 2020
to Tk 2.05 trillion in December 2020.

From the beginning of pandemic, Bangladesh Bank undertook a number of measures to

ensure adequate liquidity in the financial system to support the operations of financial
institutions. It announced-

 To buy treasury bonds and bills from banks;

 Lowered REPO rates from 6% to 5.75% effective from March 24, 2020 and
further reduced them to 4.75%;
 Reduced Cash Reserve Ratio (CRR) from 5.0% to 4.5% (daily-basis) and from
5.5% to 5.0% (bi-weekly basis), and again reduced it to 3.5% and 4 %,
respectively from April 15, 2020;
 Increased advance-deposit ratio (ADR) for all the conventional banks from 85 per
cent to 87 per cent, effective from April 15, 2020;
 Increased investment deposit ratio (IDR) for Islami Shariah-based banks and the
conventional banks operating under Islamic Shariah rules from 90 per cent to 92
per cent, effective from April 15, 2020.

Private sector credit growth

Private sector credit growth decreased further to 8.29 per cent in April 2021 on a year-on
year basis from 8.79 per cent a month ago mainly due to the second wave of the Covid-19
pandemic.
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Stimulus package
Banks are the key player for implementation of Covid-19 related stimulus package. The
major portion of these packages is in the form of liquidity support through the
commercial banks. From the outset of the announcement of the COVID-19 liquidity
support packages by the government, banks have been more willing to lend to large
borrowers, but were hesitant

to lend to small borrowers. In a “k” shaped economic recovery curve, the COVID-19

recovery path splits in two directions: large firms and public-sector institutions with
direct access to government and central bank stimulus packages will make some areas of
the economy recover fast but leave behind small and medium-sized enterprises (SMEs),
blue-collar workers, and the under-pressure middle class. The design of the stimulus
packages and their distribution services is leading to a mostly “k” shaped economic
recovery path in Bangladesh.

The allocation of COVID-19 response funding by the government

In million In crore As share of total As share of

USD BDT COVID funding GDP*

Total liquidity support 11,839 99,450 79.59 3.54

Total fiscal stimulus 3,037 25,503 20.41 0.91

Total COVID-19 funding 14,876 1,24,953 100.00 4.45

Source: Ministry of Finance, Government of Bangladesh (MoF, 2020)

Note: * Assuming that GDP is equal to USD 334,000 million, as per the GDP for FY2020
in the national budget documents of FY2021.

Moratorium Facility for businessmen

Citing the second wave of COVID-19, the central bank was extended its moratorium on
loan classification by three more months, up to 30 June 2021.
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Mapping the impacts of the COVID-19 pandemic for banks

The following figure shows the mapping of possible implications of the COVID-19
pandemic for banks in a ‘no policy intervention’ scenario. As an immediate effect of
lockdown across the economy, production has halted, demand for goods and services has
slumped, factories and offices are completely or partly shut-down, transports and logistics
are restricted, and public movement as a whole is highly restricted both domestically and
internationally.

A COVID-19 Pandemic
Pandemic Post-
begins pandemic
Short Short to Medium Short to Medium Long Long
term term term Timeline term term
FIRST SECOND THIRD FOURTH FIFTH
Localized Direct ImpactsImpactWAVE
Internationalized Macroeconomic
WAVE WAVE Impacts Banking Sector Impacts Banking
WAVE Sector Impacts
WAVE

Aggregate Reduced
Supply Temporary interest and
Initia or
Production Shock non-interest
l permanent income
Shock loan default
Aggregate
Demand Shock
Increased
Initia Distortion to NPL
Demand
l Trade s
Shock Flows Price Decreased
Shock
Level savings and
Increased
withdrawal
Distortion to Interruption Loss Shock to
Supply of capital Employment capital
flow of
Chain and Income adequacy
s
Exchange Decreased
Interruption of Rates loan and non- Reduced
Human Volatilit loan services asset/firm
Flows y demand value
Rise
Financial
in
and
RiskInstability

The waves and the specific impacts are interrelated and interact in a complex way, eventually affecting bank survival, growth,
and banking system stability, which could ignite systemic bank crisis if persists for a longer period.

Ways of recovering
Resolving longer term structural challenges could accelerate the post-COVID-19
recovery. Reform priorities include a diversification of exports beyond the RMG sector,
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deepening the financial sector, improving urbanization, and strengthening public

governance. Addressing infrastructure gaps would accelerate growth and reduce spatial
disparities in opportunities across regions and within cities. Human capital development
remains a priority as well. While Bangladesh’s ranking on the Human Capital Index is
higher than the South Asian average, it is below the levels observed in comparator
countries.

Addressing vulnerability to climate risks would support the resilience of economic

development to future shocks. Pivoting towards green growth could support the
sustainability of development outcomes for the next generation. With the right policies
and timely action, Bangladesh can accelerate its recovery from the economic downturn
and continue to progress towards upper-middle income status.

Covid-19 and its impact on the global Banking sector

There has been a lot of news coverage regarding the effects of Covid-19 on the banking
industry and how the pandemic has driven established banks to swiftly accelerate their
digital programs in order to retain customers. As demand for digital features among
customers increases, banks have prioritized enabling customers to complete the most
common service journeys remotely, such as resetting PINs, changing loan terms, paying
for groceries or filling in forms electronically. According to a report by RFI Group, 71
percent of global customers are now using digital banking channels weekly, which is a 3
percent year-on-year increase and daily use registered an increase of 6 percent. In the UK,
73 percent of the users are using digital banking channels weekly, which is way above the
global average. Additionally, there was also an increase in mobile banking, which rose
from 52 to 57 percent between the second quarter of 2019 and the first quarter of 2020.

From the above data, it can be easily inferred that the Covid-19 pandemic alone isn’t
responsible for the sudden shift to digital banking. Instead, it has only accelerated the
process since more people have access to digital ecosystems. The ones who are familiar
with this topic would know that the change from cash towards digital payment methods
has been building gradually for years. Going by the data provided by UK finance, only 23
percent of all purchases made in the UK in 2019 were paid by cash and in 2020, more
than 70 percent of the population shopped online. Even if we take the Covid-19 pandemic
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out of the equation, these trends were expected to pick up in the next few years. Recently,
The World Economic Forum predicted that 50 percent of the consumption of the total
goods can be made online in major developed markets by 2030. Meanwhile, UK Finance
expects only 9 percent of payments in the UK to be made using physical currency by
2028.

How did the Covid-19 crisis affect the banking sector?

When it comes to the banking sector, firms that stopped working started missing out on
revenues and were unable to pay their loans. People who lost their jobs during the crisis
were furloughed or had less income and therefore, might not be able to repay their loans.
Not only will this result in loss of revenues, but it also negatively affects the profits and
banking capitals, resulting in the need for additional provisions. Banks were also
negatively affected when bonds and other traded financial instruments lost value,
resulting in further losses. During any period of national or global crisis, banks face
increasing demand for credit since most of the firms require an additional cash flow to
meet their costs even in times of no or reduced revenues. In certain cases, higher demand
has resulted in the drawdown of credit lines by borrowers. The Covid-19 pandemic also
led the banks to face lower non-interest revenues because of less demand from various
services.

Lower capital buffers in banks can result in making the bank’s solvency problem even
worse and might also undermine the recovery of a broader economy. In order to
recuperate from the losses, banks might start selling bonds and other traded financial
instruments to make up for their losses or maintain their liquidity position in the market.
Banks might also reduce credit provision to the economy and it will have a negative
impact on the firms relying on such buffers, thereby making it difficult for them to
survive in an already volatile and fragile market.

What has been the policy response?

The potentially negative impact on the banking sector has motivated concerned
authorities in and across Europe to take precautionary measures and mitigate risks as
much as possible. Authorities in the UK and Europe have reduced certain mandatory
capital buffers and were present before the Covid-19 crisis which helped reduce the
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minimum capital ratio that banks have to observe. The authorities have also urged and
encouraged banks not to pay out dividends or buy back their own shares during the crisis
since it would further reduce their capital position. Additionally, the regulators have also
delayed the implementation of new loan loss provisioning rules that would force banks to
create provisions for loans that are currently impaired due to the crisis. Central banks
have already reduced interest rates and extended the purchase of bonds. This makes the
financing of the banks cheaper and it also provides necessary liquidity for banks to
continue providing loans to the real economy.

Some governments have provided firms and workers with direct payments to substitute
for their lost revenues. Even though this doesn’t have any direct effect on banks in terms
of loss or gain, but it lets borrowers continue with their loan payments, which, in turn,
help banks to avoid losses. Some governments have also provided direct support that
helps banks, including loan guarantees which imply that part or all of the loan losses
would be covered by the government if the borrower fails to repay their debt.

Developing smart governance

When a bank falls prey to cyber theft, it incurs a major loss in terms of revenue and
customer base. Protecting customer information against cyber theft is one of the primary
duties of the bank towards its customers. While cyber breaches started increasing,
especially during the peak of the Covid-19 crisis, it is expected that this model will be
adopted by numerous banks in future. This makes it increasingly important for financial
institutions to raise their guards through the implementation of smart governance
practices. Currently, more than 50 percent of data from banks are stored on the cloud, the
transition to 100 percent will happen by 2023. But there are some crucial points that need
to be kept in mind.
Firstly, banks have to ensure that they stop using personal or rented devices. But this step
alone is not enough. Banks and financial institutions have to implement a series of
controls and frameworks to monitor employee and user activity, transactions through
authentication. Additionally, banks also need to start educating employee and customer
education regarding safe banking habits so that threats can be minimized. Without proper
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training, it is easier to fall prey to financial fraud, hence, it’s best to ensure the bank is
ready to face any challenge thrown its way.

The evolving digital landscape requires our utmost attention. It has already helped disrupt
customer behavior, preferences, and attitude, and very soon, it will change the entire
banking ecosystem as we know it. In order to truly embrace new measures while looking
for innovative solutions to better the existing operations, we can fulfil the changing
requirements.

What needs to be done during the recovery phase?

Banks have been greatly benefitted from different supervisory and fiscal policy
measures that have helped to avoid any bank failures over recent months. It has also
provided support to the sector during the time when it was critical to keep the
economy running. But these measures will not avoid losses that will result from the
failure of some businesses and the inability of some households to repay their debts.
So the important question who will bear these losses? In certain cases, the government
takes care of the losses and for others, banks might incur these losses directly. Since
banks played a critical role not only during the Covid-19 pandemic but also during the
economic recovery phase, sufficient capitalization will be important as economies will
have to reallocate resources across sectors.
Sectors that rely heavily on physical client-provider services will slowly cease being
important, but the sectors that shift their focus on remote or digital services will grow.
Here, banks will have an important role to play where they can choose which sectors to
give funding to. But, banks can only do so if loans provided to comparatively
unsuccessful sectors doesn’t affect their lending capacity. Experts say that once
economies have well-adjusted to the new normal, and it becomes clearer which firms are
viable, it is imperative that non-viable firms are liquidated quickly.
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What are some of the long-term effects of the Covid-19 crisis on

the banking industry?

Since the world is still going through a tumultuous phase, it’s still early to predict what
kind of long-term effects the Covid-19 recession will have on the banking industry. But
there are some of the trends that are already clear.
The most popular trend that we have observed is low-interest rates and they are here to
stay and it will certainly put pressure on banks’ profitability. Another trend that we have
observed is that most banks are trying to move towards digitization and it is predicted that
this trend will only grow with time. As social distancing becomes common, the regular
personal interaction between banks and clients becomes increasingly costlier. This might
result in the closure of branches.

Industry experts have also predicted that all these factors will increase competition from
fintech and the other tech companies like Alibaba, Tencent, Apple and Google to name a
few. These tech giants are likely to come out of the crisis with a strong position to expand
their presence further. This might put further pressure on banks that are in the core line of
the business.

The road ahead

During the first phase of the crisis, the banking industry was able to provide the
appropriate response. The regulatory response was rather quick and to a large extent,
quite effective. But it has also opened some shortcomings of the latest regulatory
framework. Additionally, the use of blunt policy instruments such as industry-wide
restrictions on dividend distribution is understandable during the time of an extreme
crisis, but it comes with its own set of shortcomings. Therefore, it should only be used in
extreme circumstances to avoid any additional loss. Going forward, it is extremely
important that authorities strike the right balance between banks prepared to tackle the
expected increase in non-performing exposures along with their role in financing
household and non-financial corporations. While it is understandable that some regulators
might want to ensure that individual banks are sound and solvent, it is equally important
to keep in mind the aggregate, systemic perspective. Erring too much on the side of
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caution may hinder credit extension to the economy and have a negative impact on the
perception of the industry by capital markets.

In the end, a banking sector that was previously healthier and more solvent helped the
industry to absorb the initial shock of the pandemic and helped keep credit flowing to the
economy, thereby preventing systemic risks from materializing. But the ultimate impact
of the Covid-19 crisis on the banking sector will depend on the scale and duration of the
pandemic and how effective the economic policies are in alleviating the effect of the
pandemic on regular households and firms. Experts suggest that economic policies should
continue to support the economy targeting the hardest-hit firms and population groups. It
is especially important to support viable firms whose solvency has deteriorated after a
year of crisis in order to prevent productive systems and employment from being
destroyed. This would further allow the banking sector to remain part of the solution to
the crisis by lending to households and firms and also contribute to the economic
recovery once the pandemic is over. Lastly, the banking sector should also focus on
tackling the challenges it faced before the pandemic, such as low profitability, along with
new risks that come from intensive technology use and climate change.
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Conclusion
The COVID-19 pandemic has forced the tourism sector to shift its focus to resiliency,
sustainability and interconnectedness among diverse stakeholders in the sector. The
UNWTO recently published strategic guidance for a responsible recovery of the tourism
sector, recommending ways to support a responsible recovery from the current situation
and to build better tourism. It outlines six lines of action: public health, social inclusion,
biodiversity conservation, climate action, circular economy, as well as governance and
finance.

On the other hand, the banking sector will successfully navigate the immediate pressures
of the COVID-19 crisis. As thoughts turn to a world beyond the immediate crisis, a strong
banking sector will be needed for a strong recovery. In a low interest rate, low
profitability world, where the risk of a “second wave” remains, banks will need to focus
on customer needs, while driving efficiency and building resilience.
By this way tourism and banking sector will accelerate sustainable development in the
world.
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