The financial industry watchdog is watchful of potential spread of financing risks from one sector to another that can make fixing the damage caused by COVID-19 tougher and more complicated.
Known as “slow-burn contagion,” focus is now on financial deterioration occurring at firm level that can inevitably spell the failure of others because, in one way or another, companies and their operations have become increasingly interrelated.
The interagency Financial Stability Coordination Council said on its latest Financial Stability Report for the second semester, “There is also that component where the damage may amplify because the state of any agent will impact the conditions of other agents with whom the former has natural economic linkages.”
This slow-burn contagion, while yet to happen, has become a possibility because the pandemic rattled the entire economy. For instance, banks saddled with unpaid debts had started avoiding lending to critical sectors.