Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh

Md Abu Issa Gazi, Md Nahiduzzaman, Iman Harymawan, Abdullah Al Masud, Bablu Kumar Dhar

Research output: Contribution to journalArticlepeer-review

25 Citations (Scopus)

Abstract

The current crisis caused by the COVID-19 pandemic has hit the global economy hard, causing significant damage to every aspect of the global banking system, and Bangladesh is no exception. For that reason, its performance and profitability have been affected. In this study, we investigate the impact of COVID-19 on the financial performance and profitability of the listed private commercial banks in Bangladesh. We initially compute each bank’s financial performance index (FPI) to determine the position according to their financial performance individually before and the current period of COVID-19 by the standardized CAMELS rating system. After assessing the position, the fixed-effect regression model is used to explore the impact of the bank’s specific variables and macroeconomic variables along with the banks’ variables on the banks’ profitability. The banks that performed better during the pre-pandemic period of COVID-19 also performed better during the pandemic period of COVID-19. The performance of AIBL, EBL, and BBL was almost autonomously higher during both periods. In the case of bank profitability, our paper dis-covered that during the pandemic period of COVID-19, high non-performing loan rates, holding more liquid assets, a high amount of hedging capital, and inappropriate bank size lessened the banks’ profitability. In contrast, a low leverage position and inflation rate enhanced the bank’s profitability during this period. The outcome of this study will help bank authorities detect the loopholes and take preventive measures that can improve their profitability during a crisis period like COVID-19. The investors and depositors who invest money in banks can precisely decide their portfolios.

Original languageEnglish
Article number6260
JournalSustainability (Switzerland)
Volume14
Issue number10
DOIs
Publication statusPublished - 1 May 2022

Keywords

  • CAMELS
  • COVID-19
  • financial performance index
  • macroeconomic variables
  • panel data
  • profitability
  • regression

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