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 and Bablu Kumar Dhar
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Md. Abu Issa Gazi: School of Management, Jiujiang University, Jiujiang 332005, China
Md. Nahiduzzaman: Department of Finance and Banking, Islamic University, Kushtia 7003, Bangladesh
Iman Harymawan: Department of Accounting, Faculty of Economic and Business, Universitas Airlangga, Surabaya 60115, Indonesia
Abdullah Al Masud: Department of Management Studies, University of Barishal, Barishal 8254, Bangladesh
Bablu Kumar Dhar: Department of International Trade and Economics, Yantai University, Yantai 264005, China

Sustainability, 2022, vol. 14, issue 10, 1-23

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 discovered 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.

Keywords: COVID-19; financial performance index; CAMELS; profitability; macroeconomic variables; regression; panel data (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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