Analysis of Systemic Risk on the Financial Performance during the COVID-19 Pandemic: The Case of the Colombian Banking Industry

Joan Sebastián Rojas Rincón, Andrés Mauricio Mejía Martínez, Andrés Ricardo Riveros Tarazona and Julio César Acosta-Prado ()
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Joan Sebastián Rojas Rincón: School of Administrative, Accounting, Economic and Business Sciences, Universidad Nacional Abierta y a Distancia—UNAD, Bogotá 111511, Colombia
Andrés Mauricio Mejía Martínez: School of Administrative, Accounting, Economic and Business Sciences, Universidad Nacional Abierta y a Distancia—UNAD, Bogotá 111511, Colombia
Andrés Ricardo Riveros Tarazona: School of Administrative, Accounting, Economic and Business Sciences, Universidad Nacional Abierta y a Distancia—UNAD, Bogotá 111511, Colombia
Julio César Acosta-Prado: Department of Engineering, Pontificia Universidad Católica de Peru, Lima 15088, Peru

Sustainability, 2024, vol. 16, issue 5, 1-23

Abstract: This study seeks to analyze the financial performance of the Colombian banking industry during the COVID-19 pandemic. The frame of reference is based on the concept of systemic risk; concerning this, the pandemic is conceived as an external shock, which impacted the dynamics of the banking industry. To conduct this study, a descriptive-correlational scope is proposed, from which an analysis of different accounting items related to the banking business is made and validated by expert judgment. The analysis horizon covers six years, but the focus is placed on March 2020, when COVID-19 was declared a pandemic by the World Health Organization (WHO). For this purpose, a longitudinal design is proposed, which analyzes the time series describing the behavior of some relevant items in the management of the banking business, such as operating revenue, provisions, interest on deposits and drawings, valuation of trading derivatives, and technology-related expenses. In addition, these items’ correlation with banking establishments’ performance is analyzed. The results of the study show that during the pandemic period, there was a significant increase in the level of volatility in the foreign exchange market, which impacted the operating revenue of banking establishments. It is concluded that, although exchange rate volatility affected the results of the banking industry, the main factor related to the financial performance of Colombian banks is their business itself, i.e., revenue from the loan portfolio and the quality of the loan portfolio. Therefore, systemic risk must be addressed regarding its implications on banks’ main profit drivers, such as portfolio revenue, cost of deposits, and provisions. Based on the above, it is recommended that Colombian banking establishments make greater efforts to diversify their sources of income to reduce their exposure to systemic risk situations.

Keywords: banking establishments; financial results; pandemic; COVID-19; financial derivatives; systemic risk (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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