The Effect of COVID-19 on the Profitability of Commercial Banks in Bangladesh

Abstract

Purpose: Every component of the global financial system has suffered serious harm due to the present COVID-19 pandemic, and Bangladesh is not an exception. The banking sector’s performance and profitability have been impacted as a result. In this paper, we analyze the effect of COVID-19 pandemic on the financial performance of banking sector in Bangladesh before and throughout the present era of COVID-19. Methodology: In this regard, the study considered the 14 banks over the period of 2014-2021. The random-effects regression model is utilized to identify the profitability drivers. The random effect model investigates the influence of bank-specific variables and macroeconomic variables on the profitability of banks. Findings: During the pandemic era of COVID-19, our article found that a high degree of nonperforming loans, retaining more liquid assets, and a significant amount of hedging funds reduced banks' profitability. In contrast, a suitable bank size, non-interest revenue, inflation rate, and population growth increased the bank's performance indicators throughout this time. Practical Implications: This study's findings will aid financial policymakers in identifying profit-enhancing loopholes and implementing preventative actions during crisis periods such as COVID-19. Originality: The profit influencing factor include both bank and economic oriented, some of which were not previously considered in Bangladesh-specific studies. Incorporating these additional criteria and the independent examination of the pandemic era helps us to get new perspectives on the elements that influence commercial banks’ profitability.

Bank-Specific and Macroeconomic Determinants of Profitability of Islamic Shariah-Based Banks: Evidence from New Economic Horizon Using Panel Data

“…However, it is important to note that the focus of these investigations has primarily been on conventional commercial banks, thereby overlooking the distinct operational and regulatory framework within which Islamic Shariah-based banks operate. In addition to the aforementioned studies, recent research by Gazi et al (2022) and Rekha and Hossain (2022) has underscored the significant impact of the COVID-19 pandemic on private commercial banks in Bangladesh. Notably, these studies have focused on the nuanced effects of the pandemic on the operational dynamics and financial performance of conventional commercial banks.…”