The Effect of Covid-19 on the Determinants of Banks Profitability: Evidence from South Asian and European Countries.

Abstract

Purpose: What has been learnt from the past two years is that pandemics are inevitable, and the financial system needs to be ready to withstand such global shocks. This study aims to uncover evidence about important factors for maintaining bank profitability, further investigating how covid-19 has affected the bank's profitability and its determinants further how the response of South Asian banks has been different from the homogenous European banks. Design/ Methodology: Random effect estimation examines how covid-19 has impacted developed European and developed South Asian banks. An unbalanced available quarterly data set from 2016q1 to 2021q3 of banks from top 10 countries from South Asia and Europe based on GDP is used. Findings: The study finds that Covid-19 impacted both ROA and ROE of banks. The impact of Covid-19 on banks across the two continents was significantly different. Covid-19 impacted returns in European banks ROE negatively, however for South Asian banks, the impact was in fact positive, and the banks managed to perform well and even better than the pre-crisis period. These findings are of value to both academicians and policymakers.