The Impact of COVID-19 on Bank Profitability: Cross-Country Evidence

Emmanuelle Augeraud-Véron; Whelsy Boungou

doi:10.1515/ger-2022-0089

Published by De Gruyter February 7, 2023

The Impact of COVID-19 on Bank Profitability: Cross-Country Evidence

Emmanuelle Augeraud-Véron and Whelsy Boungou

From the journal German Economic Review

https://doi.org/10.1515/ger-2022-0089

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Abstract

Using data from 5474 banks located in 23 OECD countries over the period 2019Q2–2022Q1, we study the influence of COVID-19 on bank profitability (before and during the COVID-19 vaccination period). Our results show a negative impact of the COVID-19 pandemic on bank profitability, especially at the onset of the health crisis. In addition, we find that vaccination against COVID-19 had a positive effect on bank profitability, not yet sufficient to compensate for the losses generated at the beginning of the pandemic. Finally, we show that these effects depend on the characteristics of banks (notably size and capital) before vaccination and on the severity of the crisis across countries. Overall, we provide the first evidence of the influence of vaccination on bank behavior in terms of profitability.

Keywords: COVID-19; vaccination; bank profitability

JEL Classification: E4; E5; G2

Corresponding author: Whelsy Boungou, PSB – Paris School of Business, Paris, France, E-mail: w.boungou@psbedu.paris

We thank two anonymous referees for helpful comments and discussions. Any remaining errors are ours. The authors report there are no competing interests to declare.

Data availability statement: The banking data that support the findings of this study are available from Fitch Solutions. Restrictions apply to the availability of these data, which were used under license for this study. Data are available at: https://www.fitchsolutions.com/fitch-connect with the permission of the local office.

Appendix

Table A:

Descriptive statistics.

Variables	Observations	Mean	Std. dev.	Min	Max	Observations	Mean	Std. dev.	Min	Max
	Pre-vaccine					Post-vaccine
COVID-19 variable
COVID-19	29,679	0.004	0.006	0	0.0151	9275	0.038	0.006	0	0.042
Bank profitability variables
Net inc.	31,554	0.011	0.026	0	2.111	9471	0.010	0.026	0	1.865
Net int. inc.	31,554	0.009	0.006	0	0.233	9471	0.007	0.004	0	0.077
Net non-int. inc.	31,554	0.003	0.025	0	2.102	9471	0.003	0.026	0	1.865
Bank specific variables
Size	31,554	6.374	2.339	2.079	19.615	9471	6.366	2.042	2.197	19.644
Capitalization	31,554	0.118	0.049	0	0.97	9471	0.111	0.043	0.010	0.910
Liquidity	31,554	0.114	0.103	0	0.99	9471	0.138	0.108	0	0.980
Efficiency	31,554	0.650	0.144	0.01	1	9471	0.642	0.146	0.020	1.000
Provisions	31,554	0.003	0.013	0	0.76	9471	0.002	0.008	0	0.420
Country specific variables
HHI	31,554	0.044	0.053	0.028	1	9471	0.039	0.045	0.032	1
GDP	31,554	0.569	18.435	−46	52	9471	5.320	1.548	−6.000	22
Inflation	31,554	1.415	0.812	−1	4	9471	1.508	0.672	−2.000	5
Unemployment	31,554	6.298	3.530	2	17	9471	6.485	0.832	3	17
Yield curve	31,554	0.182	0.434	−1	3	9471	1.485	0.521	0	3

Note: COVID-19 is a quarterly average of new positive cases confirmed by COVID-19, expressed as a percentage of the total population. Net Inc. Refers to net income to total assets. Net Int. Inc. Is net interest income to total assets. Net Non-Int. Inc. refers to net non-interest income to total assets. Size is natural logarithm of total assets. Capitalization is equity to assets ratio. Liquidity refers to liquid assets to total assets. Efficiency is cot-to-income ratio. Provisions is loans loss provisions to gross loans. HHI is the Herfindahl–Hirschman Index. GDP refers to the real GDP growth rate. Inflation is the percent change in average consumer price. Unemployment is the unemployment rate. Yield curve is the difference between long-term and short-term rates. Regarding data sources, COVID-19 data is from the OWID database, banking data is from Fitch Solutions and macroeconomic data comes from Datastream.

Table B:

Correlation matrix.

	L1.	L2.	L3.	L4.	L5.	L6.	L7.	L8.	L9.	L10.	L11.	L12.
L1. Size	1
L2. Capitalization	−0.200	1
L3. Liquidity	−0.043	0.057	1
L4. Efficiency	−0.218	−0.102	0.114	1
L5. Provisions	0.119	0.149	0.083	−0.103	1
L6. HHI	0.344	−0.106	0.148	−0.057	0.082	1
L7. GDP	−0.030	0.005	0.000	0.013	−0.061	−0.042	1
L8. Inflation	−0.162	0.098	−0.085	0.032	−0.081	−0.183	0.330	1
L9. Unemployment	−0.036	−0.042	0.059	−0.069	0.068	0.059	−0.284	−0.805	1
L10. Yield curve	0.022	−0.072	0.098	−0.043	−0.027	0.016	0.416	0.031	0.172	1
L11. COVID-19	0.010	−0.075	0.124	−0.025	−0.028	−0.095	0.222	−0.218	0.2717	0.823	1
L12. Vaccinated	0.010	−0.075	0.124	−0.025	−0.028	−0.095	0.222	−0.218	0.272	0.8234	−0.027	1

Note: size is natural logarithm of total assets. Capitalization is equity to assets ratio. Liquidity refers to liquid assets to total assets. Efficiency is cot-to-income ratio. Provisions is loans loss provisions to gross loans. HHI is the Herfindahl–Hirschman Index. GDP refers to the real GDP growth rate. Inflation is the percent change in average consumer price. Unemployment is the unemployment rate. Yield curve is the difference between long-term and short-term rates. COVID-19 is a quarterly average of new positive cases confirmed by COVID-19, expressed as a percentage of the total population. Vaccinated is a quarterly average of people fully vaccinated against COVID-19. Regarding data sources, COVID-19 data was extracted from the OWID database, banking data is from Fitch Solutions and macroeconomic data comes from Datastream.

Table C:

COVID-19 deaths and banks’ profitability.

	Net inc.			Net int. inc.			Net non-int. inc.
	All periods	Pre-vaccine	Vaccine period	All periods	Pre-vaccine	Vaccine period	All periods	Pre-vaccine	Vaccine period
COVID-19	0.060^***	−0.050^***	0.105	0.040^***	−0.047^***	0.245	0.020^***	−0.003	−0.14
	[0.01]	[0.02]	[0.48]	[0.01]	[0.01]	[0.49]	[0.00]	[0.01]	[0.29]
Observations	38,850	29,575	9275	38,850	29,575	9275	38,850	29,575	9275
Numb. banks	5473	5459	4807	5473	5459	4807	5473	5459	4807
R2 (within)	0.046	0.036	0.152	0.103	0.084	0.098	0.02	0.017	0.14

Note: Net Inc. refers to net income to total assets. Net Int. Inc. is net interest income to total assets. Net Non-Int. Inc. refers to net non-interest income to total assets. COVID-19 is a quarterly average of deaths due to COVID-19, expressed as a percentage of the total population. All our estimates include bank-specifc (natural logarithm of total assets, equity to assets ratio, liquid assets to total assets, cost-to-income ratio, and loans loss provisions to gross loans), country-specific controls (Herfindahl–Hirschman index, real GDP growth rate, the percent change in average consumer price, unemployment rate, and the yield curve), bank- and time-fixed effets. Robust standard errors clustered by bank are in brackets. ^***, ^** and ^* indicate statistical significance at 1%, 5% and 10% respectively.

Table D:

Newly vaccinated and banks’ profitability.

	Net inc.	Net int. inc.	Net non-int. inc.
Vaccinated	0.016^***	0.011^***	0.005^***
	[0.00]	[0.00]	[0.00]
Observations	38,955	38,955	38,955
Numb. banks	5474	5474	5474
R2 (within)	0.049	0.108	0.02

Note: Net Inc. refers to net income to total assets. Net Int. Inc. is net interest income to total assets. Net Non-Int. Inc. refers to net non-interest income to total assets. Vaccinated is a quarterly average of people who get at least one COVID-19 vaccine dose. All our estimates include bank-specifc (natural logarithm of total assets, equity to assets ratio, liquid assets to total assets, cost-to-income ratio, and loans loss provisions to gross loans), country-specific controls (Herfindahl–Hirschman index, real GDP growth rate, the percent change in average consumer price, unemployment rate, and the yield curve), bank- and time-fixed effets. Robust standard errors clustered by bank are in brackets. ^***, ^** and ^* indicate statistical significance at 1%, 5% and 10% respectively.

Table E:

Other bank control variables.

	Net inc.			Net int. inc.			Net non-int. inc.
	All periods	Pre-vaccine	Vaccine period	All periods	Pre-vaccine	Vaccine period	All periods	Pre-vaccine	Vaccine period
COVID-19	0.105^***	−0.284^***	0.215^***	0.065^***	−0.226^***	0.147^***	0.041^***	−0.059^***	0.068^**
	[0.02]	[0.04]	[0.05]	[0.02]	[0.03]	[0.05]	[0.01]	[0.02]	[0.03]
Observations	38,954	29,679	9275	38,954	29,679	9275	38,954	29,679	9275
Numb. banks	5474	5460	4807	5474	5460	4807	5474	5460	4807
R2 (within)	0.015	0.013	0.11	0.066	0.061	0.025	0.006	0.005	0.125

Note: Net Inc. refers to net income to total assets. Net Int. Inc. is net interest income to total assets. Net Non-Int. Inc. refers to net non-interest income to total assets. COVID-19 is a quarterly average of new positive cases confirmed by COVID-19, expressed as a percentage of the total population. All our estimates include bank-specifc (natural logarithm of total assets, equity to assets ratio, liquid assets to total assets, cost-to-income ratio, and loans loss provisions to gross loans, bank age, share of expense personnel divided by total assets and risk weighted assets to total assets), country-specific controls (Herfindahl–Hirschman index, real GDP growth rate, the percent change in average consumer price, unemployment rate, and the yield curve), bank- and time-fixed effets. Robust standard errors clustered by bank are in brackets. ^***, ^** and ^* indicate statistical significance at 1%, 5% and 10% respectively.

Table F:

COVID-19 vaccination and banks’ ROE.

	ROE
	All periods	Pre-vaccine	Vaccine period
COVID-19	0.014^***	−0.031^***	0.038^***
	[0.00]	[0.00]	[0.01]
Observations	38,950	29,675	9275
Numb. banks	5472	5458	4807
R2 (within)	0.005	0.007	0.01

Note: ROE is net income to equity. COVID-19 is a quarterly average of new positive cases confirmed by COVID-19, expressed as a percentage of the total population. All our estimates include bank-specifc (natural logarithm of total assets, equity to assets ratio, liquid assets to total assets, cost-to-income ratio, and loans loss provisions to gross loans), country-specific controls (Herfindahl–Hirschman index, real GDP growth rate, the percent change in average consumer price, unemployment rate, and the yield curve), bank- and time-fixed effets. Robust standard errors clustered by bank are in brackets. ^***, ^** and ^* indicate statistical significance at 1%, 5% and 10% respectively.

Table G:

The number of banks per country.

Country	Number of banks
Austria	224
Chile	26
Colombia	36
Denmark	102
Finland	20
Germany	1033
Greece	14
Hungary	15
Iceland	11
Ireland	118
Israel	21
Italy	660
Japan	259
Korea	75
Lithuania	9
Netherlands	98
Norway	90
Portugal	236
Slovenia	6
Spain	335
Sweden	48
United Kingdom	341
United States	1697
Total	5474

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Received: 2022-08-15

Accepted: 2023-01-05

Published Online: 2023-02-07

Published in Print: 2023-02-28

The Impact of COVID-19 on Bank Profitability: Cross-Country Evidence

Abstract

References

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