COVID-19, liquidity and financial health: empirical evidence from South Asian economy

Abstract

PurposeThe pandemic COVID-19 has affected every sector of an economy in every possible way. Banking sector of Bangladesh has been affected by it badly. The purpose of this paper is to find out the impact of COVID-19 on the liquidity and financial health of the listed banks in Bangladesh.Design/methodology/approachLiquidity ratios are calculated to measure the liquidity condition of the banks and revised Altman's Z-Score Model for non-manufacturing companies is used to measure the financial health. The ratios are compared before and during the COVID-19 periods to assess the impact.FindingsThe findings of this study indicate a deterioration of liquidity position and financial health of the listed banks after the emergence of this pandemic. Though the banks have poor liquidity ratios and financial health prior to the emergence of this pandemic, they have decreased more in the second quarter of 2020. Most of the banks have poor liquidity ratios and cash position. The listed Islamic Banks have poor financial health than the listed Commercial Banks and all the banks belong to the red zone in all the quarters.Practical implicationsThe results of this study will have policy implications for companies and regulators of money market.Originality/valueThis paper is a pioneer initiative in assessing the impact of COVID-19 pandemic on liquidity and financial health based on empirical data.

Financial Liquidity of Indonesian Manufacturing Companies before and during the COVID-19 Pandemic

“…This study found an effect of the current ratio on firm value in the pre-pandemic period, but did not find any effect during the pandemic period. Karim et al (2021) found that during the COVID-19 pandemic both conventional and Islamic banking experienced a decrease in the current ratio. Almost all banks in Bangladesh have a current ratio value of less than 1, which means that their financial condition is unfavorable.…”

“…At the same time, the speculative motive explains that the company's motivation to maintain liquidity is to gain profits on profitable investments in the future. Karim et al (2021) explained that during the pandemic there was a decline in the company's cash holdings that occurred due to the company's business disruption.…”

“…In that case, there is a possibility that the company's liquidity will decrease during the COVID-19 pandemic. Karim et al (2021) conducted a study on the impact of COVID-19 on the banking industry in Bangladesh. This study found a decline in banking liquidity and financial health during the pandemic.…”

“…Investors in the capital market positively respond to companies with high asset liquidity. Karim et al (2021) state that if current assets are more significant than current liabilities, it shows a security guarantee or the company's short-term debt.…”

Innovative Business Strategies in the Face of COVID-19: An Approach to Open Innovation of SMEs in the Sonora Region of Mexico

“…On the other hand, as part of the innovative strategies that SMEs are implementing, the home office is an action that is allowing adaptation to new ways of working. These activities and strategic actions are leading companies to improve their innovation management processes and above all to face current global challenges [138,139].…”