The Impact of COVID-19 on Bank Equity and Performance: The Case of Central Eastern South European Countries

Abstract

The purpose of this article is to examine the impact of the shock increase, in the value of nonperforming loans, on the equity level and profitability of 141 banks in 18 countries of Central Eastern South Europe (CESE). This study is important for assessing the financial stability of banks in this region in the face of the continuing negative effects of the COVID-19 pandemic. Based on the annual data, as of the end of 2020, from the S&P Global database, stress tests were carried out to check what value of NPL growth, over the next year, will lead to breach the regulatory capital requirements in domestic sectors and in individual groups of banks. The results indicate that the banks in CESE were well capitalized and had the ability to maintain capital requirements with a 12% increase in nonperforming loans. The resilience of domestic banking sectors varies, and it is higher in non-EU countries. Smaller and non-public banks show a greater ability to preserve the appropriate level of equity, although there is a risk that they may postpone the time of provisioning credit risk and additionally increase lending to lower the NPL ratio. Larger banks are more profitable in times of crisis. The results of the research are important for assessing the stability of the banking sector in CESE during the crisis and can be used by financial supervision of the region’s countries and banking market analysts.

Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh

“…In the case of financial stability and the proper circulation of money, the banking sector plays a significant role. Due to COVID-19, important performance indicators of banks like profitability, capital adequacy, asset quality, management efficiency, earnings ability, liquidity, and sensitivity to risk have been affected around the world [14,15].…”

Bank Reactions to the COVID-19 Shock: A Systematic Literature Review and Lessons from Hong Kong SAR Commercial Banks

“…2. Kozak (2021) The study's findings are important for studying the CESE banking sector's sustainability during the crisis, and they may be used by financial regulators in the region's countries and banking market specialists. 3.…”

“…While most studies now focus on the banking sector's performance during the COVID-19 pandemic-induced crisis (Demirgüç-Kunt et al, 2021;Kozak, 2021), there is a gap in the literature regarding banks' reactions to the COVID-19 pandemic as a global shock. Certain academics consider it a macroeconomic shock in and of itself (Ludvigson et al, 2020), however the majority of researchers feel COVID-19 had a deep economic, political, social, and cultural influence that resulted in some macroeconomic imbalances as a subsequent consequence (Roy, 2020).…”

The Interrelationship Among Efficiency and Concentration of Banking System and its Stability: Evidence from Poland

“…Some researchers see that the stability of a country's banking system is determined not only by microand macroeconomic conditions, but also by global factors, including global economic crises. Scholars have analysed the effects of the global financial crisis having begun in the US mortgage market in 2008 on the banking systems of various countries or the impact of the COVID-19 pandemic on banking sectors (Salter and Tarko, 2019;Kozak, 2021;Korzeb, Niedziółka, and Silva, 2021;Miklaszewska, Kil, and Idzik, 2021). The author's research intention is to analyse the sensitivity of the stability of the banking system in Poland to banking efficiency and the concentration level.…”