Research: COVID-19 Impact on Banking Profitability in Bangladesh

This research paper, submitted to Jagannath University, investigates the impact of the COVID-19 pandemic on the profitability of the banking sector in Bangladesh. The study employs a comprehensive methodology, including t-tests to compare financial metrics before and after the pandemic, trend analysis to visualize the impact of COVID-19 cases on key financial indicators like ROA and ROE, and regression analysis to determine the relationship between various factors. The research addresses the impact on investment income, operating profit, and net profit, among others. The findings, based on data from the Bangladesh banking sector, are presented to understand the challenges faced by the banking industry during the pandemic, with the aim of evaluating the overall effect of the pandemic on the sector's financial performance. The paper includes an introduction, literature review, detailed methodology, results, and conclusion, offering valuable insights into the resilience and performance of the banking sector during the crisis. The study aims to find out whether Covid-19 has an impact on the banking industry or not.

A Research
on
The Impact of COVID-19 Pandemic on the Profitability
of Banking Sector: A Study on Bangladesh
SUBMITTED TO
Dr. Shaikh Mashrick Hasan, PhD
Associate Professor
Department of Finance
Jagannath University, Dhaka.
SUBMITTED BY
Group- 01
MBA 1st Semester
11th Batch
Department of Finance
Jagannath University, Dhaka

Letter of Transmittal
15 March, 2022
Dr. Shaikh Mashrick Hasan, PhD
Associate Professor
Department of Finance
Jagannath University, Dhaka- 1000.
Subject: Submission of research paper on “The Impact of COVID-19 Pandemic on the
profitability of Banking Sector: A Study on Bangladesh.”
Dear Sir,
It is a great delight for us to submit our research report on “The Impact of COVID-19 Pandemic
on the Profitability of Banking Sector: A Study on Bangladesh.” It was assigned to us for a
partial necessity for the fulfillment of FIN/BNK-5104 course. Throughout the study we have
tried our best to accommodate as much data and relevant information as possible.
We have always tried to consider your remarks and instructions very carefully while preparing
this report. We have tried always to follow your schedule, format and discipline. The whole
experiences of making this report enabled us to know about research processes. We are grateful
to you for providing such an opportunity.
We have tried to give my best effort on making this report informative and comprehensive
enough. Despite that there may have shortcomings. I would be grateful if you consider those
from excusable point.
Thank you for your consideration.
Sincerely Yours,
Group- 01
MBA 1st Semester
11th Batch
Department of Finance
Jagannath University, Dhaka.

Group 01
Sl. No. Name ID
01 Saimoon Islam B160203007
02 Abu Raihan B160203013
03 Kayes B160203030
04 Parvej Mia B160203078
05 Monira Sultana B160203083
06 Nusrat Jahan Rima B160203098
07 Arman Hossain B160203100
08 Tulip Rashid Lima B160203101
09 Aditto Kumer Mohonto B160203113
10 Setu Ghosh B160203114

Contents
Chapter One: Introduction...........................................................................................................1
1.1 Background of the Research..................................................................................................1
1.2 Aim of the Research..............................................................................................................2
1.3 Objectives of the Research....................................................................................................2
1.4 Research Questions................................................................................................................2
1.5 Scope of the Research............................................................................................................3
1.6 Limitations of the Research...................................................................................................3
Chapter Two: Literature Review.................................................................................................3
Chapter Three: Research Methodology......................................................................................6
3.1 Research Approaches.............................................................................................................6
3.2 Research Methods..................................................................................................................6
3.3 Data Collection Method.........................................................................................................6
3.4 Sampling Design....................................................................................................................7
3.5 Research Techniques of Analysis..........................................................................................7
Chapter Four: Analysis and Discussion......................................................................................9
4.1 Descriptive Statistics.............................................................................................................9
4.2 T-Test...................................................................................................................................10
4.2.1 T-test for ROA..............................................................................................................11
4.2.2 T-test for ROE..............................................................................................................12
4.2.3 T-test for NIM...............................................................................................................13
4.3 Trend Analysis.....................................................................................................................15
4.3.1 Investment Income........................................................................................................15
4.3.2 Net Investment Income.................................................................................................16
4.3.3 Operating Profit............................................................................................................17

4.3.4 Profit before tax............................................................................................................17
4.3.5 Net profit.......................................................................................................................18
4.3.6 ROE..............................................................................................................................19
4.3.7 ROA..............................................................................................................................20
4.4 Regression Analysis.............................................................................................................21
4.4.1 Return on Assets (ROA)...............................................................................................22
4.4.2 Return on Equity (ROE)...............................................................................................23
4.4.3 Net Profit......................................................................................................................24
4.4.4 Net Investment Income.................................................................................................24
4.4.5 Operating Profit............................................................................................................25
4.5 Summary of Research Analysis...........................................................................................25
Chapter Five: Conclusion...........................................................................................................26
Chapter Six: References..............................................................................................................28

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Chapter One: Introduction
A bank is a type of financial institution that is permitted to accept deposits and provide loans.
Financial services such as wealth management, currency exchange, and safe deposit schemes
may be offered by banks. It accepts public deposits and develops demand deposits while issuing
loans. It is very important for both consumers and businesses. Banks are the blood of the
economy. The banking system plays a very important role in the economic life of the nation. The
total money circulation of the economy is done through the banks. In a rapid growth
development country like Bangladesh, banks play a crucial role in ensuring that funds are
distributed evenly across the economy's several sectors. Banks must also sustain profitability to
preserve their long-term survival. The main goal of the bank is to earn profit for its shareholders
and the banking system's goal is to give economic security.
1.1 Background of the Research
A strong banking system helps to build up a strong economy in a country. Through a proper and
efficient banking system, international trade, its payment system, remittance, employment scope,
transaction procedure become easier and swift that means it can easily be said, the whole
economic system can be boosted up through an efficient banking system. In Bangladesh, there
are 61 scheduled banks including 6 state-owned commercial banks, 3 specialized banks, and 43
private commercial banks which play a proficient role to boost the economic condition in
Bangladesh. In 43 private commercial banks, there are 33 commercial banks and 10 non-
conventional banks (Islami Shariah Based Private Commercial Banks).
So, the banking industry has a proficient role in any country's economy, any adverse situation
especially macroeconomic factors can prejudice the economic condition not only of the banking
sector but also the economic condition of the whole country. After the first detection of Covid-19
on 31st December in 2019 in Wuhan city of China, this SARS-CoV-2 virus was rapidly spread
almost all over the world. Due to the swift spread of Covid-19, different types of business
organizations, financial institutions even if educational institutions are kept shut down when
there is a high possibility of widespread Covid-19 and the mortality rate of people. In the cases
of lockdown, most of the employees have to work from home to continue the day-to-day
operations of banks. Many employees of the ranking indusiate infected and also died due to

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Covid-19. Besides, many business organizations become defaulted for being g failures in their
business organizations. So Covid-19 has a strong impact on the banking industry in any country.
In Bangladesh the first covid was identified on 8th March in 2020. According to the Bangladesh
Bank report, 27237 employees of commercial Banks included the government state, and private
commercial banks are infected in Covid-19. Besides, almost 143 bankers are died due to Covid-
19. From the Covid period, financial institutions of Bangladesh instate-owned owned as well as
private commercial banks have to limit their office hours as well as employees in several times in
lockdown phenomenon. That induces the reduction of their profit because after identified of
Covid-19, non-performing loans grew more than 7% according to Bangladesh Bank in the period
January- March of 2021. The amount of nonperforming loans is almost Tk. 950.85 billion during
the mentioned period. Most of the banks experience lower operating profit and net profit through
the government of Bangladesh offered many stimulus packages to boost up the economic
condition of the banking industry.
1.2 Aim of the Research
The study aims to find out whether Covid-19 has an impact on the banking industry or not.
1.3 Objectives of the Research
As the title of the study is Impact of Covid-19 on Banking Industry in Bangladesh so there are
some specific objectives of this study. These are a) t-test (hypothesis test to determine
significance difference in sample mean) between before covid-19 period and after Covid-19
period in Return on Asset (ROA), Return on Equity (ROE) and Net Interest Margin (NIM), b)
Trend Analysis to show the impact of investment Income, Net Investment Income, Profit Before
Tax, Operating profit, Net profit After Tax, ROA and ROE based on a confirmed case of Covid-
19, Test Positivity Rate and Death Cases and c) Regression Analysis (statistical measure to
determine the relationship between dependent variables and independent variables).
1.4 Research Questions
 What’s the impact of Covid-19 on the banking sector profitability in Bangladesh?
 Is the fluctuation of profitability occur in banking industry with the fluctuation of Covid-
19?

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1.5 Scope of the Research
The aim of our research paper is to find out whether Covid-19 has an impact on the banking
industry or not. So, the main scope in this area is to realize the difficulties of banking sector,
collecting financial information from website of particular banks, different articles & central
bank’s website. During preparing the research paper, the main concerned area was how to
acquire useful and relevant information and find out which methods is useful to prove the impact
on Covid-19 on banking industry.
1.6 Limitations of the Research
Every research has some limitations. This research paper is not exceptional than others. It has
also some limitations like inadequacy of related information, limited time period and lack of
knowledge are some important limitations faced during doing that study.
Chapter Two: Literature Review
The whole world is affected ambivalently due to the covid-19 pandemic after first detected on
31st December in 2019. The adverse impact the of the economy is mainly due to the closing
down of organization when covid-19 outbreak severely in a particular area. As the result,
banking industries of all country unifaces many more different challenges. Bangladesh’s banking
industry is not exceptional as others. This industry has already identified a lot of scams and
inconsistencies in both conventional and non-conventional banks inadequacy of corporate
governance, excessive level of non-performing loan, shortfall of required capital, delay
procedure in the repayment of the loan. These challenges have been begun at the first wave of
covid-19 in Bangladesh which is also sustained in present and the conditions of the banking
sector is becoming worst day by day though government has taken some initiatives and stimulus
packages
Covid-19 has also adverse impact on banking sector in Indonesia also. Darjana, D., Wiryono, S.
K., & Koesrindartoto, D. P. (2022). The objectives of this paper are to find out the pandemic’s
impact on the banking sector in Indonesia. For this, the research paper used data from 2011 to
2020. This study evaluates the credit performance of banking sector in pandemic period which is
not satisfactory level compared to non-pandemic period. In this research paper, they used
Difference-in-Differences Analysis. This analysis is also known as DID which is one of the most

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widely and applicable method for evaluation of impact. They also implement regression
discontinuity design to evaluate credit performance of banking sector in Indonesia.
Barua, B., & Barua, S. (2021). This article determines the potential effects of the pandemic on
Bangladesh's banking industry where the researchers used Bangladesh as a case study of a
developing economy. The banking sector in Bangladesh has already experienced a high quantity
of non-performing loans (NPLs), and the pandemic is a strong influencer to enhance this
problem. Based on three specific dimensions, the research paper determines the implications of
the COVID-19 epidemic. These three dimensions are - firm value, capital adequacy, and interest
income which are under various NPL shock circumstances where state-designed stress testing
model is used. Here the researcher uses a quantitative technique for creating a theoretical
framework and scenario-based assessments of COVID-19 on the basis of Bangladeshi banking
sector. The article employs a stress testing model established and prescribed for the banking
industry by Bangladesh Bank to provide scenario-based estimates of the expected impacts on
banks.
Miah, M. D., Suzuki, Y., & Uddin, S. S. (2021). This paper aims to assess the probable impact
of COVID-19 on the Islamic banking system in Bangladesh. As covid-19 has a wide impact on
banking industry, how much the bad impact of this needs to determine. So, this paper use mean-
variance test, baseline regression model, Robustness Check model. The mean difference between
prior and subsequent to the Covid-19 outbreak in Bangladesh's sector is statistically significant,
according to the findings. COVID-19 has a strong negative influence on Bangladesh's banking
industry in terms of premium growth, and penetration, according to the baseline regression
results. The coefficients' findings are both reliable and economically significant.
Marcu, M. R. (2021). This paper contributes to the academic research by finding action that has
taken during the pandemic period of Covid-19. In this paper, it is also showed the difference of
the crisis period of 2008-2009 and the Covid-19 period. Obviously, the crisis of Covid-19
pandemic is not similar to the other crisis because this crisis is related to the health issues as a
result the solution of this crisis is also different form others. This pandemic situation influenced
the whole economy adversely. As the banking sector plays an important role in an economy, the
effect of Covid-19 is enormous. The only major way to reduce the effect is maintaining customer

5
relationship by coping with the need of customers, adopting the innovations, digitalized the
banking processes.
Al Numairy, H. A., Al Essa, S. R., Alshamsi, A. S., Ahli, H. I., Al Zarooni, S. A., & Webb, H.
(2022). The research shows us how the United Arab Emirate deals with the new pandemic
situation. When crisis occurs, the drivers of an economy will not know how to deal with that new
situation beacause the result of any crisis is not consistent with others.
Collins, C. C., Remigius, I. U., & Amarachi, I. A. U. (2022). The study specifically determines
the effect of Covid-19 lockdown and social distancing on the efficiency the in the banking sector
of Nigeria. These two determinants affect the whole banking sector in Nigeria. The established
hypothesis is tested by the single regression. The sample size is determined at 364 respondents
and the questionnaires have been established to collect the data. The empirical result of the study
is covid-19 has a significant impact on the corporate effectiveness of the banking sector
negatively in Nigeria. The study concluded that to reduce the negative impact of the banking
sector of Nigeria should introduce digitalized banking services to serve regular customers as well
as potential customers.
(X Li, H Feng, S Zhao, DA Carter - Finance Research Letters, 2021), by diversifying, Banks can
potentially reduce the variability of their revenue by traditional lending activities into noninterest
revenue sources. After invigoration of the effect of COVID-19 on the relation between inerest
and bank profit and risk found a result that it tightened the credit standards and reduce the
demand for many types of loans. Noninterest revenue sources are positively related to
performance and inversely related to risk and it is consistent with a beneficial diversification
effect during the pandemic.
Juergensen, J.; Guimón, J.; Narula, R. European SMEs amidst the COVID-19 crisis: Assessing
impact and policy responses. J. Ind. Bus. Econ. 2020, examining 8000 Spanish Companies,
stated that the COVID-19 has significantly affected their activities, reducing financial liquidity
and
Profitability which declines the economic activity in Spain since 2002. Borri, N.; di Giorgio, G.
Systemic risk and the COVID challenge in the European banking sector. J. Bank Finance. 2021,
confirmed by the study that credit risk costs increase because of the COVID-19 pandemic which
impacts the bank’s size.

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Chapter Three: Research Methodology
The research methodology includes the overall procedure of research which includes data
collection, retrieving, analyzing, and implementing appropriate tools and techniques to find out
the solution. A research method is a part of research methodology which means tools and
techniques selecting procedures to find out the solution of research. There are two types of
research methodology used for finding the solution of the research. The first one is a comparative
case study in which individual or organizational researchers involves and data is collected
through primary sources. And the second one is a systematic review in which research studies
various research papers, journals, articles, etc. Data is collected through secondary data sources
and literature reviews used for every research paper.
3.1 Research Approaches
Methodological approaches are the information and techniques to solve the research. There are
two types of approach one quantitative approach where numerical data is used and various
statistical tools are applied to find out the solution, the second qualitative approach is done via
qualitative data and the results occur based on descriptive modeling (Chakrabarti, 2014). In this
research paper, a quantitative approach will be used to find out the solution to the research
problem.
3.2 Research Methods
The research method is a part of research methodology which means tools and techniques
selecting procedures to find out the solution of research. In this part, we discuss the method of
data collection and tools-techniques used for analyzing the data.

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3.3 Data Collection Method
There are two types of data collection methods. One is primary sources and another one is
secondary sources. Here we collect data from secondary sources. As our research is based on the
banking industry in Bangladesh, we collect data based on a sample basis. The way of choosing
10 banks from all banks in Bangladesh is described next.
3.4 Sampling Design
Sampling design means a way of sample drawn from the population. In this research banking
industry is our population. From this population, first, we divide banks into two sides one is
Islamic banks and another is conventional banks. Then we make plan 4 banks choose from
Islamic banks and 6 banks choose from conventional banks. Then select 4 Islamic banks based
on capitalization (one high capitalized bank which is Islamic Bank Bangladesh Ltd., one low
capitalized bank which is Social Islamic Bank Limited and the next two are mid capitalized
banks). In the same way, 6 conventional banks are selected (One high capitalized, one low, and
the other 4 mid capitalized banks). The selected bank’s name is given below_
 Al-Arafa Islami Bank Limited
 Social Islami Bank Limited
 First Security Islami Bank Limited
 Islami Bank Bangladesh Limited
 Jamuna Bank Limited
 NCC Bank Ltd.
 National Bank Limited
 Mercantile Bank Limited
 South East Bank Limited
 Bank Asia
3.5 Research Techniques of Analysis
Research techniques are the procedures of data analysis to find out the research solution. Our
research topic is, “The Impact of COVID-19 on the Banking Sector of Bangladesh”. Here we try
to find out the profitability of the banking industry before COVID is significantly different from