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The COVID-19 pandemic spread caused a health and economic crisis across the globe, reported on December 31st, 2019, in Wuhan, China and declared a pandemic by the World Health Organization on March 11th ,2020. Consequently, it has led to a major fundamental change in many aspects of economic activities. Like other pandemics, the COVID-19 pandemic can bring recession or depression for an economy, as businesses were not able to run in full capacity cause of strict lockdown.
As it is an unexpected shock is likely to impact banks, yet it’s little known about how it might impact the performance of the banking performance. The bank generally faces a broader range of risks compared to other financial institutions and is more closely connected with economic agents’ day-to-day activities. The COVID-19 spread is set to exacerbate them through liquidity shortages, credit reduction, falling returns from investments, and rises in non-performing loans and other rates. This may be worse in nations where banks support millions of individuals and firms with comparatively low financial and economic capacity under a weak policy environment and high market competition.
COVID-19 can affect banks in different ways. As an example, banks abroad hold large US dollar dominated borrowings to fund international trade and financial investments. Financial crises usually tighten the money markets that lend US dollars, implying risks for the global banking system. As a first response to the spread, central banks formulated new lines to reduce the cost of funding by dollar, in addition, bank relax the treatment of non-performing loans and capital buffers decrease and mitigate the adverse effect on the financial system’s stability.
However, due to Basel III capital and liquidity reforms since 2008, banks are well situated to engage the expected impact of COVID-19. The possibility of an increase in non-performing loans and substantial withdrawal of deposits by institutions and households will adversely affect the performance of banks. Besides, COVID-19 could adversely affect efficiency across all businesses, and there could be spillover effects on banks, which increase their exposure to credit risk. This would threaten their stability and create obstacles to future intermediation with potential spillovers to the real economy.
Finally, the researcher will try to answer the following questions as the research problem “What is the impact of COVID-19 spread, and Egypt’s macroeconomic Indicators on Banks’ performance in Egypt?”, “What is the impact of COVID-19 spread, and Volatility Index (VIX) on global banks performance?
The aim of this research is to investigate and examine the impact of COVID-19 spread, and macroeconomic performance indicators on the Egyptian banking sector during the period of the spread 2020 to 2021. On the hand, the impact of the Volatility Index (VIX) established by the CBOE, and the COVID-19 on the Global banking sector performance during the period of 2002 to 2021.The Banking sector plays an important role in any financial sector across the globe.
Understanding and investigating how the COVID-19 pandemic as a health, and economic crisis affects the financial sector, mainly banking sector, and in turn the economy is an important aspect and question to be answered for academies, economists, and policymakers. Particularly, examine the following questions:
1.Is there an impact of COVID-19 spread on the Egyptian banking sector performance?
2. Is there an impact of Macroeconomic Indicators on the Egyptian banking sector performance?
3. Is there an impact of Volatility index (VIX) on the global banking sector performance?
4. Is there an impact of COVID-19 spread on the global banking sector performance?
According to the above, the following hypotheses are developed as follows:
H1: There is a significant impact of COVID-19 on the Egyptian banks’ performance (CAMELS)
H2: There is a significant impact of macroeconomic indicators on the Egyptian banks’ performance (CAMELS)
H3: There is a significant impact of COVID-19 on the global banks’ performance (CAMELS)
H4: There is a significant impact of the Volatility Index (VIX) on the global banks’ performance (CAMELS)
5-Data & Methodology
In this research, a data of 20 Egyptian conventional and Islamic banks are collected for the period of 2020 to 2021, as a sample of Egyptian banking sector out of 38 Authorized banks representing 52.63% of total Egyptian banks. Data of 1000 global banks commercial, and Islamic banks including 20 Egyptian banks based on (Tier I) ranking are collected from the banker data base (Financial Times UK) for the period of 2002-2021.
The research variables are the COVID-19 spread, the Volatility Index of CBOE (VIX), fear-index daily data, and the Egyptian macroeconomic performance indicators monthly data will be examined as independent variables impact on the Egyptian and global banks performance measures using CAMELS indices annual data, CAMELS indices will be separated into CAMELS-Index as major measure includes 21 measures of performances, capital, asset quality, management, earnings, liquidity, and sensitivity to market risk as sub-major measures of performance and ten measures of performance that shows significant level of confidence for the mentioned independent variables.
The research will illustrate descriptive analytical approach, “a statistical method that is used to search and summarize historical data in order to identify patterns or meaning”, to outline the impact of Volatility Index, COVID-19, and macroeconomic indicators on the banks’ key performance measures.
The Panel-Data Generalized Method of Moments (GMM) approach, normal, fixed, and random effects models will be used as a regression model for testing the hypotheses of the research variables.
6-Results and Conclusions
It can be concluded that the COVID-19 spread must not be considered as a global epidemic and public health crisis. There is a wide concern among economists that this has negatively impacted the global economy. The economy in many countries had been affected by the COVID-19 pandemic mainly illustrated as the reductions in incomes, productivity, unemployment rate increase, high inflation rates, and trade disruptions.
This research investigated how the COVID-19 spread affects the banking sector’s performance worldwide and in Egypt specifically. Data collected consists of 1,000 worldwide banks in 92 countries including 22 Egyptian banks ranked as top Tier I Capital from FY2002 to FY2021.
On the other hand, data of the 20 Egyptian banking sector ranked as top total assets for the FY2020 to FY2021. The Volatility Index (VIX) was an additional measure that expected to have an impact on the global banks’ performance, also the researcher used four major macroeconomic indicators in Egypt for the period of 2020 to 2021 to investigate its effect with the COVID-19 spread on the Egyptian Bank’s performance. CAMELS-Indices were the key bank performance measures for a comprehensive examination.
The results illustrated that the outbreak of COVID-19 has a negative significant effect on banks performance. It can be concluded also that Global Banks were affected much rather than Egyptian Banks, results supported by applying GMM-Technique (Normal Effect, Fixed Effect, and Random Effect) for Egypt’s banks, while the Normal Effect was used in testing the effect on the global banks.