IDEAS home Printed from https://ideas.repec.org/a/gam/jjrfmx/v14y2021i12p588-d696408.html
   My bibliography  Save this article

COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda

Author

Listed:
  • Lorna Katusiime

    (Economic Research Department, Bank of Uganda, Kampala P.O. Box 7120, Uganda)

Abstract

This study investigates the impact of the COVID-19 pandemic on banking sector profitability in Uganda for the period spanning Q1 2000 to Q1 2021, using the autoregressive distributed lag (ARDL Bound) testing approach to co-integration while controlling for bank specific and macroeconomic determinants of bank profitability. Bank profitability is proxied by return on assets (ROA), return on equity (ROE), and net interest margin (NIM). The study finds that the COVID 19 pandemic has a significant negative effect on bank profitability only in the long run. Generally, the explanatory variables used in the study have short run and long run effects on bank profitability, although the impact is not uniform across the different measures of bank profitability. In the short run, bank profitability is generally negatively and significantly affected by the non-performing loans ratio, liquidity ratio, and market sensitivity risk, while the Treasury Bill interest rate and lending rate have a significant positive effect on bank profitability. In addition, the study finds that bank profitability has a tendency to persist in the short run, although persistence is only moderate, suggesting that the Ugandan banking sector may not have large deviations from a perfectly competitive market structure. In the long run, bank profitability is broadly positively and significantly affected by the non-performing loan ratio;, real GDP, lending rate and Treasury Bill interest rate while market sensitivity risk and the exchange rate significantly and negatively affect bank profitability. Surprisingly, the study finds inflation does not significantly affect bank profitability over both the short- and long-term.

Suggested Citation

  • Lorna Katusiime, 2021. "COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda," JRFM, MDPI, vol. 14(12), pages 1-19, December.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:12:p:588-:d:696408
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1911-8074/14/12/588/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1911-8074/14/12/588/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    2. Ismail Adelopo & Robert Lloydking & Venancio Tauringana, 2018. "Determinants of bank profitability before, during, and after the financial crisis," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 14(4), pages 378-398, March.
    3. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633659, November.
    4. Hongxing Yao & Muhammad Haris & Gulzara Tariq, 2018. "Profitability Determinants of Financial Institutions: Evidence from Banks in Pakistan," IJFS, MDPI, vol. 6(2), pages 1-28, May.
    5. Mayanja, Musa & Adong, Annet, 2016. "A pathway to financial inclusion: mobile money and individual Savings in Uganda," Research Series 242365, Economic Policy Research Centre (EPRC).
    6. Lwanga, Musa & Adong, Annet, 2016. "A pathway to financial inclusion: mobile money and individual Savings in Uganda," Research Series 234553, Economic Policy Research Centre (EPRC).
    7. Morley, Bruce, 2006. "Causality between economic growth and immigration: An ARDL bounds testing approach," Economics Letters, Elsevier, vol. 90(1), pages 72-76, January.
    8. Lorna Katusiime, 2021. "Mobile Money Use: The Impact of Macroeconomic Policy and Regulation," Economies, MDPI, vol. 9(2), pages 1-19, April.
    9. Lwanga Mayanja, Musa & Adong, Annet, 2016. "A pathway to financial inclusion: Mobile money and individual savings in Uganda," Research Reports 253557, Economic Policy Research Centre (EPRC).
    10. Ozili, Peterson, 2021. "Bank profitability determinants: comparing the United States, Nigeria and South Africa," MPRA Paper 105638, University Library of Munich, Germany.
    11. Emanuel Kohlscheen & Andrés Murcia Pabón & Juan Contreras, 2018. "Determinants of bank profitability in emerging markets," BIS Working Papers 686, Bank for International Settlements.
    12. Paresh Kumar Narayan, 2005. "The saving and investment nexus for China: evidence from cointegration tests," Applied Economics, Taylor & Francis Journals, vol. 37(17), pages 1979-1990.
    13. Azizur Rahman Khan, 2015. "The Economy of Bangladesh," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-54974-7.
    14. Fadzlan Sufian & Muzafar Shah Habibullah, 2009. "Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 207-217, April.
    15. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633239, November.
    16. Kutan, Ali M. & Ozsoz, Emre & Rengifo, Erick W., 2012. "Cross-sectional determinants of bank performance under deposit dollarization in emerging markets," Emerging Markets Review, Elsevier, vol. 13(4), pages 478-492.
    17. Eissa A. Al‐Homaidi & Mosab I. Tabash & Najib H. Farhan & Faozi A. Almaqtari, 2019. "The determinants of liquidity of Indian listed commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 7(1), pages 1616521-161, January.
    18. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-348, August.
    19. Vijay Kumar & Sanjeev Acharya & Ly T. H. Ho, 2020. "Does Monetary Policy Influence the Profitability of Banks in New Zealand?," IJFS, MDPI, vol. 8(2), pages 1-17, June.
    20. Faozi A. Almaqtari & Eissa A. Al‐Homaidi & Mosab I. Tabash & Najib H. Farhan, 2019. "The determinants of profitability of Indian commercial banks: A panel data approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(1), pages 168-185, January.
    21. Tu DQ. Le & Thanh Ngo, 2020. "The determinants of bank profitability : A cross-country analysis," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 20(2), pages 65-73.
    22. Elnahass, Marwa & Trinh, Vu Quang & Li, Teng, 2021. "Global banking stability in the shadow of Covid-19 outbreak," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    23. Hakimi Abdelaziz & Boussaada Rim & Hamdi Helmi, 2022. "The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region," Global Business Review, International Management Institute, vol. 23(3), pages 561-583, June.
    24. Bahmani-Oskooee, Mohsen & Bolhassani, Marzieh & Hegerty, Scott W., 2010. "The effects of currency fluctuations and trade integration on industry trade between Canada and Mexico," Research in Economics, Elsevier, vol. 64(4), pages 212-223, December.
    25. Eissa A. Al-Homaidi & Mosab I. Tabash & Najib H. S. Farhan & Faozi A. Almaqtari, 2018. "Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1548072-154, January.
    26. Mawejje, Joseph & Lakuma, E. C. Paul, 2017. "Macroeconomic Effects of Mobile Money in Uganda," Research Series 260017, Economic Policy Research Centre (EPRC).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sayyed Sadaqat Hussain Shah & Ștefan Cristian Gherghina & Rui Miguel Dantas & Saliha Rafaqat & Anabela Batista Correia & Mário Nuno Mata, 2023. "The Impact of COVID-19 Pandemic on Islamic and Conventional Banks’ Profitability," Economies, MDPI, vol. 11(4), pages 1-17, March.
    2. Md. Abu Issa Gazi & Md. Nahiduzzaman & Iman Harymawan & Abdullah Al Masud & Bablu Kumar Dhar, 2022. "Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh," Sustainability, MDPI, vol. 14(10), pages 1-23, May.
    3. Herry Achmad Buchory, 2023. "Banking Profitability: How do the banking intermediary, secondary reserve, operational efficiency, and credit risk effect?," GATR Journals jfbr214, Global Academy of Training and Research (GATR) Enterprise.
    4. Evgenii Zimin & Maria Semenova, 2022. "Profitability And Bank De-Branching In The Digital Age: Evidence From Russian Regions," HSE Working papers WP BRP 90/FE/2022, National Research University Higher School of Economics.
    5. Richard Arhinful & Mehrshad Radmehr, 2023. "The Impact of Financial Leverage on the Financial Performance of the Firms Listed on the Tokyo Stock Exchange," SAGE Open, , vol. 13(4), pages 21582440231, November.
    6. Pejman Peykani & Mostafa Sargolzaei & Mohammad Hashem Botshekan & Camelia Oprean-Stan & Amir Takaloo, 2023. "Optimization of Asset and Liability Management of Banks with Minimum Possible Changes," Mathematics, MDPI, vol. 11(12), pages 1-24, June.
    7. Lanyero Esther & Dr. Nyakundi Andrew & Dr. Manyange Michael, 2024. "Effect of Innovative Credit Management Practices on Loan Portfolio Performance of Commercial Banks: A Case of Commercial Banks in Lira City, Uganda," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(11), pages 2573-2583, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lorna Katusiime, 2021. "Mobile Money Use: The Impact of Macroeconomic Policy and Regulation," Economies, MDPI, vol. 9(2), pages 1-19, April.
    2. Davis, E Philip & Ali Abdilahi, Ridwa, 2022. "Econometric Analysis of the Determinants of Bank Profitability in Three Major African Counties: Kenya, Nigeria and South Africa," National Institute of Economic and Social Research (NIESR) Discussion Papers 536, National Institute of Economic and Social Research.
    3. Md. Abu Issa Gazi & Md. Nahiduzzaman & Iman Harymawan & Abdullah Al Masud & Bablu Kumar Dhar, 2022. "Impact of COVID-19 on Financial Performance and Profitability of Banking Sector in Special Reference to Private Commercial Banks: Empirical Evidence from Bangladesh," Sustainability, MDPI, vol. 14(10), pages 1-23, May.
    4. Sanni Mubaraq & Salami Abdulai Agbaje & Uthman Ahmad Bukola, 2020. "Determinants of Bank Performance in Nigeria: Do they Behave Differently with Risk-Adjusted Returns?," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(3), pages 1-34, September.
    5. Katusiime, Lorna & Shamsuddin, Abul & Agbola, Frank W., 2015. "Macroeconomic and market microstructure modelling of Ugandan exchange rate," Economic Modelling, Elsevier, vol. 45(C), pages 175-186.
    6. Yong Tan, 2020. "Competition and Profitability in the Chinese Banking Industry: New Evidence from Different Ownership Types," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 503-526, September.
    7. Eissa A. Al-Homaidi & Mosab I. Tabash & Anwar Ahmad & David McMillan, 2020. "The profitability of islamic banks and voluntary disclosure: empirical insights from Yemen," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1778406-177, January.
    8. Rana-Al-Mosharrafa & Md. Shahidul Islam, 2021. "What Drives Bank Profitability? A Panel Data Analysis of Commercial Banks in Bangladesh," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(2), pages 96-110, April.
    9. Sreemanta Sarkar & Debdas Rakshit, 2023. "Factors Influencing the Performance of Commercial Banks: A Dynamic Panel Study on India," FIIB Business Review, , vol. 12(1), pages 85-99, March.
    10. Taslima Akther & Mushfiqur Rahman & Md. Mufidur Rahman, 2023. "Factors influencing commercial bank profitability in Bangladesh: a panel data approach," Future Business Journal, Springer, vol. 9(1), pages 1-20, December.
    11. Onur zdemir, 2019. "Autoregressive Distributed Lag Approach to the Income Inequality and Financial Liberalization Nexus: Empirical Evidence from Turkey," International Journal of Economics and Financial Issues, Econjournals, vol. 9(6), pages 1-15.
    12. Jayanthakumaran, Kankesu & Verma, Reetu & Liu, Ying, 2012. "CO2 emissions, energy consumption, trade and income: A comparative analysis of China and India," Energy Policy, Elsevier, vol. 42(C), pages 450-460.
    13. Samir Abdelhafidh, 2014. "External Debt and Economic Growth in Tunisia," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(6), pages 669-689, December.
    14. Mosab I. Tabash & Eissa A. Al-Homaidi & Anwar Ahmad & Najib H.S. Farhan, 2020. "Factors affecting financial performance of Indian firms: an empirical investigation of firms listed on Bombay Stock Exchange," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 13(2), pages 152-172.
    15. De Vita, Glauco & Trachanas, Emmanouil & Luo, Yun, 2018. "Revisiting the bi-directional causality between debt and growth: Evidence from linear and nonlinear tests," Journal of International Money and Finance, Elsevier, vol. 83(C), pages 55-74.
    16. mohammed, habib, 2023. "Modeling Determinants of Private Banks Profitability in Ethiopia," MPRA Paper 116699, University Library of Munich, Germany.
    17. Fousekis, Panos & Katrakilidis, Constantinos & Trachanas, Emmanouil, 2016. "Vertical price transmission in the US beef sector: Evidence from the nonlinear ARDL model," Economic Modelling, Elsevier, vol. 52(PB), pages 499-506.
    18. Shahiduzzaman, Md. & Alam, Khorshed, 2014. "The long-run impact of Information and Communication Technology on economic output: The case of Australia," Telecommunications Policy, Elsevier, vol. 38(7), pages 623-633.
    19. Hakimi Abdelaziz & Boussaada Rim & Hamdi Helmi, 2022. "The Interactional Relationships Between Credit Risk, Liquidity Risk and Bank Profitability in MENA Region," Global Business Review, International Management Institute, vol. 23(3), pages 561-583, June.
    20. Muhammad Haris & HongXing Yao & Gulzara Tariq & Ali Malik & Hafiz Mustansar Javaid, 2019. "Intellectual Capital Performance and Profitability of Banks: Evidence from Pakistan," JRFM, MDPI, vol. 12(2), pages 1-26, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jjrfmx:v:14:y:2021:i:12:p:588-:d:696408. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.