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.
Highlights
Banking sector is not growing with the remarkable growth of GDP; it is facing difficult time due to increasing size of non-performing loans which is a great threat for the economy (Islam, 2019)
Repurchase agreement interest rate was reduced from 6% to 5.75% and cash reserve requirement (CRR) of the banks was cut from 5.50% to 5% for boosting liquidity of the banks during this pandemic
1.3 Methodology In this study, liquidity crisis is measured through liquidity ratios and financial health is measured by Altman Z-Score for non-manufacturing companies
Summary
Banking sector is not growing with the remarkable growth of GDP; it is facing difficult time due to increasing size of non-performing loans which is a great threat for the economy (Islam, 2019). Some reports are published in the Financial Express, Dhaka Tribune and Dhaka Courier about the Liquidity Crisis of Banking Sector. One of the new banks recently faced liquidity crisis which made the regulator to increase attention on the practices of the banks For these incidents, the regulatory caps on ADR are likely to have been fallen to 80 and 85% from existing 85 and 90% for conventional and Islamic banks. Poor financial health that can lead to bankruptcy, affects the stakeholders like creditors, employees, investors, suppliers, consumers and local community negatively. It is an indispensable part of functioning of an enterprise.
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