Digitization, Ageing Population and Bank Profitability: Evidence in Light of Two Global Crises

Abstract

Despite the prevalence of a rich literature on bank profitability, yet, none of it analyzes the simultaneous effects of GFC and COVID-19 on bank profitability. We attempt to fulfil this gap by using a model which factors in digitization, ageing population, endogenous and predetermined variables, let alone control for G-SIBs. Findings show that the impacts of COVID-19 were twice as much deleterious as those hailing from the GFC in the case of NIM and four times as harmful in the case of ROE, with ageing population exerting bearish forces on bank profitability. Mobile usage interacted with COVID-19 crisis dummy and is found to leverage on ROE, underscoring the significance of technology-driven sources of activities during the pandemic. Overall, our paper justifies the significantly larger bailout package launched by the authorities during the pandemic compared to that triggered during the GFC with the critical role of technology being underscored in securing banks’ profits during the pandemic.