Government policy response to COVID-19 and bank performance: a comparison between Islamic and conventional banks

Abstract

PurposeThis study aims to examine the joint impact of the COVID-19 pandemic and the government response on the performance of Islamic and conventional banks.Design/methodology/approachData were collected from a sample of 94 conventional and 14 Islamic banks in Indonesia from March 2020 to September 2021. The system generalized methods of moments estimation is used to analyze the data.FindingsThis study finds robust results regarding the negative impact of the COVID-19 pandemic and the positive effects of government responses to COVID-19 pandemic on bank performance in Indonesian banking. Moreover, in line with the rise in confirmed COVID-19 cases, a higher government policy responses index improves bank performance, both in conventional and Islamic banks.Practical implicationsThis paper highlights the importance of the government policy responses index to absorb the negative impact of the COVID-19 outbreak on banking performance.Originality/valueThis paper provides novel insights into the joint impact of the COVID-19 pandemic and government responses to COVID-19 pandemic on bank performance between conventional and Islamic banks.