How has Covid-19 influenced the composition of bank incomes?

Abstract

Abstract Banks have two sources of income. They earn interest income from traditional bank services such as credits. They also make non-interest income by charging their customers fees in exchange for various financial services such as checking and cash management, safe-keeping services, investment services, and insurance services. The Covid-19 crisis influenced not only the level of bank revenues, but also their composition. The share of interest income to non-interest income has shown a substantial decrease. This article analyzes the origins of this change and its implications for the banking system for the post-Covid environment. While the literature analyzing income shares only looks at the supply factors, this paper introduces the demand-side factors and finds that the demand-side factors were more important. The deterioration in consumer sentiment has been found to be among the significant determinants of this change. Finally, we find that the income structure of banks of different sizes are determined by different sets of factors. JEL classification numbers: G18, G21, G28. Keywords: Commercial Banks, Interest income, Non-interest income, Consumer sentiment, Bank size, Covid-19.