Impact of the COVID-19 crisis on the Portuguese banking system. Linear ordering method

Zbigniew Korzeb,Armando Silva,Paweł Niedziółka

doi:10.18046/j.estger.2021.159.4414

Abstract

The goal of this paper is to assess the resilience of Portuguese banks to the potential impact of the COVID-19 pandemic. For this purpose, diagnostic variables of 19 banks were selected and prioritized using linear ordering methods. This methodology allowed us to perform rankings of banks using six linear ordering methods and taking into account two weighting procedures and two variants of the diagnostic feature. The study was also supplemented by a sensitivity analysis and an optimization procedure aimed at identifying the optimal linear ordering method. The main results obtained show that the resilience of Portuguese banks is not evenly distributed among individual banks. These findings could be used by regulators to plan support measures for the most fragile banks.

Highlights

In 2019, the Portuguese financial system comprised 152 credit institutions out of which 62 were banks
No study has yet been produced to analyse the impact of COVID-19 on the Portuguese banking sector and so this is the main contribution we hope to make with this research; in brief, the main purpose of this paper is to assess the Portuguese banks in terms of their resilience to the consequences of the COVID-19 pandemic, and addressing the aforementioned research gap
In order to assess the resilience of commercial banks operating in the Portuguese banking sector to the potential impact of the COVID-19 pandemic, the rankings of banks were determined using six linear ordering methods taking into account two weighting procedures: i) w1 - as equal weights, ii) w2 - the expert method, and two variants of the diagnostic feature Z6: version 1 with risk estimation of individual sectors of the economy, and version 2 based on the rates of return of individual sectors of the economy in IQ 2020 on the Portuguese Stock Exchange

Summary

Introduction

In 2019, the Portuguese financial system comprised 152 credit institutions out of which 62 were banks. Pandemic-sensitive sectors such as tourism, hospitality, transportation and construction, for which a relatively early lockdown occurred, represent large shares of Portuguese banks portfolios (between 5% and 15% for the largest banks) and as a result of the COVID-19 escalation in Portugal in the second half of March 2020, some industries (bakeries, restaurants) recorded a drop in revenues over 70%, as well as traffic which decreased by 75%

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