COVID-19 EFFECT: THE IMPACT OF CREDIT RISK AND LIQUIDITY RISK ON COMMERCIAL BANKS' PROFITABILITY

Abstract

This paper seeks to investigate whether the impact of credit risk and liquidity risk on the profitability of Chinese commercial banks has changed as a result of the covid-19. To this end, we adopted financial data and indicators for a total of 32 Chinese listed commercial banks from 2009 to 2021 and conducted an empirical analysis using a fixed-effects model. Our empirical findings suggested that covid-19 strengthened the negative impact of credit risk on profitability, with the most significant effect on city commercial banks and a significant effect on ROA only for joint-stock commercial banks, while it has no significant effect on state-controlled large commercial banks. We also find that covid-19 weakened the positive effect of liquidity risk on profitability, but it has a significant effect on ROA only for joint-stock commercial banks. This study provides evidence of the impact of the epidemic on commercial banks, enabling them to manage risk well and improve their risk tolerance in the post-epidemic era, as well as providing empirical evidence for future research.