Bank Performance

Bank performance measurement 

It is challenging to evaluate and capture a bank's overall performance using a single measure. Therefore, we
followed the previous studies of (Elnahass et al. (2021), Adesina (2021), and Dan Dang and Huynh (2021)),
used four alternative accounting-based measures in our analysis as a dependent variable to evaluate the bank's
performance. These accounting-based measures return on average total assets (ROAA), return on average
equity (ROAE), the cost to income ratio (CIN), and net interest margin ratio (NIM). These are considered the
banking sector's most accepted financial performance measures, providing better sustainability predictions.

Bank stability measurement 

Numerous risk measures have been used in the existing literature as proxy indicators for bank stability.
Therefore, for a comprehensive analysis, we employ a series of alternative bank stability proxies in this study.
Firstly, we followed the earlier studies of (Leaven, Elnahass et al. (2021), and Shabir et al. (2021) and used the
Z-score as the proxy for bank default risk. The Z-score determines the bank's distance to insolvency, and it is
assumed to be an unbiased bank risk indicator based on accounting data. The Z-score shows the number of
standard deviations below the expected value of a bank's ROA at which equity is depleted and the bank is
insolvent. The Z-score is an inverse proxy for a firm's probability of failure, combining profitability, leverage,
and return volatility into a single measure. Therefore, this index can be interpreted as an inverse measure of the
probability of insolvency, i.e., a higher Z-score implies that a bank incurs fewer risks and is more stable. The
Z-score is calculated as follows:

RoAit + Eit /TAit

Zscoreit =
αRoAit

We used the volatility of net interest margin as a proxy for bank operational risk, which indicates the level of
risk in a bank's operations (Houston et al., 2010). Higher volatility in net interest margin results from a riskier
lending strategy.

Finally, to further analyze the impact of COVID-19 on bank performance and emerging technology, we
decompose the Z-score into two different components. The first one is the portfolio risk as a proxy by the ROA
divided by the standard deviation of ROA. At the same time, the second component of the Z-score is used as
the proxy for the leverage risk of the bank, which is the equity-to-assets ratio divided by the standard deviation
of ROA. (Elnahass et al., 2021).

Empirical Framework
In this study, we follow (Duan et al. (2021) and Elnahass et al. (2021)) and build an empirical model to
examine the impact of the COVID-19 pandemic on bank performance and stability using individual bank-level
data globally. Thus, our baseline model is shown as follows

Yijt=α+β1Covid19t+γlXit+δkZjt+μi+λt+εit

Where i indicates the bank in country j at quarter t. Yijtis represents our dependent variables (i.e., bank
performance). Bank performance is measured as ROAA, ROAE, CIN, and NIM, while bank emerging
technology as ZSC, NPL PRK, LRK, and ORK. Covid−19t Our primary explanatory variable represents the
pandemic period. Xit is a vector of our bank-level control variables. Zjt Is a vector of country and market
structure control variables. β, δ, and γ are the parameters of the model. Moreover, μi, and ʎt are the bank and
time effects and εit is the error term. We estimate with the fixed-effects model, which incorporates the
correlations among the time-invariant bank-related control variables and the other explanatory variables.

Models

Multiple linear regression model and OLS method

Multiple linear regression model and its estimates using ordinary least squares (OLS) are the most widely used
tools in econometrics. It allows estimating the relationship between the dependent variable and a set of
explanatory variables (Schmidheiny, 2021). Multiple linear regression is a statistical technique that uses
multiple explanatory variables to predict the outcome of the dependent variable. The goal of multiple linear
regression is to model the linear relationship between the independent variable and the dependent variable
(Tranmer et al., 2020). To test the hypotheses, the OLS method is employed in analysing the impact of
COVID19 on the financial performance of US banks since it is the simplest and best method used in estimating
multiple linear regression model. In my study, the dummy variable US is used in the regression to compare the
financial performance of US banks. Moreover, annual balanced panel data for the study variables from 2018 to
2020 was utilized.

Thus, the econometric model is as shown in Equation

ROAit = β0+ β1CASESt + β2CARit+ β3LDRit + β4ERit + β5USit + µi

Where,

- ROAit represents the dependent variable “Y” to measure the profitability of the US banks

CARit, LDRit and ERit are the explanatory variables “X”, which represent the capital adequacy ratio, loan-to-
deposit ratio, and efficiency ratio

USit is the dummy variable which takes the value of 1 if the banks are in the United States and 0 otherwise
Multiple linear regression with a moderator CASES

A moderator, also called a moderating variable, changes the strength or direction of an effect between the
independent variable and a dependent variable (Dawson, 2014). A moderating variable is introduced when
there is an unexpected weak or inconsistent relationship between an independent variable and an outcome
across studies (Memon et al., 2019). In this case, a moderating variable CASES is used to measure the post
effect of COVID-19 on the relationship of US banks to ROA in emerging technology due to the dummy
variable US may be affected by COVID-19 and have unexpected (insignificant) effects on the results of the
OLS model

Equation 1 is extended by including a moderator CASES as shown in Equation 2:

ROAit = β0 + β1CASESt + β2CARit + β3LDRit + β4ERit + β5USit + β6USit*CASESt + µi

Moderation Analysis using linear regression

To thoroughly investigate and compare the extent to which the profitability of US banks is affected by COVID-
19, I decided to use a Moderation Analysis to analyze the effect of CASES on the strength of the relationship
between dependent variable (ROA) and independent variables (CAR, LDR and ER). Statistical moderation
analysis is used to test whether the relationship between an independent variable, X, and a dependent variable,
Y, depends on the moderator, M (Montoya, 2019).

Time series analysis

Time series analysis is a specific method of analyzing a series of data points collected over an interval of time,
thus, analysts record data points at consistent intervals over a set period of time, not just intermittently or
randomly (Montgomery, Jennings & Kulahci, 2015) The purpose of time series analysis is usually twofold: to
understand or simulate the stochastic mechanism that gives rise to an observed series, and to predict the future
values of a series based on the history of that series or other related series (Cryer & Chan, 2008). The sequence
of random variables is called a stochastic process and is used as a model for observing the time series. To make
statistical inferences about the structure of a stochastic process based on the observed records of the stochastic
process, we usually make some simplified and reasonable assumptions about that structure (Kirchgässner,
Wolters & Hassler, 2013). The most important assumption is the stationarity. Intuitively, stationarity means
that the statistical properties of the process generating a time series do not change over time (Palachy, 2019). A
stationary time series tends to return to its common mean and fluctuations around the mean have a broadly
constant amplitude. In other words, it has constant mean and variance, and covariance is independent of time.
If a process is nonstationary, we can study the time series for the time periods under consideration. As a
consequence, it is not possible to generalize it to other time periods and cannot be forecasted. In my research, I
chose time series analysis to separately analyze and compare whether the profitability of US are affected
emerging technology by COVID-19. Since stationary processes are easier to analyze, and it allows us to see the
results and differences very intuitively and clearly.

Linearity test T

he linearity test aims to determine whether the relationship between the independent variable and the dependent
variable is linear (Gujarati & Porter, 2009). There are several linearity tests: i.e., Ramsey test, White test and
Terasvirta test. In this research, I use Ramsey test to test whether the OLS regression is linear since it is the
most common and most to use in detecting nonlinearity (Prabowo, Suhartono & Prastyo, 2020). The hypothesis
is as follows:

H0: OLS regression is suitable (Linear).

H1: OLS regression is not suitable (Nonlinear).

If the value significance deviation from Linearity greater than 5% critical value, then null hypothesis is not
rejected, the regression is linear; otherwise, there is nonlinearity.

Heteroscedasticity test

Heteroscedasticity is a violation of the common assumption in linear regression models, that is, all errors of
regression have the same variance (Cai & Hayes, 2008). The assumption is violated, and the error is called
heteroscedasticity when the errors belonging to different observations do not have the same variance. In this
research, ARCH model will be used to test the error of heteroscedasticity. The hypothesis is as follows:

H0: No heteroscedasticity.

H1: Presence of heteroscedasticity.

If the probability of Chi-Square is greater than 5% critical value, then the null hypothesis cannot be rejected,
there is no heteroscedasticity in the model.

Variables

This section describes how I measure all the variables that will be used in the regression. Following, the
dependent variable, independent variables, and dummy variables will be presented.

Dependent variable

In the regression model, Return on Asset (ROA) is the dependent variable. It is a measure of the profitability of
a company relative to its total assets (Petersen & Schoeman, 2008). I use Return on Asset (ROA) as a measure
of the banks’ profitability since it is best used to compare similar companies or compare a company to its own
previous performance. ROA ratio can be calculated by dividing the company’s net income by total assets. The
formula is expressed as shown in Equation 5

Net income
Return on Assets =
Total Assets

The higher the ROA, the higher the asset efficiency. If the return on assets (ROA) is positive, it can indicate
whether the total assets used in operations are capable of generating profits for the company; If the return on
assessment (ROA) is negative, it can show that the company's operating profit is a loss (Ichsan et al., 2021)

Independent variables

I will go through four independent variables used in the model, which are Capital Adequacy Ratio (CAR), and
Efficiency Ratio (ER).

Capital Adequacy Ratio (CAR) According to Fatima (2014), the capital adequacy ratio (CAR) is a measure of
a bank's available capital, which is the percentage of the bank's risk-weighted credit exposure. It is used to
protect depositors and promote the stability and efficiency of the global financial system. As discussed in the
earlier chapters, the recession caused by COVID19 threatens bank profitability and causes losses due to
borrowers’ inability to repay. Capital ratios can protect against loan default. Higher capital ratios increase bank
efficiency and profitability (Bitar, Pukthuanthong & Walker, 2018). The capital adequacy ratio ensures that
banks have sufficient cushion to absorb a reasonable amount of losses before going bankrupt according to
Nugroho, Arif and Halik (2021). Therefore, CAR is used as one of the determinants of US banks’ profitability
in this research. The CAR is calculated by dividing the bank’s capital by risk-weighted assets. Two types of
capital are used to calculate the CAR. The formula is as shown in Equation 6:

Tier 1Capital+ Tier 2Capital

CAR=
Risk Weighted Assets

Fatima (2014) claims that Tier 1 capital can absorb a reasonable amount of losses without forcing the bank to
cease trading, while Tier 2 capital absorb losses if there is a liquidation. The limitation of CAR is that it does
not account expected losses during bank runs or financial crises, which may distort the bank's capital and cost
of capital.

Efficiency Ratio (ER)

A bank’s efficiency ratio is calculated by dividing its noninterest expenses by net income. Banks strive for a
lower efficiency ratio since it indicates that the bank’s income is higher than its expenditure, typically, the
maximum optimal efficiency ratio is 50% (Hays, 2009). Since the bank expenses is a very important
determinant of bank profitability (Athanasoglou, Brissimis and Delis, 2008), so the efficiency ratio is also part
of the key factors that determines the profitability of UK banks during the COVID-19 pandemic that will be
taken into account in my research. The formula is expressed as shown in Equation

Non Interest Expense

Efficiency Ratio =
Net Income

A bank is operating better when it has a lower efficiency ratio. If the efficiency ratio increases, it means that
the bank’s expenses increase or revenue decreases (Olson & Zoubi, 2011).

Dummy variables

Dummy variables are the variables that assume such 0 and 1 values. Therefore, such variables are essentially a
device for classifying data into mutually exclusive categories. Dummy variables can be incorporated into
regression models as quantitative variables (Gujarati & Porter, 2009). In my study, there are two dummy
variables in the regression model, CASES and UK.

Data collection

My sample includes 5 listed banks UK covering data for 12 quarters from first quarter of 2018 to the fourth
quarter of 2020. This generates a panel sample of 60 bank-quarter observations. I consider the 8 quarters 28 of
2018 and 2019 as the pre-COVID-19 period and hence, the fourth quarters of 2020 represent the period of
COVID-19. The quarterly frequency data is chosen since the daily and monthly data is not available for this
particular financial data. The first three quarter of 2021 are not considered because this study only compares
the whole year. Furthermore, I collected the ratios of ROA and CAR from the quarterly and annual reports of
each bank from 2018 to 2020. Lastly, the five US banks are Banks of England, Bank of Barcalys, Standard
Charted Bank., Lolyds Banking groups and Santander UK Bank.

Empirical results

Our main objective is to examine the potential effects of the COVID-19 pandemic on bank performance and
emerging technology across the UK perspective. 

This section aims to test the hypotheses to investigate and compare the financial performance of banks in the
UK during the pandemic. The regression results of UK banks, as well as the econometric tests for the
regression will be presented in this section.

Linearity test

In this study, Ramsey test is used to test the linearity of the regression model. Table shows that the probability
of F calculates 0.2493 > 0.05, so we can conclude that null hypothesis cannot be rejected and the linearity is
met, so this regression can be used for forecasting.
Table 2: Ramsey RESET Test

Ramsey RESET Test Equation: UNTITLED

Omitted Variables: Squares of fitted values Specification: ROA C CASES CAR NPL LDR ER US

Value df Probability

t-statistic 1.157989 112 0.2493

F-statistic 1.340939 (1, 112) 0.2493

Likelihood ratio 1.428188 1 0.2321

Source: Author’s Estimation in EViews 12

Heteroscedasticity test

To test whether there is an error of heteroscedasticity in the linear regression model, the ACRH approach was
conducted. As shown in Table 4, the probability of Chi-Square is 0.4059 > 0.05, so we cannot reject the null
hypothesis in 3.2.7, and we can conclude that there is no heteroscedasticity in the model.

Table 4: Heteroskedasticity Test: ARCH Model

Heteroskedasticity Test: ARCH

F-statistic 0.683257 Prob. F(1,117) 0.4102

Obs*R-squared 0.690902 Prob. Chi-Square(1)0.4059

Source: Author’s Estimation in EViews 12

UK banks

The prior findings showed that the financial performance of UK banks with emerging technology was affected
by the COVID-19 pandemic, in particular, the UK dummy variable is significant after interacting with CASES
variable. I perform more analysis on the financial performance of UK banks during the pandemic by showing
the results of OLS regression model, moderation analysis and time series analysis.

OLS regression model

Table indicates additional results from the examination of the effect of COVID-19 on the profitability of UK
banks. As shown in Table, the coefficient of CASES has a significant and negative impact on the ROA of UK
banks, which is the same as my previous findings.

Table: OLS regression results (UK banks)

Dependent Variable: ROA Method: Panel Least Squares

Periods included: 5

Cross-sections included: 12

Total panel (balanced) observations: 60

Variable Coefficient Std. Error t-Statistic Prob.

C -0.507973 1.761362 -0.2883980.7741

CASES -0.771881 0.291558 -2.6474330.0106

CAR 0.148769 0.115568 1.287286 0.2035

NPL 0.060787 0.102101 0.595356 0.5541

LDR -0.001804 0.007550 -0.2389580.8120

ER -0.010698 0.013583 -0.7876100.4344

Root MSE 0.520747 R-squared 0.307179

Mean dependent1.003833 Adjusted R-squared 0.243029

var

S.D. dependent var 0.630908 S.E. of regression 0.548915

 Akaike info1.732895 Sum squared resid 16.27064
criterion

Schwarz criterion 1.942329 Log likelihood -

45.98684

Hannan-Quinn 1.814816 F-statistic 4.788442

criter.

Durbin-Watson stat2.437969 Prob(F-statistic) 0.001076

Source: Author’s Estimation in EViews 12

In addition, the R-squared value of 30% is low, similar to the results in Table 1 (25%) and Table 5 (32%), but
quite different from the values in Table 6 (80%) and Table 7 (84%). This result provides more evidence that
the low R-squared values in the regressions UK banks is due to the adverse impact of COVID-19 on the
financial performance of UK banks.

Moderation analysis

Table revealed that the insignificant effects of CAR and ER on the ROA of UK banks. This insignificant result
may be due to the impact of COVID-19 on the profitability of UK banks. Therefore, I conducted a moderation
analysis to investigate this reason. According to Table, the coefficient of CASES_CAR is 0.92 with
significance value 0.0001 (< 0.05), and the coefficient of CASES_ER is -0.07 with significance value 0.0074
(< 0.05). It can be concluded that CASES as a moderating variable has a significant positive effect on the
relationship of CAR to ROA and has a significant negative effect on the relationship of ER to ROA in UK
banks.

Table: Multiple linear regression with a moderator CASES (UK banks)

Dependent Variable: ROA Method:

Periods included: 5

Cross-sections included: 12

Total panel (balanced) observations: 60

Variable Coefficient Std. Error t-Statistic Prob.

C 1.756525 1.821883 0.964126 0.3396

CASES -9.311521 2.950450 -3.1559660.0027

CAR -0.101556 0.116154 -0.8743150.3861

CASES_CAR 0.918216 0.210125 4.369858 0.0001

ER 0.006518 0.014584 0.446934 0.6569

 CASES_ER -0.065198 0.023335 -2.7939660.0074

Root MSE 0.408678 R-squared 0.57329

1

Mean dependent1.003833 Adjusted R-squared 0.49648

var 4

S.D. dependent0.630908 S.E. of regression 0.44768

var 5

Akaike info1.381557 Sum squared resid 10.0210

criterion 9

Schwarz criterion 1.730615 Log likelihood -

31.4467
2

Hannan-Quinn 1.518093 F-statistic 7.46400

criter. 0

Durbin-Watson 2.550937 Prob(F-statistic) 0.00000

stat 1

Source: Author’s Estimation in EViews 12

Although the results show that NPL and LDR are still insignificant after interacting with CASES variable, the
p-values are quite smaller than the values as shown in Table 8. Based on the results I can conclude that the
financial performance of UK banks has been affected by the COVID-19 pandemic. This result provides strong
evidence for my fourth hypothesis, H4, showing that the COVID-19 outbreak has significantly harmed and
weakened US banks profitability. Therefore, the fourth hypothesis (H4) cannot be rejected. More importantly,
the R-squared value of 57% is higher than the 30% in the previous model, which means that over half of the
variance in the outcome variable is explained by the model and the data fits the model better.

Time series analysis

The time series of ROA and the 4-time series of CAR and ER of UK banks, respectively. Figure shows that
the time series is stationary before 2020 since the mean and variance are constant over time. Whereas after
2020, the time series is non-stationary since it shows a positive trend and upward sloping.

Figure 6: Time series of ROA of US banks

US banks

1.5

1.0

0.5

0.0

-0.5

-1.0

-1.5

-2.0

-2.5
2020-II
2018-II

2018-III

2019-II

2019-III

2020-III
2018-I

2018-IV

2019-IV

2020-IV
2019-I

2020-I
 ROA

Source: Author’s Estimation in EViews 12

Similarly, in Figure 7, the time series of CAR, NPL, LDR and ER show a stationary time serises before 2020,
but a nonstationary time series after 2020 since the mean as well as the variance increases over time. These
findings provide more evidence that the financial performance of US banks was adversely affected by the
COVID-19 outbreak.

Figure 7: Time series of CAR, NPL, LDR and ER of US banks

Source: Author’s Estimation in EViews 12

Discussion

In this section, I will thoroughly discuss and analyse the empirical findings and limitations in relation to the
literature that I used to answer my research questions and purpose.
This study applied the descriptive and analytical techniques to investigate the impact of the COVID-19
pandemic on the banking industry with emerging technology in UK. The aim of this study is to investigate
whether the COVID-19 pandemic affects the financial performance of UK banks. The findings revealed that
the coefficient of CASES is significantly and negatively associated with the ROA of UK banks. This implies
that the COVID-19 outbreak has significantly reduced the profitability of UK banks.

The results of the OLS regression analysis show that the dummy variable UK is insignificant, however, the UK
variable is significant after interacting with the CASES variable in the moderation analysis. The results show
that the moderator CASES has a significant and negative effect on the relationship of UK to ROA. This implies
that the financial performance of UK banks with emerging technology was affected by COVID-19.
As a follow up of the empirical analysis, trend of the performance indicator of the banks were examined. The
trend of ROA of the five major banks in the UK (2018-2020).
Remarkably, the UK banks’ profits fell sharply in the first and second quarters of 2020, which is tied directly to
the pandemic. Sweet (2020) states that banks hold tens of billions of dollars of loans, but those borrowers can
no longer pay due to the outbreak. Thus, he claims that banks had to set aside billions of dollars to cover
potentially bad loans back in April. In addition, the Fed slashed interest rates to near zero to stimulate the
economy, which limits the loans that banks can charge. Also, we can find the reasons for the sharp decline in
the profits of U.K. banks in the first and second quarters from previous research.

Moreover, the profits of UK banks grew rapidly in the third quarter, which can also find evidence from
previous literature.
Furthermore, my findings provide strong evidence that government interventions have a great positive impact
on the profitability of banks during the pandemic crisis. This is in line with Wei and Han (2021), Berger et al.
(2021), and Kunt, Pedraza and Ortega (2021), who suggested that the government policy helps stimulate the
financial market, contributes to the stability of the banking industry, and reverses the economic downturn in the
post-pandemic. However, as argued by Cachanosky et al. (2021), although the monetary policy helps promote
economic recovery, the government should take more measures to promote monetary stability.

In this study, I examined the characteristics that affect the profitability of UK banks with emerging technology
during the COVID-19 crisis. The findings indicated that the CAR has a significant and positive effect on the
ROA of UK banks during the pandemic, which could be attributed to the high financial performance (ROA) of
banks with high capital adequacy ratios. This result is consistent with the previous studies with Bitar,
Pukthuanthong and Walker (2018), Athanasoglou, Brissimis and Delis (2008) and Tran, Lin and Nguyen
(2016), which suggested that higher capital ratios increase bank efficiency and profitability..

Moreover, my findings show that increasing regulatory capital can improve bank’s performance, which
provides valuable policy implications to bank regulators and policy makers to formulate regulations in a crisis.
For example, they can impose higher capital requirements on banks during a crisis. My findings are consistent
with Berger et al. (2021), who suggested that Basel III reforms and many country-specific improvements in
bank supervision and regulation have made the banking industry more resilient to the COVID- 19 shocks.
However, as stated by Tran, Lin and Nguyen (2016), the relationship between regulatory capital and bank
performance depends on the bank's regulatory capital level, and we cannot take a one-size-fits-all approach to
bank regulations and support measures.

Furthermore, in my study, I have also found that the efficiency ratio has a significant and negative impact on
the ROA of UK banks during the crisis. This is in line with Athanasoglou, Brissimis and Delis (2008) and
Elekdag, Malik and Mitra (2020), who claimed that higher efficiency ratio harms the bank profitability.
Therefore, improving the management of bank expenses increases efficiency and profits.

Limitations of this study

This study provided a solid foundation in the financial performance of banking industry during the pandemic,
nevertheless, but it has its limitations. The first limitation is the number of observations. In this study, I
selected the five largest banks in each country, and generated a panel sample of 120 observations for the 12
quarters from 2018 to 2020, with 60 observations for each country. In the four most severe quarters at the
beginning of the pandemic examined, the total number of observations in these two countries was

40. It is within the golden rule of 30 observations. However, in each of my subsamples (5 Chinese banks and 5
US banks), I only have 20 observations, which is below the minimum requirement of 30. This limitation may
affect the accuracy of my estimation. Generally, the larger the sample size is required to get an optimum level
of precision.

The second limitation of this paper is the bank size. In this research, I used five major banks (based on the
banks’ total assets) in China and the United States as the research objects to represent the banking industries of
these two countries. However, the financial performance of these five largest banks is not sufficient to indicate
the overall performance of the banking industry in these two countries during the pandemic. There is evidence
that China’s mid-sized banks outperformed the largest banks in 2020, which are more resilient to the pandemic
(Lee, 2020). In recent research by Elnahass, Trinh and Li (2021), who also found that the returns on stocks of
larger banks have fallen even more sharply during the COVID-19 pandemic.

The third limitation is the indicators and characteristics of the financial performance of banks. First, I used the
Return on Assets (ROA) as an indicator of bank profitability, as well as the four characteristics of Capital
Adequacy Ratio (CAR), Non-performing Loans Ratio (NPL), Loans-to-Deposit Ratio (LDR) and Efficiency
Ratio (ER) to measure the effect on ROA in this paper. In the regression model of Chinese banks, the variance
of ROA can be well explained by the four chosen ratios since the R-squared value is over 80%. However, in
the models of US banks, the R-squared values is only 30%, and it is
57% after interacting with CASES. This not only means that the ROA of US banks is affected by COVID-19,
but also shows that 43% of the changes of ROA of US banks are explained by other regressors outside the
model. Moreover, there are other indicators to measure the profitability of banks such as Return on Equity
(ROE) ratio and stock returns of banks. Furthermore, in the process of collecting data, I found that Chinese
banks use ROA to measure bank profitability, while U.S. banks tend to use ROE ratio. Finally, to track,
measure and analyze the financial health of a bank cannot be limited to profitability, but other factors should
also be taken into account, such as the solvency, liquidity, interest rates, and business cycle fluctuations, etc.

Conclusion

The outbreak of COVID-19 has been exerting negative effects on global economy. Both the world’s major
economies, Uk, are facing challenges in this pandemic. As a consequence, the COVID-19 crisis is reshaping
the global landscape and enables us to foresee the development trends of the global economy in the next ten or
twenty years. Therefore, it is of paramount importance to examine the impact of the outbreak on the country,
given the important role of the banking sector in the economy. This paper offers a systematic analysis to
examine the impact of COVID-19 on the financial performance of the banking sector with emerging
technology in UK.

In this paper, I investigated the financial performance of the five major banks in UK in the past three years. I
find consistent with my expectations, that the COVID-19 pandemic has adverse impact on the financial
performance of UK and banks.

Furthermore, my results suggest that the Capital Adequacy Ratio (CAR) has a significantly positively effect on
the ROA of UK banks, while the Efficiency Ratio (ER) has a significantly negatively impact on the ROA of
UK banks during the crisis. However, my findings have significant implications for studying the financial
performance of the banking industry in the pandemic crisis. Meanwhile, my research provides strong empirical
evidence for regulators and policy makers to formulate regulations in a crisis.
For future research, I suggest that future researchers can expand the sample size to improve the
accuracy of the estimation. For instance, they can use large, small, and medium-sized banks in
the UK as research objects to compare and analyze their financial performance during the
pandemic. Moreover, they can also take into account other factors of the bank’s performance,
such as current ratio, quick ratio, and interest coverage ratio to measure the liquidity and
solvency of the banks. Furthermore, the performance of UK banks during the period of 2021
should also be examined together with the year of 2020 to assess the financial performance of the
banking sector during various stages of the pandemic. Since this can reflect the effectiveness of
government’s policies on the financial sectors during the pandemic so that to be better equipped
to future emergency. Lastly, researchers can also focus on forecasting of the development and
recovery of the banking industry and the world economy in the next 10 or 20 years based on the
financial performance of the banking industry in 2020 and 2021.