Final W1848256

UNIVERSITY OF
WESTMINSTER
IMPACT OF COVID-19 ON PROFITABIL
Submitted By : Zaidahmed Mansuri (W1848256)

(MSc Finance Banking)
Supervised By : Professor Yang Fang

Acknowledgement
I would like to express my special thanks to my supervisor Professor Yang Fang for her time
and efforts throughout. I am grateful that I was able to write this paper with my supervisor’s
support and guidance. Professor Yang Fang has always replied and solved my queries with
patience all the time and teaching me new things. Her advice and suggestions were really
helpful for me during the project’s completion. This has really helped me out in my writing
process and giving me a confidence in my paper. This research paper would not be possible
without my professor’s guidelines and motivation and I wouldn’t idealize a better supervisor.
I learnt a lot during this research thesis and improvised my skills. I would also like to thank
my course teacher Dr Sheeja Sivaprasad, Course leader Dr Xin Li for their support and co-
ordination. Lastly, I would like to express my gratitude to people who have helped me
through my hardest times that is my family and friends. Without their love and support I
would not be in the position where I am today.
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ABSTRACT
The research paper mainly deals with the impacts of Covid-19 on the profitability of
commercial banks in the UK. The paper discusses how the pandemic has significantly
affected the profitability of commercial banks in the UK by reducing assets size, capital
adequacy, liquidity. COVID-19 has also affected the financial risks of banks by increasing
defaults risks, and increasing operational risks. Moreover, with the outbreak of corona virus,
there has been an unavailability of the loans to businesses and other activities. Hence,
mitigation of all the negative impacts of the pandemic is the primary focus of the researchers.
The contribution of government regulations on interest rates of the bank during the pandemic
outbreak is important to ensure they are cushioned from loses. The importance of financial
and management issues presents in UK commercial banks due to Covid-19 is developed here.
There are different research paradigms considered within the study for accumulating the
required data. Interpretivism philosophy, deductive approach, and quantitative research
design have been considered into the study for collecting the data. The analysis used an
unbalanced panel of 25 commercial banks in the UK for the period 2017 to 2021. The
research used a panel fixed effect model to test the variables that affect bank
profitability. The explanatory variables are financial risk, assets management, capital
adequacy, liquidity, asset size and inflation. From the panel data analysis, the study’s
regression model found a negative relationship between bank specific factors such as asset
management, liquidity, total assets and profitability. Inflation was the only macroeconomic
factor used and had an inverse relationship with profitability represented by ROE. Only
financial risk and asset size had positive relationship with bank profitability.
Table of Contents
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CHAPTER 1: INTRODUCTION..............................................................................................6
1.1. Introduction.....................................................................................................................6
1.2 Research Background.......................................................................................................7
1.3 Research Rationale...........................................................................................................8
1.4 Research Aim...................................................................................................................9
1.5 Research Objective...........................................................................................................9
1.6 Research Questions..........................................................................................................9
1.7 Significance of the Research topic.................................................................................10
CHAPTER 2: LITERATURE REVIEW.................................................................................11
2.1 Effects of Covid-19 on Profitability of Commercial banks in the UK...........................11
2.2 Theme 1: Covid-19 has an adverse impact on profitability of UK commercial banks..13
2.3 Theme 2: Economical change in business management due to Covid-19 in commercial

banks of the UK...................................................................................................................13
2.4 Theme 3: The contribution of Govt. regulations on interest rates of the bank during the
pandemic outbreak...............................................................................................................14
2.5 Theme 4: Financial and management issues present in UK commercial banks due to
Covid-19...............................................................................................................................15
2.6 Theoretical framework...................................................................................................15
2.6.1 Theory of Credit creation........................................................................................15
2.6.2 Consumption smoothing theory..............................................................................16
2.7 Importance of digitalisation on profitability of Commercial banks in the UK..............17
2.8 Conceptual Framework..................................................................................................17
2.9 Research Hypothesis......................................................................................................18
2.10 Literature gap...............................................................................................................19
CHAPTER 3: RESEARCH METHODOLOGY.....................................................................20
3.1 Methodology..................................................................................................................20
3.2 Research Onion..............................................................................................................20
3.3 Research Philosophy......................................................................................................21
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3.4 Research Approach........................................................................................................22
3.5 Research Design.............................................................................................................23
3.6 Data Sources...................................................................................................................24
3.7 Data Analysis.................................................................................................................24
3.8 Ethical Consideration.....................................................................................................25
CHAPTER 4: RESULTS AND DISCUSSION.......................................................................26
4.1 Model Specification in Panel Data Analysis..................................................................26
4.2 Regression Analysis.......................................................................................................27
4.3 Discussion......................................................................................................................35
CHAPTER 5: CONCLUSION, RECOMMENDATION, AND FUTURE ASPECTS...........38
5.1 Conclusion......................................................................................................................38
5.2 Linking with objective...................................................................................................38
5.3 Recommendations..........................................................................................................40
5.4 Limitation of the study...................................................................................................41
5.5 Future scope...................................................................................................................41
References................................................................................................................................42
Appendices...............................................................................................................................50
Appendix -1: Random Effects GLS Regression..................................................................50
Appendix -2: Hausman Test.................................................................................................51
Appendix -3: List of UK Banks taken into consideration for analysis................................52
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List of Figures & Tables
Figure 1.2.1: Operating Profit of Commercial banks in UK......................................................7

Figure 1.3.1: Business functions of Commercial banks in Covid-19.........................................8
Figure 2.4.1 Condition of Loans, currency & deposits, and debt security in banks during
pandemic in the UK..................................................................................................................14
Figure 2.8.1: Conceptual framework........................................................................................18
Figure 3.2.1: Research Onion...................................................................................................20
Figure 3.3.1: Research Philosophy...........................................................................................21
Figure 3.4.1: Research Approach.............................................................................................22
Figure 3.5.1: Research design..................................................................................................24
Figure 4.1.1: Summary Statistics.............................................................................................26
Table 4.1.2: Summary Statistics...............................................................................................27
Table 4.2.1: Fixed effect regression model..............................................................................28
Table 4.2.2: Post covid comparison.........................................................................................31
Table 4.2.3: Correlation Matrix................................................................................................32
Figure 4.2.1: ROE vs Financial Risk.......................................................................................33
Figure 4.2.2: ROE vs Asset Management................................................................................33
Figure 4.2.3: ROE vs Liquidity................................................................................................34
Figure 4.2.4: ROE vs Asset Size..............................................................................................34
Figure 4.2.5: ROE vs Capital Adequacy..................................................................................35
Figure 4.3.1: Interest rate controls...........................................................................................37
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CHAPTER 1: INTRODUCTION
1.1. Introduction
The COVID-19 pandemic created a colossal global economic shock, that triggered the
greatest global economic recession in approximately a century. The pandemic affected every
sector of economy and contributed to a sharp increase in defaults of households and corporate
debts (Barua and Barua, 2020). Such effects adversely affected the financial performance of
commercial banks in terms of their profitability and ability to support an economic recovery.
Nevertheless, regulators have taken effective steps to ensure financial stability and mitigate
the risks to the banking system. The primary focus of this research paper is to analyse the
impacts of the recent global pandemic on profitability of the commercial banks in the UK
before, during and post the pandemic. The study also stressed on the theoretical framework
that can give a deeper understanding and insights related to the research paper. The impacts
of Covid-19 have changed the business operations of the commercial banks in the UK. The
banking sector in the UK is one of the important sectors that provide financial stability to this
country. Thus, it is necessary to analyse the issues affecting bank’s profitability to enhance
overall economic performance in the UK.
The paper is divided in to five main chapters. The first chapter is the introduction section that
outlines the research background, rationale of the study, aim of the research, research
questions, research objectives and significance of the study. The second chapter is the
literature review that provides the scholarly work of other scholars previously done regarding
impacts of Covid-19 on Profitability of Commercial banks. This section also discusses
previous studies about the relationship between the explanatory variables (capital adequacy,
financial risk, asset size, inflation) and the dependent one (Profitability/ROE). This chapter
follows two theories such as credit creation and consumption smoothing. The literature
review also consists of empirical evidences from various studies conducted by numerous
researchers. The third chapter talks about the research methodology, data collection from
secondary sources and how has the analysis been approached. Secondary data for 25 banks
has been taken under consideration to run the analysis. The fourth chapter talks about the
panel data analysis of 25 banks for the period 2017-2021. Regression analysis has been
considered to find the impact of covid-19 on the profitability. Different variables have been
considered to evaluate the relationship with the profitability. Finally, the fifth chapter draws
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conclusions for the research paper and links the objective’s and also provides
recommendations and future scope.
1.2 Research Background
The study aims to analyse the impacts of a recent global pandemic on profitability of
commercial banks operating in the UK. As per the report of November 2021, WHO has
reported that the Covid affected patients had surpassed 200 million and it affected the travel
as well as transportation systems of this country (Anvarovich, 2022). The restriction in
movement as a way to curb the pandemic has brought many negative impacts including
losses, closure of bank operations and firing of bank workers. Therefore, the researchers have
figured out some key factors and ideas that can help all these commercial banks to mitigate
all these issues and challenges in future to avoid such huge losses.
Figure 1.2.1: Operating Profit of Commercial banks in UK
(Source: Statista, 2022)
The negative impacts of a global pandemic were also observed on the banking systems and
bank-customer relationships. Figure 1.2.1 above shows the effect of the pandemic on the
commercial bank’s operating profits. Hence, the researchers have put more emphasis on
providing deeper insights and understanding of the impacts of the pandemic to banks
profitability (Azimkulovich and Misdiyono, 2021). In 2020, the profit of all these banks went
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down (Statista, 2022). It is necessary to highlight this issue that brought every sector of the
global economy at a virtual standstill to come up with effective mitigating measures.
1.3 Research Rationale
The research paper mainly deals with the impacts of the recent global pandemic on the
profitability of all the commercial banks of the UK. Profitability is an important factor for
bank’s financial performance. Return on assets (ROA), and return on equity (ROE) are two
common indicators of profitability that need critical analysis. The pandemic negatively
affected the financial performance and resilience of commercial banks in the UK. The
outbreak of Covid-19 and its lockdown restrictions have negatively affected daily bank
transactions from consumers (Dunbar, 2022). Furthermore, the pandemic has significant
negative impacts on commercial banks’ liquidity, capital adequacy and asset management.
COVID-19 has also brought numerous financial risks including credit risks, market risks, and
operational risks to banks. All such effects have on one way or the other affected bank’s
profitability.
It has been noted that the commercial banking sector of the UK is the core area for providing
economic stability to this country. This is why the researchers have pointed out some key
factors of all these banks such as banking profitability. On the other hand, these factors also
affect the economic stability of UK (Farkasdi et al. 2021). On the other hand, the recent
global pandemic has also created high volatility and instability in the global market. At the
same time, the low-interest bank situation along with the negative impacts of Covid-19 has
decreased the core banking profitability of all the commercial banks in the UK (Hardiyanti
and Aziz, 2021). The contraction of economic activities of these banks has serious
consequences on the profitability.
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Figure 1.3.1: Business functions of Commercial banks in Covid-19
(Source: Statista, 2022)
The researchers have mentioned some key reasons that can also have negative effect on the
business functions of all the commercial banks that operate in the UK. In 2020, the business
functions also decreased to 2.5% as compared to the previous year (Statista, 2022).
Moreover, they have also figured out the banking systems of these commercial banks in this
country (Himmawan and Firdausi, 2021). Therefore, this research paper is important as it
sheds light on changing banking systems during financial crisis. The study is relevant to
policy makers and governments to come up with effective policies and strategies that can
increase bank resilience during financial crisis. Due to limited research in this topic, scholars
can also come up with new theoretical models in analysing the effects of pandemic on banks’
profitability.
1.4 Research Aim
The aim of this research paper is to analyse the impacts of the Covid-19 pandemic on the
profitability of the commercial banks in the UK.
1.5 Research Objective
The objectives of this research paper are discussed below:
● To evaluate the impacts of Covid-19 on the profitability of commercial banks in the

UK.
● To understand the determinants of profitability of commercial banks in the UK.
● To discuss the impacts of government regulations on policies such as banking interest

rates during the time of Covid-19 and post-pandemic.
1.6 Research Questions
● How did the Covid-19 affect the profitability of all commercial banks in the UK?
● What are the determinants of profitability of commercial banks in the UK?
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● Do government regulations on policies during and post Covid-19 affect Bank’s
resilience?
● What are the desirable recommendations to resolve the financial issues of commercial
banks in the UK?
1.7 Significance of the Research topic
The significance of this research paper lies in analysing the key impacts of the global
pandemic on the commercial banking systems of the UK. Moreover, the researchers have
also observed trends in financial flows during the time of the global pandemics (Korzeb and
Niedziółka, 2021). The significance of this research paper highlights the impacts of the global
pandemic on the banking systems as well as bank-customer relationships in the UK. The
research paper also highlights all major issues for banking profitability. On the other hand,
the outbreak of corona virus has caused disruptions among the banking staff and customer
relationships (Rahmi and Sumirat, 2021). Therefore, analysing the impacts of the pandemic
on bank’s profitability would help policy makers, governments, financial profession to come
up with effective strategies to minimize the effects of the pandemic on banking sector in case
it happens in future. The main contribution of this research is to explore the implications of
COVID-19 pandemic on bank’s profitability and suggest ways to reduce financial risks,
improve capital adequacy and expand overall profitability.
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CHAPTER 2: LITERATURE REVIEW
2.1 Effects of Covid-19 on Profitability of Commercial banks in the UK
Covid-19 has caused major fluctuations in capital markets in the World and it affects
commercial banks. The sites of the entire banking sector were affected by profitability and
valuation. The banking sector's financial performance faced challenges during Covid-19 and
it negatively affected financial soundness, cost-effectiveness, stock valuation and
profitability.
Profitability and Credit Risks
According to Boateng (2020), the other primary effects on commercial banks are an
expansion of credit risk of retail clients and corporate. The forward-searching data is updated
in a specific way in recent information corporate into risk parameters. Covid-19 also affects
consumer relationships, which is described as positive discontinuity for the goal of
digitalization capability. LCR and LMR rules perform with a lower liquidity ratio level to
complete their liquidity need and help the business movements of the customers impacted by
Covid-19. Lower liquidity has negative impacts on banks profitability as indicated by ROA
and ROE. While investigating the bank-specific and macroeconomic variables that affect
bank profitability, the study by Almaqtari et al. (2009) found that credit risk, liquidity, and
capital adequacy significantly affected the profitability of commercial banks as measured by
ROA in both India and Ghana. In contrast, GDP growth and asset size were found to have
insignificant impacts on bank profitability in both countries. In addition, the causes of bank
profitability also seem to vary in countries over time. For instance, Sufian and Habibullah
(2009) studied the factors affecting bank profitability in Bangladesh found that loan intensity
significantly and positively affected bank profitability. Therefore, credit risks that lower loan
intensity during covid times negatively affected bank’s profitability in UK.
Banks always play a significant part to provide fund availability to help particular businesses
without risking their liquidity standing. During Covid-19, commercial banks faced a probable
drawdown on credit facilities by consumers. According to Campanella et al. 2020,
commercial banks are required to recalibrate their liquidity model for adequate capital if an
important drawdown of loan structures occurs. The economic perspective stays positively
volatile, expected credit losses are earlier estimated, and the banking sector was confronted
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with loan losses. Covid-19 challenged commercial banks for their business model and
confronted revenue pressure. Such challenges also negatively affected capital adequacy and
asset size of banks. Low capital adequacy increases a bank’s susceptibility to economic
downturns. Sufian and Habibullah (2009) also found credit risk significantly affected all three
measures (ROA, ROE and NIM) of bank profitability.
This time the banking sector faced a financial crisis and ultimately low profitability which
developed challenges for the commercial banks in the UK. As per observation by Asad et al.
(2018), the global economy decreased reasoned credit losses due to the Covid-19 situation. A
report by Deloitte revealed that covid-19 has already disrupted the financial markets (Bahlol,
and Dewey, 2021). Since the outbreak, bond yields, equity prices and oil prices, have sharply
fallen on the global market. Fall in equity prices and bond yields affected the ROE of
commercial banks, not only in the UK but globally. Operationally, the spread of COVID-19
resulted in work disruptions that affect productivity and profitability. Furthermore, the
pandemic implications have significantly increase default rates and credit loses leading to a
large increase in provisioning requirements. Such risks affect profitability of banks.
Banking Performance
The banking sector faces Systematic risk, which leads to high loans, highly leveraged due to
the covid-19 situation. Research by Asad et al. (2018) found that liquidity risks negatively
affect bank’s profitability due to their low capacity in paying short-term debts. The
commercial banks confronted financial stability and performance, which affected their
efficiency and stock-market value, and there was a negative correlation between the Covid-19
Pandemic situation and SDROA/ROA. Covid-19 negatively affects the banking sector’s cost
ratio and ROE ratio. The liquidity crisis also happened to lockdown during this pandemic and
increased credit risk. Bank loans, credit markets and financial intermediaries are negatively
affected which sets more limitations on credit supply. As per observation by Semenyuta et al.
(2019), strict rules and control had mitigated the negative result of health concerns on bank
loan supply. This situation led to cutting bank credit sheets and non-performing loans and it
made low profitability in commercial banks. Loan losses lead to a main loss in the banking
sector.
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2.2 Theme 1: Covid-19 has an adverse impact on profitability of UK commercial
banks
Due to the emerging impact of Covid 19, the valuation of banks has dropped in all the
countries around the world. The effect has hugely affected the development of commercial
banks in the UK. As per the opinion of Anand, (2020), it can be said that the lower interest
rates of the banks have reduced the core banking profitability in the market. Financial
institutions have faced many problems due to this and they have now decided to move the
commission-based income from the market. On the other hand, it also can be developed from
the statement of Alber et al. (2020), that the rate of high volatility in the UK stock market has
depressed the bank valuation of the commercial banks in the UK. This has impacted
negatively on the economy of the country and also has reduced the quality of customer
satisfaction. The profitability of the commercial bank has reduced and some of the banks
have been forced to shut down their service due to the devastating impact of covid 19. Covid-
19 increased bank’s lending rates that discouraged investment from customers. Adelopo
(2018) found a statistically significant positive relationship between the lending rate and bank
profitability in Nigeria as measured by ROE indicator.
2.3 Theme 2: Economical change in business management due to Covid-19 in

commercial banks of the UK
With the improvement of the quality of the economical services, the banking sectors have
developed their growth in the market. As per the discussion of Widiyati et al. (2021), it can
be said that the improvement of the financial efficiency of intermediaries is helpful in order
to reduce the cost of finance. “Increase capital accumulation and economic growth” has been
identified as one of the economic changes in business management due to the Covid 19 in the
commercial banking sectors of the UK. On the other hand, it can be said from the discussion
of Zuo et al. (2021) that the banking sectors have already developed their digital translation
method and hugely incorporated banking applications in the market in order to enhance asset
management and adopt the changes reading the pandemic outbreak in the banking secrets.
Negative economic changes such as change in foreign exchange has generated significant
impacts on banks. As a macroeconomic factor, an increase in exposure to foreign exchange
risk has a negative outcome on bank profitability in both the short and long run.
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2.4 Theme 3: The contribution of Govt. regulations on interest rates of the bank
during the pandemic outbreak
The banking departments have provided several facilities to the citizens during the pandemic
situation. During the outbreak of corona virus, the availability of bank loans to businesses and
households have been increased and this has been in contrast to the previous experiences of
the global economic crisis (Bahlol and Dewey, 2021). The UK government has announced
the reduction of interest rates regarding loans during the pandemic situation.
Figure 2.4.1 Condition of Loans, currency & deposits, and debt security in banks during
pandemic in the UK
(Source: Ons.gov.uk, 2022)
In the above figure, the position of bank loans, currency, deposits and debt security has been
represented through the charts. Banks have increased lending of bank loans during the
situation of pandemic and businesses and households have enhanced the holdings of their
deposits. It has been seen that the trends in economic flows regarding the period of the
pandemic, especially on loans as well as deposits in the years 2020 and 2021 have occurred.
It also includes the pattern of comparison with the global financial crisis. The banks have
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focused on the institution of monetary finance also known as MFI in national accounts and
this has impacted the banking industry and citizens as well.
2.5 Theme 4: Financial and management issues present in UK commercial banks

due to Covid-19
In the covid-19 pandemic, the management and financial crisis have occurred in the
commercial banks in terms of losing credits and loans. These banking sectors have faced
issues as the pandemic has led to a huge movement regarding the purpose of expenditure and
income flows and that has been reflected in the entire financial flows (Alsafi et al. 2020).
This has happened as the net borrowing condition to be funded by gaining on financial
liabilities or decreasing financial assets. The restrictions in the pandemic have also led to a
huge economic crisis through both the years 2020 and 2021 (Ons.gov.uk, 2022).
It has been observed that the outbreak of corona virus and the Govt. regulations in this regard
has promoted a crisis in the commercial banks regarding the confronted revenue and business
model. Along with this, the banking sectors have also experienced new digital entrants and
low profitability that has grown the additional challenges in this context (Anand, 2020).
Commercial banks have confronted further financial stability, as well as performance and
these; affect the managerial aspects of their business system entirely. The crisis regarding
liquidity along with increased credit risk, credit markets and financial intermediaries has also
happened during the lockdown and have negatively affected in terms of limiting credit supply
management (Ghouse et al. 2022).
2.6 Theoretical framework
2.6.1 Theory of Credit creation
Credit creation banking theory goals that particular banks can develop money and the bank
sectors do not only lend out deposits that had been given to the banking sector. The banking
sector makes bank deposits as a bank lending development. According to Oino (2021), the
money that the bank constructed was not deprived by bank deposit activities and the bank-
lending act developed new investment power, which did not earlier exist. The refund of living
debt eliminates money from decreasing bank loans and consumer deposits. Bank's capability
to demonstrate new finances is indicated by a range of factors.
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Non-cash dealings account for approximately 95% of entire transactions provided within an
economy. Banks could generate credit money increases from lending and deposit. Bank show
as an accountant for record that allows banks to make borrowers deposit cash in the bank.
Bank's capability to make credit cash is a result of existing excuses from the customer's cash
regulations. Rules in customer cash regulation discourage non-bank institutions from
developing credit cash because various non-bank institutions such as accountants,
stockbrokers and solicitors were needed to hold customers' money different from the non-
bank associations. The bank follows some steps to accountancy for the whole organisation
with loan provision. According to Zhang et al. (2020), the first step is for the bank to approve
a loan with the borrower and the bank sector’s calculation treatment when they bear the loan
to the borrower and at last the estimation procedure treatment. During Covid-19, most
transactions occurred on mobile payments and it affects cash transactions that are dependent
on credit creation theory that affects the capacity of the bank to produce money. The UK
government decreased the country's interest rate, which affected credit creation.
2.6.2 Consumption smoothing theory
Consumption smoothing is a procedure of gaining a ratio of expanding present requirements

and saving for tomorrow. The purpose was to balance between saving and outspending at
various stages of life. This is an important financial strategy challenge for everyone to
acquire balance. This concept concentrated on saving and acquiring a ratio between the living
standards for today and later. This theory depends on behavioural economics and human
psychology and its economic idea, consumption smoothing needs comprehension of saving
and expanding the needs of a particular. This theory was a constant procedure of adjusting to
transform income levels, retirement purposes and spending patterns.
Consumption smoothing theory has facts in the short term but its long-run predictive worth is
diverse. Economists apply predictive standards to risk to smooth consumption and predict by
changing spending designs. Consumption smoothing apprehends people's desire to have a
regular consumption path and the areas, which are linked to consumption smoothing, are
psychology, anthropology and behavioural economics. It also describes the household
tendency to adapt spending practices over time to devour equal ranks of goods and assistance.
This theory has two major tactics that are borrowing, saving in Covid-19, everyone fought to
balance transforms in people’s earnings with consumption smoothing, and it affected
borrowing and saving.
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2.7 Importance of digitalisation on profitability of Commercial banks in the UK
The digitalisation of the banking sector helps to maintain their consumer service such as the
banking sector saving their time and this technology helps them to decrease human errors and
develop consumer loyalty. Digitalization helps to manage huge amounts of cash flow and
gives cashless transactions. As per the observation of Tesfaye et al. (2020), Digitalisation
also helps UK banking sectors to maintain customers' experience and it is timesaving
technology for the banking sector and consumers. Digital bank apps allow consumers to pay
their bills, and account balances, and transfer money, purchases and loans easily. The
customers do not require to physically appear in the bank, they easily fulfil their requirements
in their home. This technology helped the banking sector in the UK in covid-19 to maintain
their services with their consumers. This in turn benefits the banking profitability as seamless
transactions are carried out without any hassle.
2.8 Conceptual Framework
Profitability of commercial banks
Profitability and credit risk

Theory of Consumption smoothing
Theory of Credit creation Interest rates of bank
Banking Sector analysis Improvement of Profitability

Importance of digitalization on profitability
Improved performance in Banks
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Figure 2.8.1: Conceptual framework
(Source: Created by author)
2.9 Research Hypothesis
The research paper has provided the following hypotheses:
H0: Covid-19 affected profitability of commercial banks in the UK.
In the past few years, covid-19 caused a big impact on both economic and financial
operations. Furthermore, most firm’s loss big money. In terms of Bank, it gets more difficult
to recover loans and credit facility. The sovereign debt crisis and the shutdown of shops and
business make it more difficult to give back the amount of money. The low financing cost
situation, alongside the critical effect of the COVID-19, is lessening the centre financial
benefit in mature business sectors (Berry, Bailey, Beel and O’Donovan, 2022). Monetary
organizations are consequently moving towards commission-based pay from any semblance
of instalments and tech organizations.
One of the quick impacts of the wellbeing crisis on the genuine worldwide economy is the
expanded credit hazard of corporate and retail clients of the banks. To keep funding the
genuine economy and backing its recuperation, banks are called to recognize simply
transitory peculiarities, bound to be reabsorbed in a brief time frame, and longer enduring
effects which would require activities of the board and renaming.
H1: Covid-19 did not affect profitability of commercial banks in the UK.
The requirement for various systems around advancement and computerized banking was
clear in financial well before the pandemic hit. As innovation has created, there has been an
ascent in client assumptions for banking, not least from the moment and customized
administrations given by the main innovation firms. FinTech’s have shown what is
conceivable and that all banks need a computerized plan. For the people who have some
glaring misgivings, since the lockdown banks have seen a 72% ascent in the utilization of
Fintech applications in Europe (Chandler, 2022).
This is an important landmark for banks as they attempt to persuade financial backers they
can consolidate a successful computerized way for clients, while likewise decreasing
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expenses and not taking a chance with functional versatility. It is dependably perilous to take
a gander at long haul drifts or examine the effect so rapidly after such a remarkable shock.
Notwithstanding, even at this stage, Banks can identify a few changes and look at a portion of
the inquiries raised.
In the current time, banks have better advanced abilities helping comparative with peers who
might battle to adapt to banking in the lockdown. All banks computerized ability, process the
information they are seeing from their advanced channels. For instance, utilizing chatbots or
redeploying branch staff to support contact focus limit. Some have anticipated that the
functional expense reserve funds from utilizing chatbots in financial will reach $7.3 billion
universally by 2023 (Bank Cost Savings via Chatbots to Reach $7.3 Billion by 2023, as
Automated Customer Experience Evolv, 2022).
Critical Analysis of Hypotheses
For a bank executive in the current time, there are a horde of issues to handle. There are
financial, functional and administrative tensions to manage temporarily. There is a likewise
convoluted discussion over which innovation is generally troublesome or key to change.
Corona virus has sped up digitization of banking as client assumptions change during the
pandemic (Boateng, K., 2020). This expected computerized change, presented by COVID-
19, is likewise assist saves money with adapting to the harder working climate the pandemic
has brought. For the more extended term it is a crucial stage in supporting productivity and
returns in the area.
2.10 Literature gap
Previous literatures failed to discuss the strategies that aim to solve the effect of financial
crisis and how the covid-19 affected the profitability of the banking sector in UK. This paper
will attempt to prove that whether the profitability has been impacted or not by establishing
the relationship between banks profitability and other factors such as liquidity, financial risk,
capital adequacy, asset size, asset management and covid-19 with the aid of research. The
motivation for the research is that how the banks can avoid the financial crisis like covid-19
and still maintain profitability. This paper will discuss this gap and will be helpful in further
studies.
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CHAPTER 3: RESEARCH METHODOLOGY
3.1 Methodology
The analysis of the chapter is based on the discussion of the gathered secondary data related
to the impact of Covid-19 on profitability of the commercial banks of the UK. There is real-
world data considered within the chapter to evaluate Covid-19 impacts from different online
sites, journals, and articles. However, the potential research paradigms considered
interpretive philosophy, deductive approach, and quantitative design while collecting the
required data. In interpretive quantitative research, statistics are used to shed light on the
observed data. The secondary sources have been taken into account to gather the necessary
information based on the analysis of the pandemic outbreak in the previous years. The
journals have been considered for the study for the last few years to incorporate the required
data or information.
3.2 Research Onion
Figure 3.2.1: Research Onion
(Source: Saunders et al. 2009)
The above figure reflects a diagram of the research onion for analyzing different layers to
integrate with data interpretation. Each of the layers are interconnected to evaluate the
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significance of the gathered data from different sources. However, the research onion helps to
develop a series of steps within the data collection methods, which often helps to understand
the entire methodological study. The outer layer of the onion reflects the research philosophy
to collect all the required data from the market. However, the onion then focuses on the
research approach that mainly helps for evaluating the significance of the collected data
through philosophy. The inner layer of the onion required for discussing data collection and
data analysis of the study.
3.3 Research Philosophy
The research has focused on the interpretive philosophy while accumulating practical data
from different sources. The research philosophy is the approach that helps to evaluate the
phenomenon in which the data will be collected and analyzed in the study. In other words,
research philosophy includes the sources, development, and nature of the knowledge that is
integrated into the study.
Figure 3.3.1: Research Philosophy
(Source: Self-developed)
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Justification
The researcher has decided to select Interpretive as the research philosophy while collecting
the required data. However, this philosophy is required for evaluating the researcher's
performance during the study based on effective principles by observing the entire social
world. As mentioned by Günbayi and Sorm (2018), the practical data that has been collected
through interpretive philosophy provides the practical impacts of Covid-19 on the
profitability of the UK commercial banks. This philosophy provides the practical approaches
that have been taken into account by the commercial banks while reducing the impact of the
pandemic outbreak. On the other hand, the researcher has rejected Realism and positivism
philosophy due to a lack of reliability in the collected data, which reduces the overall
significance of the study (Irshaidat, 2019). Additionally, the use of positivism philosophy
involves inflexibility in the study, which does not provide in-depth data to the researcher.
Hence, the selection of interpretive philosophy is justified.
3.4 Research Approach
The study of the research includes a deductive approach while gathering the required
secondary data from different sources. However, the research approach helps to create the
plan in which the data is collected based on broad assumptions. There is a detailed method
considered through the research approach for data collection, interpretation, and analysis.
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Figure 3.4.1: Research Approach
(Source: Self-developed)
Justification
The researcher has decided to use a deductive approach while accumulating the required data
to accomplish the research objectives. As opined by Ebrahimi et al. (2021), the researcher is
able to do a scientific investigation of the study through the deductive approach by
considering existing phenomena and theories. A deductive approach also helps to evaluate
the technical approaches for evaluating profitability in the commercial banks of the UK by
considering the strategies provided in online websites and journals (Behfar and Okhuysen,
2018). However, the researcher is able to deduce the concrete study consequences through
general principles, which enhances the overall significance of the research. On the other
hand, the use of the inductive approach includes a time-consuming process while
accumulating the required data. However, the researcher is able to apply the necessary
theories to the study through the deductive approach and quantitative analysis. Hence, the
selection of a deductive approach is justified.
3.5 Research Design
The analysis of the research design helps to develop a framework for the research methods to
conduct the study through the selected techniques. The study has used mixed approach by
combining both quantitative and qualitative designs in the data collection and analysis
section. However, there is a quantitative research design considered for the study to evaluate
the necessary research phenomenon based on the research objectives. Based on the opinion of
Joshi et al. (2020), the explanatory design also helps to discuss the practical data that has
been collected from secondary sources. Correlational and descriptive designs are used to
identify the relationship between the variables considered in the research.
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Figure 3.5.1: Research design
(Source: Created by the learner)
3.6 Data Sources
The research has included secondary data sources for accumulating the data related to the
research topic. Secondary sources help to reduce the overall budget planning while gathering
more authentic information from different sources. Additionally, the secondary source also
involves a thematic analysis as a tool to collect the data (Zhang et al. 2020). The research has
collected data from journals, updated websites such as Yahoo Finance, annual bank reports,
financial statements, and publications of commercial banks for evaluating the impact of the
pandemic outbreak.
3.7 Data Analysis
The study has used both quantitative and qualitative data analysis methods. Quantitative has
mainly used percentages and frequencies to interpret the regression models. The qualitative
analysis has been considered for the study to involve the critical discussion of the research
themes. The interpretation of numbers and figures of the study has been developed through
quantitative analysis according to the developed research themes (Pereira et al. 2021). This
has helped to attempt the research rationale behind the major findings throughout the study.
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3.8 Ethical Consideration
The authenticity of the collected data has been conserved by the researcher by maintaining
ethical codes. However, the researcher has also followed the Data Protection Act of the UK
(2018) to make sure that all the collected data is transparent, lawful, and used fairly within
the study. The Data protection principles have been maintained by the researcher to enhance
the significance of the collected data from different sources. The ideas and knowledge that
have been collected from this study are not used for any business purposes.
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CHAPTER 4: RESULTS AND DISCUSSION
4.1 Model Specification in Panel Data Analysis

This chapter discusses the panel data collected from the commercial banks in the UK. The
study used a sample of 25 UK commercial banks to analyse the impacts of COVID-19 on the
profitability of commercial banks in the UK. Due to the nature of the data (different
companies, different time line and various variables), the study used a panel data analysis to
regress the dependent variables against the independent ones. Athanasoglou, Brissimis, &
Delis (2008) argue that panel data analysis is an effective and appropriate econometric
estimation model as compared to cross-sectional or time series or data sets. The dependent
variables used in this research that represents the effects of COVID-19 pandemic were mostly
bank specific factors. Such factors include financial risks, asset management, asset size,
capital adequacy, liquidity. Furthermore, COVID- 19 was the main independent variable that
was used as a dummy variable. The study also used inflation as the only macroeconomic
factor in the analysis. The paper also used return on equity (ROE) to represent profitability.
The data analysis used tables to display the regression analysis results from the panel data
analysis. The time period for the data collected was over a period of 5 years, between
2017and 2021 which evaluates the pre-covid, covid-time and post covid scenario for the UK
Banks. The selection of the sample period and data time frame was guided by data
availability from reputable databases such as Statista, Yahoo Finance, Macrotrends and
Bloomberg.
Summary Statistics
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Figure 4.1.1: Summary Statistics
(Source: Self-created)
Variables Obs Mean Std. Dev. Min Max

BankID 121 12.67769 7.127663 1 25
YEAR 121 2019.066 1.418541 2017 2022
ROE 121 0.0527116 0.079454 -0.213 0.352
COVID19 121 0.4049587 0.492925 0 1
Financial Risk 121 0.8529426 0.145764 0.4235741 0.989956

COVIDFR 121 0.3499787 0.435485 0 0.958951
Asset management 121 0.0352961 0.0746 -0.0636499 0.505047
Assetsize 121 12.77009 2.64447 7.755339 22.0042
Capitalade~y 121 0.1195437 0.115795 0.0396219 0.576426
Liquidity 121 0.2614095 0.293327 0.001154 0.84121

Total Assets 121 5.22E+07 3.64E+08 2334 3.60E+09
Naturallog~n 121 -3.958742 0.356667 -4.615221 -3.66516
Inflation 121 0.0201736 0.005925 0.0099 0.0256
_est_fixed 195 0.6205128 0.486508 0 1
_est_random 195 0.6205128 0.486508 0 1
Table 4.1.2: Summary Statistics
The statistics above show that ROE had a mean of 0.05271, standard deviation of 0.07945,
minimum and maximum of -0.213 and 0.352 respectively. Regarding the explanatory
variables, the mean value for the COVID-19, financial risks, asset management, asset size,
capital adequacy and total assets and inflation are 0.405 (Min= 0, Max=1), 0.853 (Min= 0.4235,
Max= 0.9899), 0.0353 (Min= -0.0636, Max= 0.505), 12.770 (Min= 7.755, Max=22.0), 0.1195
(Min= 0.0396, Max=0. 576), 0.02614 (Min= 0.001, Max= 0.841), 5.22e+07 (Min= 2334, Max=
3.60) and 0.0202 (Min= .0099, Max=.0256) respectively with standard deviation of 0.493,
0.146, 0.435, .0745, 2.644, 0.293, 0.00364, 0.3566.
4.2 Regression Analysis

The panel data analysis used both random and fixed effects models. According to Almaqtari
et al. (2018) linear regression model with pooled, fixed and random effect are the appropriate
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form of analysis in evaluating companies’ profitability over period of time. However, due to
the efficiency and consistency measures, this study conducted Haussmann testing method and
found fixed effect model to be more efficient and appropriate than random effect model. The
chi square value was less than p-value (0.05) hence the test rejected the random effect model
and picked the effect regression equation as the best line of fit. Hausmann test is an effective
criterion in evaluating the consistency of an estimator when compared to an alternative in a
panel data model. Numerous data analysts commend the test and suggest that it helps
analysts evaluate if a statistical model corresponds well to panel data.
Fixed Effect Regression Model
Number of observations = 121 Observations per group:
Number of groups = 25 min = 3
avg = 4.8
max = 5
R Square:
within = 0.1834
between = 0.0303
overall = 0.0069
corr(u_i, X) = -0.9223
F(8, 88) = 2.47

Prob > chi2 = 0.0183
ROE Coefficient Std. Error t P>|t| [95% Conf. Interval]
COVID19 0.3475683 0.0630509 -0.01 0.993 -0.13179 0.118139
Financial Risk 0.6057756 0.1923496 3.15 0.002 -0.02363 0.429283
Asset management -0.03046 0.1211648 -0.25 0.802 -2.35222 0.211063
Asset size -0.0196131 0.0352412 -0.56 0.579 0.010425 0.012694
Capital adequacy 0.2582313 0.323137 0.8 0.426 -0.11439 0.422585
Liquidity -0.4477036 0.1816179 -2.47 0.016 -0.08498 0.108734
COVIDFR 0.002025 0.0716017 0.03 0.978 -0.13205 0.155508
Inflation -0.8237507 0.8800648 -0.54 0.591 -2.62584 0.978335
_cons -0.1171791 0.5651149 -0.21 0.836 -0.03999 0.121434
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Table 4.2.1: Fixed effect regression model
This paper used a multivariate liner regression model in form of Y =a+bX 1+bX 2+e
Therefore, the fixed effect regression model obtained from the study was:
Y =−0.117179−0.3475683 COVID+0.60577 FR –−0.03046 AM −0.0196131 AS+ 0.2582CA−0.44772 Lq−
Where;
FR=Financial Risk ,
AM =Asset management
AS= Asset ¿ ¿
CA=Capital adequacy
Lq=Liquidity
Y =ROE , a measure of profitability of commercial banks .
Based on the regression model of the study, the constant (α1) captures the fixed effects of the
model to absorb time-invariant factors. The dummy variable is Covid-19 which is defined as
1 for the last two years (2020 and 2021) sample observations, and 0 otherwise.
ROE is a measure of bank profitability based on the return on shareholder’s equity;
From the regression model above, bank profitability is proxied by ROE and the impact of the
COVID-19 pandemic on bank profitability was captured using a dummy variable and the
other effects were captured by the explanatory variables. Furthermore, the study measured
inflation was measured as the natural log of inflation rates annually in the UK as provided by
Statista. Asset management was obtained by operating income over total assets while asset
size was natural log of total assets for the 25 UK commercial banks. The study obtained
Capital adequacy by dividing equity over total assets for each of the 25 commercial banks.
The model illustrated the effect of COVID-19 pandemic on bank profitability using bank
specific and macroeconomic factors as the indicators. COVID-19 had a negative effect on
ROE by 34.75%. This implied that a unit increase in the pandemic reduced ROE by
approximately 35%. Furthermore, the model shows that financial risk was significantly and
strongly correlated with ROE with a coefficient of 0.6057. Therefore, a one percent increase
in financial risk results to a corresponding increase in ROE by 60.57 % and vice versa.
Financial risk is obtained by diving total assets over total liabilities. Therefore, the significant
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positive correlation between financial risk and ROE signifies that the pandemic increased
financial risks that affected commercial banks in the UK.
The study found that asset management has statistically insignificant negative relationship
with ROE. The 3.046 coefficient indicates that an increase in asset management reduces the
ROE by 3.046%. ROE is generally net income divided by equity while shareholders' equity is
equal to a company's assets minus its debt. Therefore, asset management increases a
company’s assets hence the shareholders’ equity. Therefore, an increase in equity at a
constant income reduces the ROE as proved by this model. On the other hand, the study
revealed a negative relationship between asset size and ROE. A unit increase in asset size is
attributed to an 1.96% decrease in ROE.
Capital adequacy has a statistically insignificant effect on bank profitability as measured by

ROE. The study revealed that a one percent change in capital adequacy results into a 25.82%
in ROE as indicated by the coefficient of 0.2582. Capital adequacy is a measurement of
a bank's existing capital expressed as a proportion of a bank's risk-weighted credit exposure.
Despite the latest recapitalization, the pandemic is still projected to put a downward pressure
on of banks’ capital. A study by Adelopo, Lloydking, and Tauringana (2018) found that
inflation and capital adequacy significantly affected the profitability of banks as measured by
ROE and ROA in both India and Ghana. Similarly, a study examining the COVID-19
pandemic effects on banking sector in Bangladesh found that the pandemic adversely affected
all banks’ capital adequacy ratios, risk-weighted asset values and interest income at both
individual and sectoral bank levels (Barua and Barua, 2020).
The analysis established that liquidity and inflation have negative relationship with ROE.
The study found that COVID 19 affected liquidity of commercial banks with a coefficient of
-0.4477. This implied that the pandemic significantly affected liquidity of many banks that
ultimately affected the profitability by 44.77%. Liquidity refers to the capability of banks to
quickly pay bills and meet short-term obligations by having adequate cash and other current
assets. An insignificant negative relationship was observed between return on equity (ROE)
and liquid assets commercial banks in Ghana (Charmler et al., 2018). Commercial banks
within UK such as HSBC, Barclays, and Lloyds have experienced high volatility and less
liquidity in their financial sector. This includes that the banks have acquired low profitability
and revenue pressures to mitigate pre-crisis challenges due to the pandemic outbreak. Finance
literature assumes an inverse association between liquidity and profitability as confirmed by
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the study, even though numerous empirical studies show otherwise. Reduction of liquid
assets during the pandemic reduced commercial banks profitability as measured by the ROE.
Inflation was the only macroeconomic factor investigated in the study. The results showed
that a unit increase in inflation decreased ROE or profitability by 82.38%. The strong
negative relationship between inflation and ROE is due to the fact that the pandemic led to
supply chain disruptions, reduced interest rates that lowered profitability of banks. High
interest rates also led to a slowdown in borrowing as consumers take out fewer loans and
lower investment returns on banks (Tan & Floros, 2012). Banks such as Barclays has faced a
30% business fall in pre-tax profits with £3.1 billion in 2020 from £4.3 billion in 2019 (BBC,
2021).
During Post-Covid, the dummy COVID-19 variable= 0
Post-Covid Covid-19=1 Covid-19=0 Sig.
Financial Risk -0.1341178 0.3484271 0.701
COVIDFR -1.116104 0.0219817 0
Asset management -0.0938584 0.2044915 0.647
Asset size -0.1527075 0.0814307 0.064
Capital adequacy -1.160259 0.5476027 0.037
Inflation 0.5424366 1.512479 0.721
Total Assets 2.02E-11 6.40E-11 0.753
_cons 3.180153 1.257435 2.53
Table 4.2.2: Post covid comparison
The table above shows that there is a positive relationship between asset management, asset
size, capital adequacy and total assets with the ROE post pandemic. After the pandemic, the
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economy is recuperating in a positive direction. As a result, such trend has a positive impact
on the profitability of commercial banks in the UK.
CORRELATION MATRIX
VARIABLES ROE COVID19 FR COVIDFR AM AS CA Liquidity TA

ROE 1
COVID19 0.0285 1
Financial Risk (FR) 0.0293 0.0642 1
COVIDFR 0.0375 0.9782 0.1915 1
Asset Management (AM) 0.0941 -0.1308 -0.2127 -0.1553 1
Asset Size (AS) 0.1168 0.0666 0.3606 0.1239 0.0687 1
Capital Adequacy (CA) 0.0066 -0.0696 -0.6885 -0.1578 0.3532 -0.3295 1
Liquidity 0.0689 -0.036 -0.1684 -0.0668 -0.0574 -0.2772 0.1322 1
Total Assets (TA) 0.0427 0.1304 -0.0149 0.1236 0.0755 0.4677 -0.0342 -0.1223 1
Table 4.2.3: Correlation Matrix
The matrix displays the correlation coefficients for various variables it illustrates the
relationship between all possible pairings of values in a table. If multicollinearity is
discovered, i.e., a significant relationship between two variables occurs, the regression
analysis findings may be affected. As a result, the goal of this analytical tool is to discover
and minimize multicollinearity between independent variables, which might lead to
ambiguous findings. The correlation coefficient can have values ranging from -1 to +1, with -
1 indicating a negative correlation and +1 indicating a perfectly positive correlation. For
instance, COVID19 has a weak positive correlation with financial risk (r=0.0293), asset size
(r=0.0666). The pandemic has negative relationship with asset management (r= - 0.1308),
capital adequacy (r= - 0.0696), and liquidity (r= -0.036). Asset management has a positive
correlation with asset size (r=0.0687), capital adequacy (r=0.3532). Liquidity has a negative
correlation with asset size (r=-0.2772), Financial risk (r= -0.1684). There is a negative
relationship with covid-19, so this shows that the liquidity was reduced and also as the
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liquidity reduced is shown by negative correlation with the asset size as the funds are used to
increase or decrease the size. As a consequence of the aforesaid multicollinearity study, no
two independent variables are fully correlated, and hence the regression findings may be
considered credible.
UNIVARIATE LINEAR REGRESSION ANALYSIS

The graphs below show the individual relationship between every explanatory variable
against the ROE.
ROE vs Financial Risk

40.00%
30.00%
20.00%
10.00%
f(x) = 0.0159831303892364 x + 0.0390788768703976

0.00% R² = 0.5
0.00085978578211332
0.3 0.4 0.6 0.7 0.8 0.9 1 1.1
-10.00%
-20.00%
-30.00%
Figure 4.2.1: ROE vs Financial Risk
(Sources: self-created)
ROE VS ASSET MANAGEMENT

40.00%
30.00%
20.00%
10.00%
f(x) = 0.100212900548507 x + 0.0491744471185504
R² = 0.00885291047144043
0.00%
-0.1 0 0.1 0.2 0.3 0.4 0.5 0.6
-10.00%
-20.00%
-30.00%
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Figure 4.2.2: ROE vs Asset Management
ROE VS LIQUIDITY
40.00%
30.00%
20.00%
10.00%
f(x) = 0.0186509864794955 x + 0.0478360254704874
0.00% R² = 0.00474103554445349
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9
-10.00%
-20.00%
-30.00%
Figure 4.2.3: ROE vs Liquidity
ROE VS ASSET SIZE

40.00%
30.00%
20.00%
10.00%
f(x) = 0.00350997871721506 x + 0.00788882573655355
0.00% R² = 0.0136474476886047
6 8 10 12 14 16 18 20 22 24
-10.00%
-20.00%
-30.00%
Figure 4.2.4: ROE vs Asset Size
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ROE VS CAPITAL ADEQUACY
40.00%
30.00%
20.00%
10.00%
f(x) = 0.0045174545984806 x + 0.0521715371024553

0.00% R² =0.1
4.3343924611694E-05
0 0.2 0.3 0.4 0.5 0.6 0.7
-10.00%
-20.00%
-30.00%
Figure 4.2.5: ROE vs Capital Adequacy
4.3 Discussion
The regression analysis seems to be quite impactful for the overall report. The regression has
shown the relationship between the dependent variable which is profitability and the
independent ones. The study found a negative relationship between bank specific factors such
as asset management, liquidity total assets and profitability. Inflation was the only
macroeconomic factor that had an inverse relationship with profitability represented by ROE.
Only financial risk and asset size had positive relationship with bank profitability represented
by ROE. According to the analysis conducted above it can be said that the hypotheses created
above under the literature review part 2.9 can be justified. The hypotheses (H0) that is covid-
19 affected profitability of the commercial banks in UK will be accepted and the alternative
hypotheses (H1) will be rejected. The figures and the analysis above prove that the
profitability was affected during the covid-19.
According to theme 1 Covid 19 harms profitability of UK Commercial banks. Covid 19 plays
important factor for hampering the economic structure for the development of the
organization. The pandemic brought financial risks that forced profitability of banks to
increase operational efficiency by digitizing their services. This study found that COVID 19
pandemic affected financial risks that affected profitability as represented by ROE by
60.57%. Such a high coefficient shows the significance of COVID 19 related financial risks
on banks. The pandemic led to market risks such as high interest rates that scared away
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investors to borrow loans during the pandemic. A study conducted by Azimkulovich and
Misdiyono (2021) on Saudi Arabia commercial banks revealed interest rate risk is a type of
market risk that has a positive relationship with the banks' ROA but a negative one with the
ROE. Another empirical study conducted in Ethiopia showed that all the commercial banks
with defaulted loans low ROE (Athanasoglou, Brissimis, & Delis, 2008). Credit risks is one
of common market risks that affected profitability of banks during the pandemic. A study in
Uganda to investigated the impacts of COVID 19 on banks financial performance suggested
that the high credit risk level in developing markets such as Uganda’s may encourage banks
to increase their interest margins to recompense for possible default risk. The low level of
creditworthiness of the debtors in financial crisis lowers banks ROA and NIM.
According to theme 2 due to Covid 19, the business economic pattern has been changed in
the business management in the commercial banks in the UK. It has been followed that
pandemic causes devastation in the economic sector. The researched study found that the
pandemic affected asset management and operation efficiency of the UK commercial banks
by 13.08%. The study also showed that the affected asset management consequently reduced
by 3.046%. As opined by Tran, (2021), the economic pattern becomes devastated due to
pandemics. Banking sectors are the most important factors which faced a huge problem while
the pandemic. Unemployment is the most important factor which affects the development. It
also results in poverty and inflation which are the main criteria during the pandemic. It also
helps in the development of disguised unemployment. The outbreak of the Covid 19 has
harmed the bank specific factors such as asset management, asset size and macroeconomic
factors such as inflation.
According to theme 3, the role of the government in the interest rate of the commercial bank
in the country UK amidst the pandemic has been discussed. As opined by Szylovec et al.
(2021), commercial banks have played a major role in the development of the organization. It
also plays a very important role in capitalization and privatization which help in the
development. The government also plays a very important role in the interest rate and
monetary policy, financial stability and exchange rate.
The government also took the necessary steps for the development of the interest rates which
helped in the development. The government lowered the interest rates of commercial banks.
It also helps in the economic stability to survive which mitigates the problems of the
economy. It also helps in the development of the profits in all the commercial banks which
helps in the growth of economic sectors. As opined by Yang, (2021), the profitability of
commercial banks depends on liquidity and capital adequacy which helps in the growth of the
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banking sectors. A study in Ghana found that capital adequacy significantly affects the
profitability of banks as measured by ROA (Boateng, 2018).
Figure 4.3.1: Interest rate controls
The figure shows the interest rate controls which help in the evaluation of the interest rate
controls of the country. About 59% of the people show high income and 76% of the people
show the common laws and 47% shows a mixed system which helps in the development of
the organization.
According to theme 4 Covid 19 has affected the financial performance of commercial banks
due to financial and management issues in the UK. As opined by Dar et al. (2021),
commercial banks are playing the most important role in the development of the organization.
These cause problems and issues in the financial sectors which help in the development of
management issues. It also creates management issues in cash flows and capital adequacy
sustenance which hampers the profitability growth of banks. For instance, this study finding
shows that COVID 19 reduced capital adequacy by 6.96%. Asset size and liquidity are the
bank specific factors, the study investigated showed that the impacts of the COVID-19 on
bank’s profitability. The study revealed that the pandemic reduced bank’s liquidity by 6.89%.
In return the liquidity reduced ROE by 44.77% as represented by coefficient of -0.4477.
Olabode (2011) conducted a study to test the profitability of commercial banks in Nigeria for
the period 2005 to 2011. He found that higher liquidity increased the Nigerian bank's
profitability while lower liquidity negatively affects ROE.
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CHAPTER 5: CONCLUSION, RECOMMENDATION, AND FUTURE
ASPECTS
5.1 Conclusion
In this research, the entire discussion has been done to evaluate the impact of the Covid-19
pandemic on commercial bank’s profitability in the United Kingdom. A sample of 25 banks
were taken to investigate the impact. Different variables from the annual reports for all banks
were taken into consideration for the profitability. The research study found a negative
relationship between bank specific factors such as asset management, liquidity, total assets
and profitability. Inflation was the only macroeconomic factor that had an inverse
relationship with profitability represented by ROE. Only financial risk and asset size had
positive relationship with bank profitability represented by ROE. The conceptual framework
has provided the co-relationship between the literature review points in order to understand
through a visual framework. In the methodology chapter, the required and effective tools
have been used along with a justification of their utilization. The secondary method has
further helped the researcher in collecting relevant information about the impact of a
pandemic on commercial banks of the UK. Themes have been generated based on the
research objectives and literature review in this research process to provide an elaborate
discussion about the identified impacts of the Covid-19 pandemic on the banking sectors. The
limitations of the research process have also been explained in order to rectify the issues for
further studies.
5.2 Linking with objective

Linking OBJECTIVE 1: To evaluate the impact of Covid 19 on the Commercial Bank
of the UK
For this particular objective, the researcher has taken into consideration the 1st thematic
analysis which is that Covid 19 has an adverse impact on profitability of the UK commercial
banks. It has been seen that during the time of the Covid 19 banks had to keep their interest
rates low and this has led to the reduction of the profitability of the UK banks.
However, it has been observed by Alber et al. (2020), that there has been a negative impact of
Covid 19 as there was high volatility in the UK market and even in the stock market. It has
shown a lot of depression for the negative situation in the bank for its value as a commercial
bank in the UK. This has led to less profit for the Bank and their services to the customer due
38 | P a g e
to Covid 19 impact. The Researcher has further linked this objective with different types of
theories like different types of tools for analysing the impact of Covid 19 in the profitability
scenario with different objectives of the conflicting ideas (Francis et al. 2022).
Linking Objective 2: To understand key determinants of profitability of the commercial
bank in this country
The main determinants of profitability as discussed in the analysis are ROE, Net interest
margins, returns to assets, capital adequacy, etc. The researcher carried out the analysis and
found out that there has been a negative relationship with the bank’s profitability and covid-
19. The ROE has negative correlation with liquidity, asset management, financial risk. Thus,
we can see that the key determinants of profitability of commercial banks in UK have been
impacted by covid-19. As said by Tut, (2020), it has made a lot of specifications for making
the determination of the profit of the commercial bank that may happen through the effect of
the Covid 19. It has been seen that the digitalization of the banking sector for maintaining
consumer services saves a lot of time. Technology in the Bank can decrease a lot of human
errors where there is the possibility of getting more consumer loyalty.
Tan and Xue, (2021), the allowance of the Digital Bank and its social media application gives
the consumer or the customer for paying their bills, it also shows the different types of
checking of the personal account balance. Even the digitalization platform of the bank helps
in giving the opportunity for transferring money from one bank to another that can happen
globally. Covid 19 has shown a lot of effects around the globe so commercial banks in the
UK have been trying to lower the customer and their physical appearance in the Bank.
Technology and the online application help in maintaining their services with the customer or
the consumer. According to the theory of Consumption smoothing Theory, as there has been,
the main purpose is to make the balancing among the saving or spending at the various types
of stages of life.
Linking Objective 3: To Discuss the impact of the Government Regulation on Banking

Interest rates during the time of Covid-19
For linking this objective, the part of the research work and the researcher has been taken into
the deliberation and the reflection of theme 3 of the analysis which includes The contribution
of Government Regulation on interest rates of the bank during a pandemic outbreak.
Widiyati et al. (2021), the reason behind this in this thematic analysis has been mentioned in
the different Banking sectors of the UK. It has provided a lot of support to several citizens
during the Covid situation around the UK. One of the most important things is that due to the
39 | P a g e
outbreak of the Covid 19 the chances of getting loans for their households. Some of the
people in the UK during the pandemic have started taking banking loans for starting any type
of business. Hence, it can be said that this has increased the profitability of commercial banks
in the UK.
In fact, it has been observed by the researcher that the UK Government has made a proper
announcement of the reduction of the interest rate regarding any type of loan during the time
of the pandemic situation. However, it has been seen that different types of Monetary finance
also known as the MFI in the national account have shown a lot of the outcome or the result
in the bank for the helping hand as a citizen (Zuo et al. 2021).
5.3 Recommendations
In this Research, there has been a discussion about the Impact of Covid 19 on the
profitability, in the UK banks.
Recommendation 1: “Sufficient steps to be taken by bank of England and the government”
The Bank of England should focus on the financial system and its context to maintain
liquidity. Also, the government along with bank of England must initiate necessary steps in
order to strengthen the economy to avoid the upcoming crises. Monetary, micro-prudential
and macroprudential policies designed specifically to support bank lending conditions should
be implemented effectively so that no banks are affected in the long run by keeping them on
track and maintaining their liquidity, as banks definitely form a backbone for any financial
system (Altavilla, Barbiero, Boucinha and Burlon, 2020).
Recommendation 2: “Prioritization of seamless omni-channel for customer experience”
Modern customers of the Bank have been showing a preference for the bank through different
channels. Hence, it has been said by Gerea and Herskovic (2022) that these channels or
digital platforms help in making the same performance by using the bank branch or any other
channels. It has produced the meaning that is superior customer service in the commercial
bank of the UK. They cantilever the same type of similar sets of services that can provide a
lot of the available to the customer across the channel both digital and offline. This will help
in proper asset management for the banks ensuring liquidity and good ROE by cutting off the
other costs. Application of the AI assistance has been built by the Commercial Bank of the
40 | P a g e
UK. It has helped in making the engagement of the customer in natural conversation (Mbama
et al. 2018).
Recommendation 3: “Offer live assistance”
It is very much suggesting that there has been a requirement for the creation of the live
assistance in the bank for its customers as it is one of the most excellent ways of gaining a
proper understanding of the customers experience. It helps the commercial bank by
providing a lot of consistency while serving and catering the needs of the customers (Gerea
et al. 2021). This will enhance the profitability and improve the asset management for the
commercial banks of UK.
5.4 Limitation of the study
The researcher has experienced several limitations while processing the entire course of
conducting this particular research study due to which the research requirements have not
been met properly. The allocated time for this research has not been enough for this study as
the collection of appropriate information about banking sectors and their operations have
become so time taking. The researcher has also faced limitations in the alignment of
appropriate theories and frameworks. Along with this, the secondary resources have become
insufficient for the entire research process as the researcher has faced a shortage of authentic
books and articles with respect to the impact of Covid-19 on the UK’s banking performance.
It can be said that researcher has been influenced by lack of budget, short time frame and lack
of resources. The language has become also another barrier for conducting this research as all
the secondary resources are not in the English language and therefore, several important data
cannot be understood due to the language issues.
5.5 Future scope
The outcomes of this research process would have been more elaborate and effective if there
is availability of effective secondary resources in terms of authentic journals, books, and
online platforms. There has been enough scope as well as possibilities of this particular
research to be explored further in depth. The impact of a pandemic on the activities of
banking sectors has provided the entire scenario of their profitability and public services
41 | P a g e
through this research and therefore, the administrators of the banking sectors can gain
knowledge about the strategic performances in the crisis moment. Moreover, future
researchers of this type of study would gain advantages exploring this particular study further
in detail discussion purposes.
42 | P a g e
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Appendices
Appendix -1: Random Effects GLS Regression
Number of observations = 121 Observations per group:

Number of groups = 25 min = 3
avg = 4.8
max = 5
R Square:
within = 0.0891
between = 0.001
overall = 0.0072
corr(u_i, X) = 0 (assumed)
Wald chi2(8) = 5.03

Prob > chi2 = 0.7542
ROE Coeefficient Std. Error z P>z [95% Conf. Interval]
COVID19 -0.0068223 0.063757 -0.11 0.915 -0.13179 0.118139
Financial Risk 0.2028273 0.115541 1.76 0.079 -0.02363 0.429283
Asset management -0.0120792 0.11385 -0.11 0.916 -2.35222 0.211063
Asset size 0.0011348 0.005898 0.19 0.847 0.010425 0.012694
Capital adequacy 0.1540955 0.136987 1.12 0.261 -0.11439 0.422585
Liquidity 0.0118781 0.049417 0.24 0.81 -0.08498 0.108734
COVIDFR 0.0117289 0.073358 0.16 0.873 -0.13205 0.155508
Inflation -0.8237507 0.919449 -0.9 0.37 -2.62584 0.978335
_cons -0.139227 0.132993 -1.05 0.295 -0.03999 0.121434
52 | P a g e
Appendix -2: Hausman Test
Variables Fixed Random Differences
COVID19 -0.0068223 -0.0068223 0
Financial Risk 0.2028273 0.2028273 0
Asset management -0.0120792 -0.0120792 0
Asset size 0.0011348 0.0011348 0
Capital adequacy 0.1540955 0.1540955 0
Liquidity 0.0118781 0.0118781 0
COVIDFR 0.0117289 0.0117289 0
Inflation -0.8237507 -0.8237507 0
b = consistent under Ho and Ha; obtained from xtreg

B= inconsistent under Ha, efficient under Ho; obtained from xtreg
Test: Ho: difference in coefficients not systematic
chi2(0) = (b-B)'[(V_b-V_B)^(-1)](b-B)
53 | P a g e
Appendix -3: List of UK Banks taken into consideration for analysis
Sr. No Bank Name

1 Barclays
2 HSBC UK
3 Lloyds Banking Group
4 Metro Bank
5 Citibank UK LTD
6 Danske Bank
7 Santander
8 The Co-operative Bank UK
9 TSB Bank
10 Monzo Bank
11 Coventry Buidling society
12 Schroders
13 Tandem Bank
14 Royal Bank of Scotland
15 Nationwide
16 Mizuho International PLC
17 Bank of China UK Ltd
18 Bank of Ireland UK Ltd
19 Sainsbury's Bank Plc
20 Close Brothers
21 Tesco Bank
22 Union Bank UK
23 Bank of Baroda UK
24 Atom Bank
25 NatWest
54 | P a g e

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UNIVERSITY OF

IMPACT OF COVID-19 ON PROFITABIL

Submitted By : Zaidahmed Mansuri (W1848256)

Supervised By : Professor Yang Fang

1.2 Research Background.......................................................................................................7

1.3 Research Rationale...........................................................................................................8

1.4 Research Aim...................................................................................................................9

1.5 Research Objective...........................................................................................................9

1.6 Research Questions..........................................................................................................9

1.7 Significance of the Research topic.................................................................................10

CHAPTER 2: LITERATURE REVIEW.................................................................................11

2.1 Effects of Covid-19 on Profitability of Commercial banks in the UK...........................11

2.2 Theme 1: Covid-19 has an adverse impact on profitability of UK commercial banks..13

2.3 Theme 2: Economical change in business management due to Covid-19 in commercial

2.6 Theoretical framework...................................................................................................15

2.6.1 Theory of Credit creation........................................................................................15

2.6.2 Consumption smoothing theory..............................................................................16

2.7 Importance of digitalisation on profitability of Commercial banks in the UK..............17

2.8 Conceptual Framework..................................................................................................17

2.9 Research Hypothesis......................................................................................................18

2.10 Literature gap...............................................................................................................19

CHAPTER 3: RESEARCH METHODOLOGY.....................................................................20

3.2 Research Onion..............................................................................................................20

3.3 Research Philosophy......................................................................................................21

3.5 Research Design.............................................................................................................23

3.6 Data Sources...................................................................................................................24

3.7 Data Analysis.................................................................................................................24

3.8 Ethical Consideration.....................................................................................................25

CHAPTER 4: RESULTS AND DISCUSSION.......................................................................26

4.1 Model Specification in Panel Data Analysis..................................................................26

4.2 Regression Analysis.......................................................................................................27

CHAPTER 5: CONCLUSION, RECOMMENDATION, AND FUTURE ASPECTS...........38

5.2 Linking with objective...................................................................................................38

5.4 Limitation of the study...................................................................................................41

5.5 Future scope...................................................................................................................41

Appendix -1: Random Effects GLS Regression..................................................................50

Appendix -2: Hausman Test.................................................................................................51

Appendix -3: List of UK Banks taken into consideration for analysis................................52

Figure 1.2.1: Operating Profit of Commercial banks in UK......................................................7

1.2 Research Background

Figure 1.2.1: Operating Profit of Commercial banks in UK

(Source: Statista, 2022)

1.3 Research Rationale

(Source: Statista, 2022)

1.4 Research Aim

1.5 Research Objective

The objectives of this research paper are discussed below:

● To evaluate the impacts of Covid-19 on the profitability of commercial banks in the

● To understand the determinants of profitability of commercial banks in the UK.

● To discuss the impacts of government regulations on policies such as banking interest

1.6 Research Questions

● What are the determinants of profitability of commercial banks in the UK?

1.7 Significance of the Research topic

2.1 Effects of Covid-19 on Profitability of Commercial banks in the UK

Profitability and Credit Risks

2.3 Theme 2: Economical change in business management due to Covid-19 in

(Source: Ons.gov.uk, 2022)

2.5 Theme 4: Financial and management issues present in UK commercial banks

2.6 Theoretical framework

2.6.1 Theory of Credit creation

2.6.2 Consumption smoothing theory

Consumption smoothing is a procedure of gaining a ratio of expanding present requirements

2.8 Conceptual Framework