Effects of Central Bank Support Measures in COVID-19 on Commercial Banks’ Performance: Evidence from Thailand

Main Article Content

Sarina Preechalert
Vissnu Poommipanit
Wuttipong Sirichantranon
Dhanoos Sutthiphisal

Abstract

Thailand’s Central Bank implemented financial rehabilitation measures during the COVID-19 pandemic to support individuals, businesses, and the banking sector. This study examines the effects of these policies on the performance of Thai commercial banks listed in the Stock Exchange of Thailand from 2017 to 2021. Using financial ratios and stock returns as performance indicators, we find notable differences between indicators from before and during the pandemic. Regression analysis revealed a negative correlation between the credit risk reduction measure and return on equity, while a positive, though statistically weak, correlation was also observed between this policy and stock returns. In contrast, the liquidity improvement and debt repayment holiday measures showed limited effects. These findings provide insights into the design and effectiveness of central bank policies during times of crisis.

Article Details

Section
Articles

References

Al-Romaihi, M. A., Kumar, M., & Kumaraswamy, S. (2020). Macroeconomic Determinants of Non-performing Loans: An Empirical Evidence from GCC Countries. 2020 International Conference on Decision Aid Sciences and Application (DASA), 1265-1268. https://doi.org/10.1109/DASA51403.2020.9317293

Andersen, A. L., Hansen, E. T., Johannesen, N., & Sheridan, A. (2020). Consumer Responses to the COVID-19 Crisis: Evidence from Bank Account Transaction Data. CEPR Discussion Papers 14809. Center for Economic Policy Research. https://doi.org/10.2139/ssrn.3609814

Anderson, H., Chang, J-W., & Copeland, A. (2020). The Effect of the Central Bank Liquidity Support during Pandemics: Evidence from the 1918 Spanish Influenza Pandemic. Finance and Economics Discussion Series, 2020-050. Washington: Board of Governors of the Federal Reserve System. https://doi.org/10.17016/feds.2020.050

Bank of Thailand. (2021a). Measures to Help Retail Debtors Affected by COVID-19. Retrieved from https://www.bot.or.th/covid19/Pages/content/retail/measures/default.aspx

Bank of Thailand. (2021b). Retrieved from https://www.bot.or.th/Thai/FinancialInstitutions/Documents/640125_Measures.pdf

Bank of Thailand. (2021c). Retrieved from https://www.bot.or.th/Thai/FinancialInstitutions/Documents/640125_Infographic.pdf

Bank of Thailand. (2022). Retrieved from https://www.bot.or.th/English/Statistics/FinancialInstitutions/BLS/Pages/default.aspx

Bank of Thailand. (n.d.). Financial Rehabilitation Measures to Support Business Recovery Post-COVID-19. Retrieved from https://www.bot.or.th/Thai/AboutBOT/Activities/Documents/230364_Jointstatement.pdf

Berger, A. N., & Bouwman, C. H. S. (2013). How Does Capital Affect Bank Performance during Financial Crises? Journal of Financial Economics, 109(1), 146–176. https://doi.org/10.1016/j.jfineco.2013.02.008

Bernanke, B. S., & Blinder, A. S. (1988). Credit, Money, and Aggregate Demand. American Economic Review, 78(2), 435–439.

Bernanke, B. S., & Gertler, M. (1995). Inside the Black Box: The Credit Channel of Monetary Policy Transmission. Journal of Economic Perspectives, 9(4), 27–48.

Bitar, M., & Tarazi, A. (2022). A Note on Regulatory Responses to COVID-19 Pandemic: Balancing Banks’ Solvency and Contribution to Recovery. Journal of Financial Stability, 60, 101009. https://doi.org/10.1016/j.jfs.2022.101009

Bourke, P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking and Finance, 13(1), 65–79. https://doi.org/10.1016/0378-4266(89)90020-4

Buckley, P., Barua, A., & Samaddar, M. (2021). The Pandemic Has Forced Corporate Debt Higher: But is That a Bad Thing? Retrieved from https://www2.deloitte.com/xe/en/insights/economy/issues-by-the-numbers/rising-corporate-debt-after-covid.html

Chaudhry, M., Chatrath, A., & Kamath, R. (1995). Determinants of Bank Profitability. American Journal of Business, 10(1), 41–46. https://doi.org/10.1108/19355181199500005

Demirgüç-Kunt, A., Morales, A., & Ruiz-Ortega, C. (2021). Banking Sector Performance During the COVID-19 Crisis. Journal of Banking & Finance, 133, 106305. https://doi.org/10.1016/j.jbankfin.2021.106305

Diamond, D. W., & Rajan, R. G. (2006). Money in a Theory of Banking. American Economic Review, 96(1), 30–53.

Disemadi, H. S., & Shaleh, A. I. (2020). Banking Credit Restructuring Policy amid COVID-19 Pandemic in Indonesia. Jurnal Inovasi Ekonomi, 5(3), 63–70. https://doi.org/10.22219/jiko.v5i3.11790

European Central Bank. (2010). Beyond ROE – How to measure bank performance: Some reflections. European Central Bank. https://www.ecb.europa.eu/pub/pdf/other/beyondroehowtomeasurebankperformance201009en.pdf

Freixas, X., & Rochet, J.-C. (2008). Microeconomics of Banking (2nd ed.). MIT Press.

Gertler, M., & Kiyotaki, N. (2010). Financial Intermediation and Credit Policy in Business Cycle Analysis. In B. M. Friedman & M. Woodford (Eds.), Handbook of Monetary Economics (Vol. 3, pp. 547–599). Elsevier.

Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2020). Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages? American Economic Review, 112(5), 1437-1474.

Ichsan, R. N., Suparmin, S., Yusuf, M., Ismal, R., & Sitompul, S. (2021). Determinant of Sharia Bank’s Financial Yusuf Performance during the Covid-19 Pandemic. Budapest International Research and Critics Institute (BIRCI-Journal): Humanities and Social Sciences, 4(1), 298–309. https://doi.org/10.33258/birci.v4i1.1594

Jordà, O., Singh, S. R., & Taylor, A. M. (2020). Longer-Run Economic Consequences of Pandemics. Federal Reserve Bank of San Francisco Working Paper 2020-09. https://www.frbsf.org/economic-research/files/wp2020-09.pdf

Karlsson, M., Nilsson, T., & Pichler, S. (2014). The Impact of the 1918 Spanish flu Epidemic on Economic Performance in Sweden. An Investigation into the Consequences of an Extraordinary Mortality Shock. Journal of Health Economics, 36, 1–19. https://doi.org/10.1016/j.jhealeco.2014.03.005

Kashyap, A. K., & Stein, J. C. (1994). Monetary Policy and Bank Lending. In N. G. Mankiw (Ed.), Monetary Policy (pp. 221–261). University of Chicago Press.

Kim, H., Batten, J. A., & Ryu, D. (2020). Financial Crisis, Bank Diversification, and Financial Stability: OECD countries. International Review of Economics & Finance, 65, 94-104. https://doi.org/10.1016/j.iref.2019.08.009.

Mirzaei, A. (2013). Bank Performance during the Financial Crisis 2007–2010. International Journal of Business and Economics, 12(1), 27–44.

Mirzaei, A., & Mirzaei, Z. (2011). Bank-Specific and Macroeconomic Determinants of Profitability in Middle Eastern Banking. Iranian Economic Review, 15(29), 101–128. https://doi.org/10.22059/ier.2011.32725

Mojon, B., Rees, D., & Schmieder, C. (2021). How Much Stress Could Covid Put on Corporate Credit? Evidence Using Sectoral Data. BIS Quarterly Review, 55-70. https://www.bis.org/publ/qtrpdf/r_qt2103e.pdf

Molyneux, P., & Thornton, J. (1992). ‘Determinants of European Bank Profitability: A Note. Journal of Banking and Finance, 16(6), 1173–1178. https://doi.org/10.1016/0378-4266(92)90065-8

Naceur, S. B., & Omran, M. (2011). The Effects of Bank Regulations, Competition, and Financial Reforms on Banks’ Performance. Emerging Markets Review, 12(1), 1–20. https://doi.org/10.1016/j.ememar.2010.08.002

Ozili, P. (2022). COVID-19 in Africa: Socioeconomic Impact, Policy Response and Opportunities. International Journal of Sociology and Social Policy, 42(3/4), 177-200.

Pennacchi, G. G., & Santos, J. A. C. (2021). Why do banks target ROE? Journal of Financial Stability, 54, 100856. https://doi.org/10.1016/j.jfs.2021.100856

Phan, D. H. B., Narayan, P. K., Rahman, R. E., & Hutabarat, A. R. (2020). Do Financial Technology Firms Influence Bank Performance? Pacific-Basin Finance Journal, 62, 2020–2021. https://doi.org/10.1016/j.pacfin.2019.101210

Sriring, O., & Staporncharnchai, S. (2021). Thai Households Struggle with Record Debt, COVID-19 Increases Burden. Reuters. https://www.reuters.com/article/us-thailand-economy-debt-idINKBN2BR0R0

Stock Exchange of Thailand. (2022). Companies/securities info. https://classic.set.or.th/set/commonslookup.do?language=en&country=US.

Thaitrakulpanich, A. (2020). 2 in 5 Thais Went in Debt Since Virus Struck, Report Says. Khaosod English. https://www.khaosodenglish.com/news/business/2020/12/09/2-in-5-thais-went-in-debt-since-virus-struck-report-says/

The World Bank. (2022). World Bank Open Data. https://data.worldbank.org/