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Two Questions on the Banking Sector After the Pandemic Hit

In: Financial Transformations Beyond the COVID-19 Health Crisis

Author

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  • Magdalena Grothe
  • Antonio Sánchez Serrano

Abstract

The pre-pandemic state of the EU banking system was determined by several intertwined elements related to structural, economic, and policy factors. In view of these characteristics, this chapter discusses the potential impact of the pandemic shock on the EU banking system, focusing on the risks arising from the weakening performance of non-financial corporations and the related decline in bank asset quality. It reviews two key concerns related to the banking sector that the COVID-19 health crisis has brought to the forefront: the outlook for non-performing loans and bank profitability. Considering the financial soundness of the different sub-sectors within non-financial corporations along with the size of the COVID-19–related shock, we find that retail and wholesale trade sectors could face most challenges to absorb the shock. These challenges could further translate into an increase in non-performing loans on banks’ balance sheets, higher impairments, and drag on bank profitability.

Suggested Citation

  • Magdalena Grothe & Antonio Sánchez Serrano, 2022. "Two Questions on the Banking Sector After the Pandemic Hit," World Scientific Book Chapters, in: Sabri Boubaker & Duc Khuong Nguyen (ed.), Financial Transformations Beyond the COVID-19 Health Crisis, chapter 22, pages 641-665, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800610781_0022
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    Keywords

    COVID19; Pandemic; Pandemic Outbreak; Health Crisis; Economics; Macroeconomics; Finance; Sustainable Finance; Financial Crisis; Financial Integration; Economic Integration; Global Financial Crisis; Financial Institutions; Corporate Finance; Corporate Governance; Board of Directors; ESG; Corporate Social Responsibility; Sustainable Finance; Stock Markets; Financial Markets; Stock Market Behaviour; Firm Liquidity; Emerging Markets; China; Financial Institutions; Money; Banks; Banking System; Banking Sector; Business Groups; Resilience; Safe Heaven; Gold; Oil; Peer-to-Peer Lending Market; Foreign Trading; Stock Market Volatility; Extreme Events;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G3 - Financial Economics - - Corporate Finance and Governance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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