Covid-19, Diversification and Banking Recovery: Empirical Evidence from Asian Countries

Abstract

Banks might possibly lower their income fluctuation by expanding their revenue sources
beyond typical lending operations into noninterest revenue streams. This study looked at the effect
of the COVID-19 pandemic on the connection between Non-interest income, bank profitability and
risks. The pandemic’s economic effect has resulted in tougher lending rules and decreased demand
for different loans. Non-interest income flow is favorably connected with performance but negatively
correlated with risk, according to our survey data. These data confirm the well-diversified advantages conveyed by banks from traditional sources of loan revenue throughout the pandemic. The
Covid-19 pandemic is used in this research to see if diversification across various dimensions may
safeguard European banks from severe negative value shocks. According to our findings, functional
diversity has played an essential role in the economy as a shock absorber, and the decrease in the bank
stock market has been lowered by 10%. The diversification of the loan portfolio also helps mitigate
value shocks, albeit to a lesser degree. Geographical diversity is ineffective as a shock absorber. Banks
operating in countries that have reduced systemic risks before the outbreak, greater liquidity buffers,
higher cost efficiency, and stronger growth prospects after the outbreak have performed better during
the storm.