COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda
Abstract
:1. Introduction
2. Bank Profitability and the COVID-19 Pandemic
3. An Overview of Uganda’s Banking Sector
4. Methodology
4.1. Model Specification
4.2. Data and Measurement of Key Variables
5. Results and Discussion
5.1. Unit Root and Cointegration Tests Results
5.2. Discussion of Results
5.3. Model Specification and Robustness Test Results
6. Conclusions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Conflicts of Interest
1 | For a summary of some of the recent studies see (Al-Homaidi et al. 2018). |
2 | As a precaution we apply the Heteroscedasticity and Autocorrelation Consistent Covariance (HAC) estimators in the ARDL model estimations to ensure that our results are robust in the presence of heteroscedasticity and serial correlation. Note that the HAC approach alters the estimates of the coefficient standard errors of an equation but not the point estimates themselves. |
3 | These results are available from the author upon request. |
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Year | Number of Banks | Total Assets (UGX Trillions) | ROA (%) | ROE (%) | NPL Ratio (%) |
---|---|---|---|---|---|
1999 | 20 | 1.352 | 1.02 | 24.5 | 26 |
2005 | 15 | 3.689 | 3.4 | 28.6 | 2.3 |
2018 | 24 | 28.1 | 2.5 | 14.4 | 3.4 |
2019 | 26 | 32.8 | 2.5 | 13.8 | 4.9 |
2020 | 25 | 38.3 | 1.8 | 10.3 | 5.3 |
Variable | Description | Mean | Median | Maximum | Minimum | Std. Dev. | Observations |
---|---|---|---|---|---|---|---|
ROE | Return on Equity (%) | 25.197 | 22.432 | 58.933 | 8.327 | 12.042 | 85 |
ROA | Return on Assets (%) | 3.298 | 3.289 | 6.025 | 1.330 | 0.966 | 85 |
NIM | Net Interest Margin (%) | 10.835 | 10.951 | 13.548 | 7.979 | 1.159 | 85 |
NPLS | Non Performing Loans (%) | 4.891 | 4.131 | 15.149 | 1.606 | 2.561 | 85 |
LIQ | Liquidity (%) | 44.808 | 45.466 | 69.166 | 17.647 | 11.288 | 85 |
SEN | Market Sensitivity (%) | 57.148 | 60.057 | 89.784 | 23.308 | 19.031 | 85 |
LRGDP | Natural Log of Economic Activity | 9.850 | 9.929 | 10.397 | 9.157 | 0.378 | 85 |
LINF | Natural Log of Inflation | 5.898 | 4.970 | 21.579 | −4.418 | 4.559 | 85 |
LEX | Natural Log of Exchange rate | 7.772 | 7.717 | 8.235 | 7.326 | 0.301 | 85 |
LEND | Lending rate (%) | 21.068 | 20.482 | 27.218 | 17.727 | 2.160 | 85 |
TB | Treasury Bill Rate (%) | 10.625 | 9.617 | 22.120 | 3.756 | 4.025 | 85 |
Unit Root Tests | Augmented Dicky–Fuller (ADF) | Phillips Peron (PP) | |||
---|---|---|---|---|---|
Levels | 1st Difference | Levels | 1st Difference | Inference | |
Return on Equity (ROE) | −3.783 *** | −2.333 | −8.1896 *** | I(1)/I(0) | |
Return on Assets (ROA) | −2.721 | −7.243 *** | −2.498 | −7.5766 *** | I(1) |
Net Interest Margin (NIM) | −3.919 *** | −3.392 ** | I(0) | ||
Non Performing Loans (NPLS) | −4.468 *** | −4.457 *** | I(0) | ||
Liquidity (LIQ) | −2.799 | −6.660 *** | −2.912 ** | I(1)/I(0) | |
Market Sensitivity (SEN) | −1.817 | −9.981 *** | −1.790 | −10.0577 *** | I(1) |
Economic Activity (LRGDP) | −0.116 | −2.851 *** | −3.134 ** | I(1)/I(0) | |
Inflation (LINF) | −2.693 | −5.482 *** | −2.550 | −5.0948 *** | I(1) |
Exchange rate (LER) | −0.666 | −7.120 *** | −0.688 | −6.9013 *** | I(1) |
Lending rate (LEND) | −2.458 | −9.609 *** | −2.610 | −9.609 *** | I(1) |
Treasury Bill Rate (TB) | −3.476 ** | −3.600 *** | I(0) |
Dependent Variable a | F-Statistic for Case III Intercept No Trend b | Conclusion |
---|---|---|
MODEL 1: ROE | ||
P | 7.159 | Cointegration |
NPLS | 4.760 | No cointegration |
LIQ | 4.334 | No cointegration |
SEN | 3.915 | No cointegration |
MODEL 2:ROA | ||
P | 6.873 | Cointegration |
NPLS | 3.420 | No cointegration |
LIQ | 3.331 | No cointegration |
SEN | 3.912 | No cointegration |
MODEL 3:NIM | ||
P | 10.483 | Cointegration |
NPLS | 5.475 | No cointegration |
LIQ | 3.034 | No cointegration |
SEN | 3.631 | No cointegration |
MODEL 1: ROE | MODEL 2: ROA | MODEL 3: NIM | |||||||
---|---|---|---|---|---|---|---|---|---|
Regressors | ARDL (1,4,2,0) | LONG RUN | SHORT RUN | ARDL (3,4,0,0) | LONG RUN | SHORT RUN | ARDL (2,0,0,0) | LONG RUN | SHORT RUN |
Intercept | 13.994 | 14.944 *** | 5.075 * | 5.554 *** | −5.280 *** | −6.269 *** | |||
(0.62) | (7.01) | (1.79) | (6.86) | (−2.63) | (−7.36) | ||||
Bank Profitability (−1) | 0.705 *** | 0.891 *** | 1.103 *** | ||||||
(11.84) | (11.44) | (13.00) | |||||||
Δ Bank Profitability (−1) | 0.261 *** | 0.331 *** | |||||||
(3.13) | (4.12) | ||||||||
Bank Profitability (−2) | 0.082 | −0.415 *** | |||||||
(0.80) | (−5.41) | ||||||||
Δ Bank Profitability (−2) | 0.362 *** | ||||||||
(4.02) | |||||||||
Bank Profitability (−3) | −0.375 *** | ||||||||
(−5.40) | |||||||||
Non Performing Loans | −0.912 *** | 0.655 | −0.108 *** | −0.027 | 0.045 ** | 0.144 ** | |||
(−4.01) | (0.67) | (−3.86) | (−0.30) | (2.34) | (2.17) | ||||
Δ Non Performing Loans | −0.927 *** | −0.100 *** | 0.029 | ||||||
(−3.99) | (−3.63) | (0.94) | |||||||
Non Performing Loans (−1) | 0.658 * | 0.078 ** | |||||||
(1.92) | (2.26) | ||||||||
Δ Non Performing Loans (−1) | −0.507 ** | −0.029 | |||||||
(−2.15) | (−1.08) | ||||||||
Non Performing Loans (−2) | 0.347 | 0.035 | |||||||
(1.35) | (1.11) | ||||||||
Δ Non Performing Loans (−2) | −0.171 | −0.001 | |||||||
(−0.69) | (−0.02) | ||||||||
Non Performing Loans (−3) | −0.683 *** | −0.110 | |||||||
(−3.19) | (−2.75) | ||||||||
Δ Non Performing Loans (−3) | −0.834 *** | −0.105 *** | |||||||
(−3.69) | (−4.02) | ||||||||
Non Performing Loans (−4) | 0.782 ** | 0.094 *** | |||||||
(2.45) | (2.35) | ||||||||
Liquidity | −0.163 ** | 0.103 | −0.007 | −0.016 | 0.002 | 0.005 | |||
(−2.72) | (0.53) | (−1.48) | (−1.58) | (0.47) | (0.46) | ||||
Δ Liquidity | −0.171 *** | −0.016 ** | −0.010 | ||||||
(−3.09) | (−2.40) | (−1.35) | |||||||
Liquidity (−1) | 0.011 | ||||||||
(0.16) | |||||||||
Δ Liquidity (−1) | −0.188 *** | ||||||||
(−3.37) | |||||||||
Liquidity (−2) | 0.182 *** | ||||||||
(3.26) | |||||||||
Market Sensitivity | −0.150 *** | −0.511 *** | −0.008 | −0.019 | −0.005 | −0.017 | |||
(3.06) | (3.44) | (−1.20) | (−1.24) | (−1.26) | (−1.17) | ||||
Δ Market Sensitivity | −0.110 * | −0.005 | 0.001 | ||||||
(−190) | (−0.79) | (0.10) | |||||||
Economic Activity | 8.321 * | 28.249 | 0.178 | 0.442 | 1.070 ** | 3.427 ** | |||
(1.76) | (1.71) | (0.33) | (0.33) | (2.38) | (2.20) | ||||
Δ Economic Activity | −26.736 | −1.956 | −3.146 | ||||||
(−0.56) | (−0.35) | (−0.49) | |||||||
Inflation | −0.107 | −0.362 | 0.004 | 0.010 | 0.009 | 0.028 | |||
(−1.21) | (−1.17) | (0.41) | (0.41) | (0.73) | (0.74) | ||||
Δ Inflation | −0.164 | −0.011 | −0.004 | ||||||
(−1.29) | (−0.73) | (−0.23) | |||||||
Exchange rate | −12.20 ** | −41.416 *** | −0.730 | −1.813 * | −0.482 | −1.543 | |||
(−2.64) | (−2.80) | (−1.66) | (−1.80) | (−1.15) | (−1.08) | ||||
Δ Exchange rate | −9.500 | −1.033 | −1.145 | ||||||
(−1.44) | (−1.35) | (−1.31) | |||||||
Lending rate | 0.303 | 1.027 | 0.028 | 0.069 | 0.081 ** | 0.259 *** | |||
(1.24) | (1.33) | (1.39) | (1.46) | (2.60) | (2.86) | ||||
Δ Lending rate | 0.324 | 0.009 | 0.075 ** | ||||||
(1.32) | (0.30) | (2.35) | |||||||
Interest rate | 0.598 *** | 2.030 *** | 0.030 * | 0.074 * | 0.014 | 0.046 | |||
(4.14) | (3.52) | (1.94) | (1.88) | (0.78) | (0.75) | ||||
Δ Interest rate | 0.605 *** | 0.031 ** | 0.005 | ||||||
(4.52) | (2.03) | (0.30) | |||||||
Covid19 pandemic crisis | 0.941 | 3.194 | 0.226 | 0.562 | −0.285 *** | −0.914 *** | |||
(0.68) | (0.70) | (1.13) | (1.23) | (−3.35) | (3.20) | ||||
Δ (Covid19 pandemic crisis) | −0.416 | 0.109 | −0.180 | ||||||
(−0.18) | (0.41) | (−0.58) | |||||||
ECT (−1) | −0.304 *** | −0.438 *** | −0.375 *** | ||||||
(−7.00) | (−6.88) | (−7.45) |
Model Diagnostics | MODEL 1 | MODEL 2 | MODEL 3 |
---|---|---|---|
Adjusted R-squared | 0.95 | 0.92 | 0.92 |
S.E. of regression | 2.30 | 0.27 | 0.32 |
Schwarz Bayesian Criterion | 5.19 | 0.89 | 1.05 |
DW-statistic | 1.54 | 1.85 | 2.24 |
Residual Diagnostics | |||
Serial Correlation 1 | 1.69 [0.193] | 1.03 [0.363] | 1.66 [0.197] |
F-statistic 2 | 99.77 [0.00] | 55.25 [0.000] | 82.47 [0.000] |
Heteroscedasticity 3 | 0.009 [0.92] | 0.111[0.740] | 0.693[0.408] |
Functional Form 4 | 2.43 [0.018] | 0.59 [0.559] | 0.92 [0.360] |
Normality 5 | 0.114 [0.945] | 1.331 [0.514] | 2.84 [0.241] |
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Katusiime, L. COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda. J. Risk Financial Manag. 2021, 14, 588. https://doi.org/10.3390/jrfm14120588
Katusiime L. COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda. Journal of Risk and Financial Management. 2021; 14(12):588. https://doi.org/10.3390/jrfm14120588
Chicago/Turabian StyleKatusiime, Lorna. 2021. "COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda" Journal of Risk and Financial Management 14, no. 12: 588. https://doi.org/10.3390/jrfm14120588