Impacts of COVID-19 on Vietnamese Bank Performance: The Role of Bank Diversification

Abstract

Although the COVID-19 pandemic has been undisputedly found to exert negative impacts on bank performance in general and their traditional lending activities specifically, the strategy of banks to deal with such a problem is still an open question. Our study attempts to answer this question through an empirical analysis of the impacts of COVID-19 on bank performance and the role of bank diversification. Specifically, data of all listed commercial banks in Vietnam over the period from 2015 to 2021 are estimated by the two-step system GMM models. COVID-19 is confirmed to have negative impacts on bank profitability. Bank diversification is found to increase bank profitability over the entire study period. Additionally, the study contributes to the extant literature by offering evidence that bank diversification has helped preserve bank profitability during COVID-19. It is suggested that to deal with the worsened traditional lending activities, diversification towards non-interest activities is an effective strategy for banks to improve their performance.