Analysis on the Risk of Commercial Banks in China during COVID-19

Abstract

The rage of covid-19 violently rebuilt the order of human society, giving rise to potential recessions and deglobalization. In order to prevent gigantic financial institutions from ending up with insolvent situations, it is of vital significance to measure the impact of the pandemic on these firms. In this paper, the reliability of the top four commercial banks in China is painstakingly examined by utilizing linear regression and analysis of variance based on Stata. Thanks to Altman's Z-score model, the author manages to quantitatively measure the amount of credit risk the banks are currently taking. Based on the result of linear regression, this paper hardly finds supportive evidence on the hypothesis that the COVID has negative impact neither on banks’ financial performance nor on their risk management indicators. On the contrary, the outcome from ANOVA reveals that the Corona virus subtly raised the risk of commercial banks in China, especially for ABC and ICBC, whose liquidity dropped during 2020. Furthermore, the overall deteriorating trend in the industry is obvious but subtle, since these banks also raise their sales and profitability thanks to remote deals and commission fees. Taking advantage of Altman's Z-score, this paper estimates the impact of COVID-19 on the elite banks’ risk, reinforcing the importance of consummating the risk measure system as well as persisting in supervising the financial intermediates efficiently.