Navigating financial performance in crisis: Investment, liquidity, and solvency of banks during the pandemic

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Abstract

The COVID-19 pandemic has affected both developing and developed economies, reducing the profits of many companies, including commercial banks. This study investigates the impact of the COVID-19 pandemic on the financial performance of commercial banks in Kosovo, focusing on how investment, liquidity, solvency, debt-to-asset ratio (DAR), debt-to-equity ratio (DER), and equity-to-asset ratio (EAR) influenced the return on assets (ROA) of banks during the crisis period. The primary research problem addresses the lack of detailed analysis on the influence of these financial indicators in the context of Kosovo’s banking sector, a gap in the existing literature. The purpose of the research is to explore the relationships between these financial indicators and bank performance during the pandemic. The research analyzes the financial reports of seven banks from 2013 to 2021 and uses regression analysis to assess the relationships between financial metrics and ROA. The findings reveal that solvency has a statistically significant positive impact on bank performance, while liquidity and investments show mixed results and less significant results. The study concludes that banks in Kosovo can enhance their resilience and performance by optimizing solvency strategies and carefully managing investments and liquidity. This research fills a gap in the literature and provides valuable insights for academics and practitioners in the field.

Keywords: Commercial Banks, COVID-19 Pandemic, Financial Performance, Return on Assets, Investment, Solvency

Authors’ individual contribution: Conceptualization — G.M. and V.H.; Methodology — G.M. and V.H.; Software — G.M.; Formal Analysis — G.M.; Investigation — G.M.; Resources — G.M.; Data Curation — G.M.; Writing — Original Draft — G.M.; Writing — Review & Editing — V.H.; Supervision — V.H.; Funding Acquisition — V.H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: E44, G01, G21, G32, G41

Received: 16.10.2024
Revised: 24.01.2025; 08.04.2025
Accepted: 15.04.2025
Published online: 17.04.2025

How to cite this paper: Mehmetaj, G., & Hajdari, V. (2025). Navigating financial performance in crisis: Investment, liquidity, and solvency of banks during the pandemic. Risk Governance & Control: Financial Markets & Institutions, 15(2), 19–30. https://doi.org/10.22495/rgcv15i2p2