Authors: Andreas Koutoupis, Panagiotis Kyriakogkonas, Athanasios Theologis, Michail Pazarskis

Title: Predicting Covid-19 consequences on financial performance of Greek banks. The role of corporate governance

Abstract

Purpose: Our research attempts to link Covid-19 consequences with financial performance of banks. As Covid-19 consequences are illustrated through the anticipated reduction of the annual change of Gross Domestic Product and financial performance of the banking sector is highly intertwined with loan loss provisions the purpose of our study is to examine the effect of macroeconomic data on financial performance of banks.

Methodology: A multiple regression econometric model deploys data from Greece for the years 2008-2019. Probability of default as defined by the IFRS 9 definitions is our dependent variable while Gross Domestic Product and Unemployment Rate stand for our independent variables.

Findings: Our results reveal a statistical significant negative relationship between macroeconomic variables (GDP) and banks’ financial performance as affected by probability of default. Particularly, a reduction of Gross Domestic Product causes an increase on the probability of default for banks’ customers, so an increase on, required by IFRS 9, Loan Loss Provisions. Therefore, an effective corporate governance mechanism that delicately balance and weight contradictory objectives is of paramount importance.

Originality: Although, various researches revolve around governance in banking industry concerning the pro Covid-19 era, to the best of our knowledge our study is the first to investigate the IFRS 9 provisions in the pandemic context.