Cash Holdings and Bank Performance: The Covid-19 Effect

This study examined the relationship between bank profitability and cash holdings, as well as the evolution of this relationship during the COVID-19 epidemic. The study used data from 13 Palestinian banks obtained from the financial reports of banks listed on the Palestine Exchange between 2013 and 2022. However, the findings show that there is a significant positive association between bank performance and cash holdings. This relationship is not linear, implying that an optimal level of cash holdings may exist. The link between cash holdings and performance weakened during the COVID-19 epidemic. Our findings imply that managers should be extremely cautious when maintaining their cash reserves, as variations from the optimal level can result in considerable expenditures. This might lead to a drop in lending and increased expenses as a result of early payments or additional financing, which can have a negative impact on bank profitability. The findings contribute to our understanding of the necessity of proper cash management and advise that future studies consider the effects of various economic changes on cash holdings. The study's findings will help bank regulators identify weaknesses and develop preemptive steps to increase bank profitability during crises such as COVID-19.