DO INSTITUTIONAL ACTS AS ‘BULLET-PROOF’ FOR DUAL BANKING SECTOR DURING COVID-19 PANDEMIC? EMPIRICAL EVIDENCE FROM SELECTED HIGH- AND MIDDLE- INCOME COUNTRIES

The global faced another pandemic, which is COVID-19 that created panic amongst the economics sector including banking sector. The pandemic either weakens or enhances the institutional in order to sustain banking performance in terms of financial stability. Pandemic and institutional level in particular countries may give an impact to the banking sector as new regulations and policies were introduced to curb the COVID-19. Dual Banking sector comprises conventional and Islamic banks in high- and middle- income countries are significant to their economics performance. Main question is does pandemic influence institutional in order to sustain financial stability? This study comprises data from 2012 to 2022. System Generalized Method of Moments (GMM) is employed. Financial stability indicated by Z-score, institutional variables are extracted from World Governance Index (WGI), and dummy for year of pandemic (2020 & 2021). The findings indicate that pandemics do not have an impact on the financial stability in high- income countries regardless of the level of institutional. On the contrary, the pandemic lowered financial stability in middle- income countries that have better institutional environments. It shows that middle- income countries should issue new policies prudently during pandemics to achieve financial stability.