Bank Profitability in Indonesia During COVID-19 Outbreak Profitabilitas Bank di Indonesia Selama Wabah COVID-19
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Published:
Apr 1, 2024
Keywords:
Covid-19, Bank Profitability, Macroeconomic Indicator, Conventional Bank, Financial Performance
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Abstract
This study examines the factors of conventional bank profitability during the COVID-19 outbreak in Indonesia, using data from 52 conventional banks from 2020 Q1 to 2021 Q4. Using a fixed-effects model, bank-specific and macroeconomic factors are examined. The findings show that liquidity and bank size have a beneficial impact on profitability, whereas efficiency has a considerable negative effect. Additionally, non-performing loans have a favorable link with profitability. Notably, macroeconomic indices such as interest rates have a substantial impact on bank profitability, while capital, exchange rates, inflation, and economic growth do not. The study emphasizes the necessity of improved liquidity management, efficient operations, and strategic interest rate management in maintaining bank profitability and resilience in the face of disruptive occurrences
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Copyright (c) 2024 Sholikha Oktavi Khalifaturofi'ah, Indra Listyarti, Ririn Poerwanti, Ellen Theresia Sihotang
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Al-Jafari, M. K., & Alchami, M. (2014). Determinants of Bank Profitability: Evidence from Syria. Journal of Applied Finance & Banking, 4(1), 17–45. https://doi.org/10.5539/ijbm.v10n8p135
Alshatti, A. S. (2016). Determinants of banks' profitability - The case of Jordan. Investment Management and Financial Innovations, 13(1), 84–91. https://doi.org/10.21511/imfi.13(1).2016.08
Anwar, M. (2019). Cost efficiency performance of Indonesian banks over the recovery period: A stochastic frontier analysis. Social Science Journal, 56(3), 377–389. https://doi.org/10.1016/j.soscij.2018.08.002
Brahmana, R. K., You, H. W., & Lau, E. (2022). Does reputation matter for firm risk in developing country? International Journal of Finance and Economics, 27(2), 2110–2123. https://doi.org/10.1002/ijfe.2262
Demirgüç-Kunt, A., Pedraza, A., & Ruiz-Ortega, C. (2021). Banking sector performance during the COVID-19 crisis. Journal of Banking and Finance, 133(August). https://doi.org/10.1016/j.jbankfin.2021.106305
Derbali, A. (2021). Determinants of the performance of Moroccan banks. Journal of Business and Socio-Economic Development. https://doi.org/10.1108/jbsed-01-2021-0003
El-Chaarani, H., Abraham, R., & Azzi, G. (2023). The Role of Liquidity Creation in Managing the COVID-19 Banking Crisis in Selected Mena Countries. International Journal of Financial Studies, 11(1), 39. https://doi.org/10.3390/ijfs11010039
Esquivias, M. A., Sugiharti, L., Rohmawati, H., & Sethi, N. (2021). Impacts and Implications of a Pandemic on Tourism Demand in Indonesia. Economics and Sociology, 14(4), 133–150. https://doi.org/10.14254/2071-789X.2021/14-4/8
Farkasdi, S., Septiawan, B., & Alghifari, E. S. (2021). Determinants of commercial banks' profitability. Evidence from Germany. Jurnal Riset Akuntansi Kontemporer, 13(2), 82–88. https://doi.org/10.11118/actaun201866051325
Ghosh, R., & Saima, F. N. (2021). Resilience of commercial banks of Bangladesh to the shocks caused by COVID-19 pandemic: an application of MCDM-based approaches. Asian Journal of Accounting Research, 6(3), 281–295. https://doi.org/10.1108/AJAR-10-2020-0102
Ha, V. D. (2020). Does bank capital affect profitability and risk in Vietnam? Accounting, 6(3), 273–278. https://doi.org/10.5267/j.ac.2020.2.008
Hunjra, A. I., Mehmood, A., Nguyen, H. P., & Tayachi, T. (2020). Do firm-specific risks affect bank performance? International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04-2020-0329
Johan, S. (2021). Determinants of Banking Industry Profitability: an Empirical Research of Indonesia Financial Institutions. EKUITAS (Jurnal Ekonomi Dan Keuangan), 5(2), 244–262. https://doi.org/10.24034/j25485024.y2021.v5.i2.4666
Karim, M. R., Shetu, S. A., & Razia, S. (2021). COVID-19, liquidity and financial health: empirical evidence from South Asian economy. Asian Journal of Economics and Banking, 5(3), 307–323. https://doi.org/10.1108/ajeb-03-2021-0033
Katusiime, L. (2021). COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda. Journal of Risk and Financial Management, 14(12), 588. https://doi.org/10.3390/jrfm14120588
Khalifaturofi’ah, S. O. (2018). Cost Efficiency, Total Assets, and Profitability: Evidence from Islamic Bank. Jurnal Keuangan Dan Perbankan. https://doi.org/10.26905/jkdp.v22i4.2218
Khalifaturofi’ah, S. O. (2021). Cost efficiency, innovation and financial performance of banks in Indonesia. Journal of Economic and Administrative Sciences, ahead-of-p(ahead-of-print), 1–15. https://doi.org/10.1108/jeas-07-2020-0124
Kozak, S. (2021). The Impact of COVID-19 on Bank Equity and Performance : The Case of Central Eastern South European Countries. March 2020.
Kozak, S., & Wierzbowska, A. (2022). Did the COVID-19 pandemic amplify the positive impact of income diversification on the profitability of European banks? Equilibrium, 17(1), 11–29. https://doi.org/10.24136/eq.2022.001
Le, T. D., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001
Majumder, M. T. H., & Li, X. (2018). Bank risk and performance in an emerging market setting: the case of Bangladesh. Journal of Economics, Finance and Administrative Science, 23(46), 199–229. https://doi.org/10.1108/JEFAS-07-2017-0084
Malik, A. (2020). Pengaruh Loan To Deposit Ratio (Ldr) Terhadap Profitabilitas Dengan Non Performing Loan (Npl) Sebagai Variabel Intervening Pada Subsektor Perbankan. Sains Manajemen, 6(1), 13–22. https://doi.org/10.30656/sm.v6i1.2099
Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
Miklaszewska, E., Kil, K., & Idzik, M. (2021). How the covid-19 pandemic affects bank risks and returns: Evidence from eu members in central, eastern, and northern europe. Risks, 9(10). https://doi.org/10.3390/risks9100180
Nguyen, C. T., Hai, P. T., & Nguyen, H. K. (2021). Stock market returns and liquidity during the COVID-19 outbreak: evidence from the financial services sector in Vietnam. Asian Journal of Economics and Banking, 5(3), 324–342. https://doi.org/10.1108/ajeb-06-2021-0070
Nguyen, L. T. M., & Hoang Dinh, P. (2021). Ex-ante risk management and financial stability during the COVID-19 pandemic: a study of Vietnamese firms. China Finance Review International, 11(3), 349–371. https://doi.org/10.1108/CFRI-12-2020-0177
Nguyen, T. L. A. (2018). Diversification and bank efficiency in six ASEAN countries. Global Finance Journal, 37(April), 57–78. https://doi.org/10.1016/j.gfj.2018.04.004
Ozili, P. K., & Uadiale, O. (2017). Ownership concentration and bank profitability. Future Business Journal, 3(2), 159–171. https://doi.org/10.1016/j.fbj.2017.07.001
Rafique, H., & Fawad, M. A. (2022). Impact of Covid-19 on the Banking Sector of Pakistan. Journal of Banking and Social Equity (JBSE), 1(1), 9–34.
Rahman, H. U., Yousaf, M. W., & Tabassum, N. (2020). Bank-specific and macroeconomic determinants of profitability: A revisit of pakistani banking sector under dynamic panel data approach. International Journal of Financial Studies, 8(3), 1–19. https://doi.org/10.3390/ijfs8030042
Salsabilla, A., Azhari, A. R., Wahyudi, R., Pambudi, D. S., & Riduwan. (2021). Impact of the Covid 19 Pandemic on The Profitability of Islamic Banks in Indonesia. IHTIFAZ: Islamic Economics, Finance, and Banking, June, 61–69.
Sohibien, G. P. D., Laome, L., Choiruddin, A., & Kuswanto, H. (2022). COVID-19 Pandemic's Impact on Return on Asset and Financing of Islamic Commercial Banks: Evidence from Indonesia. Sustainability (Switzerland), 14(3), 1–13. https://doi.org/10.3390/su14031128
Sukmana, R., & Febriyati, N. A. (2016). Islamic banks vs conventional banks in Indonesia: An analysis on financial performances. Jurnal Pengurusan, 47, 81–90. https://doi.org/10.17576/pengurusan-2016-47-07
Susan, M., Winarto, J., & Gunawan, I. (2022). The Determinants of Corporate Profitability in Indonesia Manufacturing Industry. Review of Integrative Business and Economics Research, 11(1), 184.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85–110. https://doi.org/10.1016/j.intfin.2015.09.003
Tan, Y., & Anchor, J. (2016). Stability and profitability in the Chinese banking Industry: Evidence from an auto-regressive-distributed linear specification. Investment Management and Financial Innovations, 13(4), 120–128. https://doi.org/10.21511/imfi.13(4).2016.10
Wahyuni, S., Pujiharto, Azizah, S. N., & Zulfikar. (2021). "Impact of the COVID-19 pandemic and New Normal implementation on credit risk and profitability of Indonesian banking institutions." Banks and Bank Systems, 16(3), 104–112. https://doi.org/10.21511/bbs.16(3).2021.10
Yahya, A. T., Akhtar, A., & I.tabash, M. (2017). the profitability of Islamic banks : an empirical evidence" The impact of political instability , macroeconomic and bank-specific factors on the profitability of Islamic banks : an empirical evidence. https://doi.org/10.21511/imfi.14(4).2017.04
Yao, H., Haris, M., & Tariq, G. (2018). Profitability Determinants of Financial Institutions: Evidence from Banks in Pakistan. International Journal of Financial Studies, 6(2), 53. https://doi.org/10.3390/ijfs6020053
Yüksel, S., Mukhtarov, S., Mammadov, E., & Özsarı, M. (2018). Determinants of profitability in the banking sector: An analysis of post-Soviet countries. Economies, 6(41), 1–15. https://doi.org/10.3390/economies6030041
Afkar, T., & Fauziyah. (2021). Predictions and Trends Profitability For Islamic Commercial Banks in Indonesia During The Covid-19 Pandemic. International Journal of Economics, Business, and Accounting Research (IJEBAR), 5(1), 188–196. https://jurnal.stie-aas.ac.id/index.php/IJEBAR
Al-Harbi, A. (2019). The determinants of conventional banks profitability in developing and underdeveloped OIC countries. Journal of Economics, Finance and Administrative Science, 24(47), 4–28. https://doi.org/10.1108/JEFAS-05-2018-0043
Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H. S., & Almaqtari, F. A. (2018). Bank-specific and macro-economic determinants of profitability of Indian commercial banks: A panel data approach. Cogent Economics and Finance, 6(1), 1–26. https://doi.org/10.1080/23322039.2018.1548072
Al-Jafari, M. K., & Alchami, M. (2014). Determinants of Bank Profitability: Evidence from Syria. Journal of Applied Finance & Banking, 4(1), 17–45. https://doi.org/10.5539/ijbm.v10n8p135
Alshatti, A. S. (2016). Determinants of banks' profitability - The case of Jordan. Investment Management and Financial Innovations, 13(1), 84–91. https://doi.org/10.21511/imfi.13(1).2016.08
Anwar, M. (2019). Cost efficiency performance of Indonesian banks over the recovery period: A stochastic frontier analysis. Social Science Journal, 56(3), 377–389. https://doi.org/10.1016/j.soscij.2018.08.002
Brahmana, R. K., You, H. W., & Lau, E. (2022). Does reputation matter for firm risk in developing country? International Journal of Finance and Economics, 27(2), 2110–2123. https://doi.org/10.1002/ijfe.2262
Demirgüç-Kunt, A., Pedraza, A., & Ruiz-Ortega, C. (2021). Banking sector performance during the COVID-19 crisis. Journal of Banking and Finance, 133(August). https://doi.org/10.1016/j.jbankfin.2021.106305
Derbali, A. (2021). Determinants of the performance of Moroccan banks. Journal of Business and Socio-Economic Development. https://doi.org/10.1108/jbsed-01-2021-0003
El-Chaarani, H., Abraham, R., & Azzi, G. (2023). The Role of Liquidity Creation in Managing the COVID-19 Banking Crisis in Selected Mena Countries. International Journal of Financial Studies, 11(1), 39. https://doi.org/10.3390/ijfs11010039
Esquivias, M. A., Sugiharti, L., Rohmawati, H., & Sethi, N. (2021). Impacts and Implications of a Pandemic on Tourism Demand in Indonesia. Economics and Sociology, 14(4), 133–150. https://doi.org/10.14254/2071-789X.2021/14-4/8
Farkasdi, S., Septiawan, B., & Alghifari, E. S. (2021). Determinants of commercial banks' profitability. Evidence from Germany. Jurnal Riset Akuntansi Kontemporer, 13(2), 82–88. https://doi.org/10.11118/actaun201866051325
Ghosh, R., & Saima, F. N. (2021). Resilience of commercial banks of Bangladesh to the shocks caused by COVID-19 pandemic: an application of MCDM-based approaches. Asian Journal of Accounting Research, 6(3), 281–295. https://doi.org/10.1108/AJAR-10-2020-0102
Ha, V. D. (2020). Does bank capital affect profitability and risk in Vietnam? Accounting, 6(3), 273–278. https://doi.org/10.5267/j.ac.2020.2.008
Hunjra, A. I., Mehmood, A., Nguyen, H. P., & Tayachi, T. (2020). Do firm-specific risks affect bank performance? International Journal of Emerging Markets. https://doi.org/10.1108/IJOEM-04-2020-0329
Johan, S. (2021). Determinants of Banking Industry Profitability: an Empirical Research of Indonesia Financial Institutions. EKUITAS (Jurnal Ekonomi Dan Keuangan), 5(2), 244–262. https://doi.org/10.24034/j25485024.y2021.v5.i2.4666
Karim, M. R., Shetu, S. A., & Razia, S. (2021). COVID-19, liquidity and financial health: empirical evidence from South Asian economy. Asian Journal of Economics and Banking, 5(3), 307–323. https://doi.org/10.1108/ajeb-03-2021-0033
Katusiime, L. (2021). COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda. Journal of Risk and Financial Management, 14(12), 588. https://doi.org/10.3390/jrfm14120588
Khalifaturofi’ah, S. O. (2018). Cost Efficiency, Total Assets, and Profitability: Evidence from Islamic Bank. Jurnal Keuangan Dan Perbankan. https://doi.org/10.26905/jkdp.v22i4.2218
Khalifaturofi’ah, S. O. (2021). Cost efficiency, innovation and financial performance of banks in Indonesia. Journal of Economic and Administrative Sciences, ahead-of-p(ahead-of-print), 1–15. https://doi.org/10.1108/jeas-07-2020-0124
Kozak, S. (2021). The Impact of COVID-19 on Bank Equity and Performance : The Case of Central Eastern South European Countries. March 2020.
Kozak, S., & Wierzbowska, A. (2022). Did the COVID-19 pandemic amplify the positive impact of income diversification on the profitability of European banks? Equilibrium, 17(1), 11–29. https://doi.org/10.24136/eq.2022.001
Le, T. D., & Ngo, T. (2020). The determinants of bank profitability: A cross-country analysis. Central Bank Review, 20(2), 65–73. https://doi.org/10.1016/j.cbrev.2020.04.001
Majumder, M. T. H., & Li, X. (2018). Bank risk and performance in an emerging market setting: the case of Bangladesh. Journal of Economics, Finance and Administrative Science, 23(46), 199–229. https://doi.org/10.1108/JEFAS-07-2017-0084
Malik, A. (2020). Pengaruh Loan To Deposit Ratio (Ldr) Terhadap Profitabilitas Dengan Non Performing Loan (Npl) Sebagai Variabel Intervening Pada Subsektor Perbankan. Sains Manajemen, 6(1), 13–22. https://doi.org/10.30656/sm.v6i1.2099
Menicucci, E., & Paolucci, G. (2016). The determinants of bank profitability: empirical evidence from European banking sector. Journal of Financial Reporting and Accounting, 14(1), 86–115. https://doi.org/10.1108/jfra-05-2015-0060
Miklaszewska, E., Kil, K., & Idzik, M. (2021). How the covid-19 pandemic affects bank risks and returns: Evidence from eu members in central, eastern, and northern europe. Risks, 9(10). https://doi.org/10.3390/risks9100180
Nguyen, C. T., Hai, P. T., & Nguyen, H. K. (2021). Stock market returns and liquidity during the COVID-19 outbreak: evidence from the financial services sector in Vietnam. Asian Journal of Economics and Banking, 5(3), 324–342. https://doi.org/10.1108/ajeb-06-2021-0070
Nguyen, L. T. M., & Hoang Dinh, P. (2021). Ex-ante risk management and financial stability during the COVID-19 pandemic: a study of Vietnamese firms. China Finance Review International, 11(3), 349–371. https://doi.org/10.1108/CFRI-12-2020-0177
Nguyen, T. L. A. (2018). Diversification and bank efficiency in six ASEAN countries. Global Finance Journal, 37(April), 57–78. https://doi.org/10.1016/j.gfj.2018.04.004
Ozili, P. K., & Uadiale, O. (2017). Ownership concentration and bank profitability. Future Business Journal, 3(2), 159–171. https://doi.org/10.1016/j.fbj.2017.07.001
Rafique, H., & Fawad, M. A. (2022). Impact of Covid-19 on the Banking Sector of Pakistan. Journal of Banking and Social Equity (JBSE), 1(1), 9–34.
Rahman, H. U., Yousaf, M. W., & Tabassum, N. (2020). Bank-specific and macroeconomic determinants of profitability: A revisit of pakistani banking sector under dynamic panel data approach. International Journal of Financial Studies, 8(3), 1–19. https://doi.org/10.3390/ijfs8030042
Salsabilla, A., Azhari, A. R., Wahyudi, R., Pambudi, D. S., & Riduwan. (2021). Impact of the Covid 19 Pandemic on The Profitability of Islamic Banks in Indonesia. IHTIFAZ: Islamic Economics, Finance, and Banking, June, 61–69.
Sohibien, G. P. D., Laome, L., Choiruddin, A., & Kuswanto, H. (2022). COVID-19 Pandemic's Impact on Return on Asset and Financing of Islamic Commercial Banks: Evidence from Indonesia. Sustainability (Switzerland), 14(3), 1–13. https://doi.org/10.3390/su14031128
Sukmana, R., & Febriyati, N. A. (2016). Islamic banks vs conventional banks in Indonesia: An analysis on financial performances. Jurnal Pengurusan, 47, 81–90. https://doi.org/10.17576/pengurusan-2016-47-07
Susan, M., Winarto, J., & Gunawan, I. (2022). The Determinants of Corporate Profitability in Indonesia Manufacturing Industry. Review of Integrative Business and Economics Research, 11(1), 184.
Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions and Money, 40, 85–110. https://doi.org/10.1016/j.intfin.2015.09.003
Tan, Y., & Anchor, J. (2016). Stability and profitability in the Chinese banking Industry: Evidence from an auto-regressive-distributed linear specification. Investment Management and Financial Innovations, 13(4), 120–128. https://doi.org/10.21511/imfi.13(4).2016.10
Wahyuni, S., Pujiharto, Azizah, S. N., & Zulfikar. (2021). "Impact of the COVID-19 pandemic and New Normal implementation on credit risk and profitability of Indonesian banking institutions." Banks and Bank Systems, 16(3), 104–112. https://doi.org/10.21511/bbs.16(3).2021.10
Yahya, A. T., Akhtar, A., & I.tabash, M. (2017). the profitability of Islamic banks : an empirical evidence" The impact of political instability , macroeconomic and bank-specific factors on the profitability of Islamic banks : an empirical evidence. https://doi.org/10.21511/imfi.14(4).2017.04
Yao, H., Haris, M., & Tariq, G. (2018). Profitability Determinants of Financial Institutions: Evidence from Banks in Pakistan. International Journal of Financial Studies, 6(2), 53. https://doi.org/10.3390/ijfs6020053
Yüksel, S., Mukhtarov, S., Mammadov, E., & Özsarı, M. (2018). Determinants of profitability in the banking sector: An analysis of post-Soviet countries. Economies, 6(41), 1–15. https://doi.org/10.3390/economies6030041