THE IMPACT OF FINANCIAL RATIOS ON BANK PERFORMANCE BEFORE AND DURING COVID-19: EVIDENCE FROM BANK BUSINESS ACTIVITIES CATEGORY 3 AND 4 IN INDONESIA

• Main Author: Gabrita Kamal, Aqila
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/72854
• Institution: Institut Teknologi Bandung

Between 2020 and the end of 2022, the COVID-19 pandemic and its economic consequences significantly impacted the banking sector. This global outbreak caused major disruptions to economies worldwide, including Indonesia. As a result, the banking industry in Indonesia also suffered significant setbacks, resulting in reduced profitability. The pandemic decreased economic activity, negatively affecting the banking sector. The purpose of this study is to examine how Covid-19 impacted the banking industry in Indonesia, specifically in terms of its profitability measured by Return on Assets (ROA). ROA is a financial ratio that assesses a company's profit-generating ability. Unfortunately, the banking sector in Indonesia experienced a decrease in its ROA during the pandemic due to various factors. The data in this research are from 14 banks combining commercial bank business activities categories 3 (BUKU 3) and 4 (BUKU 4). The methodology of this research utilises panel data and a two-step system GMM. For this research, the dependent variable is the return on assets to measure bank profitability. The independent variables are non-performing loans, net interest margin, operating expense to operating income, loan-to-deposit ratio, and capital adequacy ratio. This research also uses control variables. The control variables in this research are bank size, GDP growth, inflation, and interest rates. Since this research also aims to investigate the effect of the Covid-19 pandemic on banks' profitability. The covid19 pandemic is also an independent variable used as a dummy. This study has found that Covid-19 had a negative and significant impact on ROA. The financial ratios that affected ROA were net interest margin (NIM) and operating expense to operating income (OEOI). The effect of NIM on ROA is positive and significant. Besides NIM, OEOI also significantly affected ROA. However, its impact is negative. OEOI negatively affected ROA because, during the Covid-19 pandemic, banks were still adapting to changes by taking technological measures.