Liquidity Surplus and Profitability: How Does Liquidity Affect
Profitability prior to and during COVID-19?
(Empirical Indonesian Banking Sector)
LUCKY NUGROHO1, ILDIKO ORBAN2, WIWIK UTAMI1, NURUL HIDAYAH1,
ERIK NUGRAHA3
1Faculty of Economics and Business,
Universitas Mercu Buana,
INDONESIA
2Faculty of Economics and Business,
University of Debrecen,
HUNGARY
3Faculty of Economics and Business,
Universitas Sangga Buana YPKP,
INDONESIA
Abstract: - This study aims to analyse the liquidity and profitability of the banking sector before the COVID-19
pandemic and during the COVID-19 pandemic. In addition, the focus of this research is also related to the
effect of liquidity on profitability during the period prior to COVID-19 and during COVID-19. The research
method used is quantitative, using secondary data, namely published financial reports from the banking
industry. The total number of data observations used in this study is 132 banks. The problem formulation of this
research includes: (i) How was the liquidity of the banking industry before the Covid-19 pandemic and during
the Covid-19 pandemic?, (ii) How was the profitability of the banking industry before the Covid-19 pandemic
and during the Covid-19 pandemic?, (iii) Does liquidity affect profitability in the pre-Covid-19 pandemic?, (iv)
Does liquidity affect profitability during the Covid-19 pandemic?; (v) How is the comparison of the effect of
liquidity on profitability between the period before the Covid-19 pandemic and during the Covid-19
pandemic?. The results of this study found that: (i) There is a significant difference in liquidity in the banking
industry during the period before the Covid-19 pandemic and the Covid-19 pandemic, (ii) There is a significant
difference in profitability in the banking industry before the Covid-19 pandemic and during the Covid-19
pandemic. During the Covid-19 pandemic, lending was constrained by the high risk of non-performing loans
due to the decreased ability to pay from customers, (iii) In the period before the Covid-19 pandemic, the
liquidity of the banking industry had no effect on the profitability of the banking industry, (iv) During the
Covid-10 pandemic, the liquidity of the banking industry had a significant and negative effect on the
profitability of the banking industry, (v) There is a difference between the impact of liquidity on the
profitability of the banking industry in the pre-COVID-19 period and during COVID-19. This research implies
that it is a benchmark for pre-researchers and practitioners affected by the banking sector's liquidity aspects. In
addition, the novelty of this research is the object of research related to the analysis that compares the
relationship between liquidity and profitability in the period before the Covid-19 pandemic and during the
Covid-19 pandemic.
Key-Words: Banking Industries, liquidity, loan-to-deposit ratio, profitability, return on asset ratio, covid-19
Received: February 25, 2023. Revised: August 13, 2023. Accepted: September 11, 2023. Available online: October 27, 2023.
1 Introduction
The banking industry is the locomotive of economic
growth where banks are a source of financing for
entrepreneurs to expand their business and revitalize
it, which will impact the growth of the real sector,
[1], [2], [3], [4]. However, business expansion and
business revitalization by entrepreneurs need to
consider external conditions, namely the demand
and need from the community for products and
services owned by producers, [5], [6], [7].
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Furthermore, the phenomenon that occurs is that the
current external condition is the Covid-19
pandemic, which has disrupted all business sectors,
causing producers or entrepreneurs to cancel their
plans to expand or revitalize their business
activities, [8], [9], [10]. The cancellation of plans for
business expansion from entrepreneurs is not
without good reason but based on the existing
phenomenon, where during the Covid-19 pandemic,
there were 30 million business people in Indonesia
who went bankrupt, [11]. This amount is not small;
therefore, intervention in the form of incentives
from the government is needed so that business
people during the Covid-19 pandemic can survive
and not go bankrupt.
On the other hand, the large number of business
players who experience bankruptcy will decrease
the demand for credit in the banking industry.
Furthermore, regarding, [12], until the beginning of
2021, bank lending experienced a contract minus
2.1 percent. Therefore, during the Covid-19
pandemic, banks have yet to be able to carry out
their intermediation function optimally, so there is a
potential for a decrease in the performance or
profitability of the banking industries.
During the current Covid-19 pandemic,
according to, [13], [14], entrepreneurs have a wait-
and-see behavior, namely placing their funds in
instruments with the lowest risk, such as deposits,
and being very careful in expanding their business.
However, on the other hand, there have been
withdrawals of funds from people who during the
Covid-19 pandemic experienced layoffs and from
entrepreneurs whose businesses went bankrupt, and
their business turnover decreased. However, based
on information submitted by the Financial Services
Authority (OJK), the liquidity conditions of the
banking industry are loose, or the decline in lending
causes excess liquidity, [15].
Based on these phenomena, the formulation of
the problems in this study include: (i) How was the
liquidity of the banking industry before the Covid-
19 pandemic and during the Covid-19 pandemic?;
(ii) How was the profitability of the banking
industry before the Covid-19 pandemic and during
the Covid-19 pandemic?; (iii) Does liquidity affect
profitability in the pre-Covid-19 pandemic?; (iv)
Does liquidity affect profitability during the Covid-
19 pandemic?; (v) How is the comparison of the
effect of liquidity on profitability between the
period before the Covid-19 pandemic and during the
Covid-19 pandemic?
Referring to the formulations of these problems,
this study aims to analyze the liquidity and
profitability of the banking industry before the
Covid-19 pandemic and during the Covid-19
pandemic. In addition, the purpose of this research
is also related to the effect of liquidity on
profitability in the period before the Covid-19
pandemic and during the Covid-19 pandemic. This
research implies that it is a benchmark for pre-
researchers and practitioners affected by the banking
sector's liquidity aspects. In addition, the novelty of
this research is the object of research related to the
analysis that compares the relationship between
liquidity and profitability in the period before the
Covid-19 pandemic and during the Covid-19
pandemic.
2 Literature Study and Hypothesis
Development
The theory used in this study is agency theory,
which was first introduced by, [16]. In agency
theory, there is a phenomenon where company
management (agency) will do what the owner
(principal) expects, whereas in the current
phenomenon where the Covid-19 pandemic has
disrupted all business sectors due to restrictions on
the mobility of the public, causing a slowdown in
trade transactions so that it affects the decline in
income from the business sector, [17], [18]. The
banking industry has a vital role in mobilizing funds
in the community, namely collecting and channeling
them back to the community through credit, [19],
[20]. However, declining economic growth and
sluggish business prospects during the Covid
pandemic have caused a decline in lending to the
banking industry, [21]. Furthermore, the purpose of
bank lending can be divided into two types, which
include (i) working capital loans and (ii) investment
loans. According to, [22], [23], working capital
credit aims to finance the company's current assets,
such as adding supplies and equipment and
replacing cash that the company has used to run its
operations. In comparison, investment loans are
loans given to debtors to finance their fixed assets,
such as renovating their business or opening
company branches by purchasing fixed assets, [24].
In addition to distributing credit, the bank's core
business is to collect funds from the public in the
form of deposits; the more deposits, the greater the
source of bank funding that can be channeled to the
public. Therefore, most bank capital comes from
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funds owned by the public, which are deposited in
the bank, [25], [26]. Thus, the bank must maintain
the public's trust, especially the owners of the funds
that keep them in the bank, by maintaining its
reputation. One way to maintain the company's
reputation is to realize investors' and the public's
expectations to provide optimal profits, [27], [28].
Suppose the bank can realize the expectations of
investors and the public. In that case, the bank has a
good reputation from a stakeholder perspective, and
there is a potential that the bank's management has
the opportunity to continue its management of the
bank, [29], [30], [31].
Moreover, referring to the current phenomenon
where the Covid-19 pandemic has caused a
slowdown in the economy, the demand for working
capital credit and investment credit has decreased.
Furthermore, with the decline in demand for credit
in the banking sector, during the Covid-19
pandemic, the performance of the banking industry
experienced a decline, and there was excess banking
liquidity, [32]. Therefore, there is a potential
difference in liquidity and profitability in the period
before the Covid-19 pandemic. Furthermore, during
the Covid-19 pandemic, there were even differences
in the effect of liquidity on profitability in the period
before the Covid-10 pandemic. Therefore, based on
the literature review, the conceptual research
framework can be illustrated as follows:
Fig. 1: Conceptual Research Framework
Referring to Figure 1 above, the development of the
hypothesis in this study is as follows:
2.1 How was Liquidity Before and During
the Covid-19 Pandemic?
Economic growth before the Covid-19 pandemic in
Indonesia in 2018 reached 5.17%, and in 2019 it
grew to 5.02% or decreased by 0.15%, [33], [34].
Based on the economic growth in 2018 and 2019,
although at the end of December 2019, there were
cases of Covid-19 in China, it had yet to impact
economic growth in Indonesia, which was still able
to reach numbers above 5%. Therefore, in the pre-
Covid-19 period, there was a potential for banking
industry liquidity to be in tight conditions due to the
relatively good demand for bank credit in the pre-
Covid-19 period due to Indonesia's economic
growth being still above 5%, [35]. The liquidity of
the banking industry is relatively tight or suitable if
the loan-to-deposit ratio of banks can average above
90%, [36]. However, it was different during the
Covid-19 pandemic, when economic growth
slowed, which resulted in a decrease in demand
from bank credit and excess bank liquidity due to
entrepreneurs needing to be more willing to expand
their business, [37], [38]. Therefore, the hypothesis
in this study is that there is a difference in liquidity
before the Covid-19 pandemic and during the
Covid-19 pandemic.
2.2 How is Profitability Before and During
the Covid-19 Pandemic?
The primary income from the banking industry
comes from lending, [39], [40]. Therefore, before
the Covid-19 pandemic, the demand for credit from
entrepreneurs was higher, and bank liquidity tended
to be tight due to promising business prospects,
which resulted in entrepreneurs applying for credit
to expand their businesses and invest in them, [41],
[42], [43]. This differs from the demand for credit
during the Covid-19 pandemic, which experienced a
decline, and liquidity tended to be excessive due to
slowing economic growth and declining household
consumption, [44], [45]. Thus, hypothesis II in this
study is that there are differences in the banking
industry's profitability before the Covid-19
pandemic with profitability during the Covid-19
pandemic.
2.3 Is There any Influence of Liquidity on
Profitability before the Covid-19 Pandemic?
Increased credit growth will have an impact on
increasing interest income and also tight liquidity
from banks. Therefore, the banking industry
continually optimizes lending from the funds it
collects to be distributed to the public so that the
profit generated can be optimal, [46], [47]. Optimal
income from the banking industry will increase
public confidence in the banking industry so that
business continuity from the banking industry can
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be maintained. On the other hand, before the Covid-
19 pandemic, the demand for bank credit increased
because economic growth had favorable prospects,
[48], [49], [50]. Thus, hypothesis III in this study is
that liquidity influences profitability in the period
before the Covid-19 pandemic.
2.4 Is There any Influence of Liquidity on
Profitability During the Covid-19 Pandemic?
Credit distribution is always balanced with adequate
risk mitigation so that it does not cause significant
losses, [51]. Therefore, even though during the
Covid-19 pandemic, the demand for credit
decreased and led to looser liquidity from banks,
banks as institutions that function to mobilize funds
from the public must continue to channel credit to
the public with a focus on specific sectors that have
low risk so that they can maintain good
performance, [52], [53]. Therefore, hypothesis IV in
this study is that liquidity affects profitability during
the Covid-19 pandemic.
2.5 Is There a Difference in The Effect of
Liquidity on Profitability in the Period
Before the Covid-19 Pandemic and During
the Covid-19 Pandemic
Before the Covid-19 pandemic, liquidity from banks
should be tighter than during the Covid-19
pandemic. This is because banks can optimize
lending to the public where economic growth is
good so that the demand for funds increases (tighter
liquidity). As a result, the increased use of funds to
channel credit impacts the profitability of the
banking industry, [54], [55]. Meanwhile, during the
Covid-19 pandemic, bank liquidity experienced
relaxation, reducing the influence of liquidity on
bank profitability compared to the period before the
Covid-19 pandemic, [37]. Thus, the fifth hypothesis
in this study is a difference in the effect of liquidity
on bank profitability in the period before the Covid-
19 pandemic with the Covid-19 pandemic.
3 Method
3.1 Population and Sample
This study uses the total population of the banking
industry registered with the OJK and has complete
financial reports under the need of statistical
processing in the study. The calculation of the
number of samples in this study is shown in the
table as follows:
Table 1. Research Sample
Information
Amount
Sample
Total
Sample
Total population of the
Bank
35
35
Banks that have complete
data
33
33
Quarterly financial
statements of 2019
(Before the Covid-19
Pandemic)
= 33 x 4
132
Quarterly financial
statements in 2020
(During the Covid-19
Pandemic)
= 33 x 4
132
Based on Table 1 above, the total number of data
observations used in this study is 132 banks.
3.2 Operational Definition of Variables
Operational variables in this study consist of the
following:
Liquidity, the banking industry’s liquidity
definition, is banks’ ability to redistribute funds
collected from the public, [56], [57]. The
distribution of funds back to the community is
in the form of credit, both working capital and
investment credit, [58], [59]. Therefore, in this
study, the operational liquidity variable or
known as the loan-to-deposit ratio (LDR), is as
follows:
𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔𝑠
𝑇ℎ𝑖𝑟𝑑 𝑃𝑎𝑟𝑡𝑦 𝐹𝑢𝑛𝑑𝑠
Profitability, the definition of profitability, is the
ability of the banking industry to generate
profits based on its business activities and also
sourced from the management of its assets, [60].
According to, [61], one of the profitability ratios
is the return on assets. The operational return on
assets (ROA) variables are as follows:
𝑅𝑒𝑡𝑢𝑟𝑛
𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
3.3 Data Analysis Technique
The research method used is quantitative, using
secondary data, namely published financial reports
from the banking industry. The statistical tool used
in Stata software version 13 and the data processing
techniques in this study are as follows:
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Using the Two-Sample t-test to determine the
difference between LDR and ROA before the
Covid-19 pandemic with LDR and ROA during
the Covid-19 pandemic.
Using the linear regression test to find out the
difference in the effect of LDR on ROA in the
period before the Covid-19 pandemic with the
Covid-19 pandemic.
4 Results and Discussion
4.1 Two Sample T-test
The results of the comparison of the LDR variable
in the period before the Covid-19 pandemic with the
LDR variable during the Covid-19 pandemic are as
follows:
Table 2. T-Test (LDR before the Covid-19
Pandemic and LDR during the Covid-19 Pandemic)
Referring to Table 2 above, the average LDR
value before the Covid-19 pandemic was 1.23,
while the average LDR value during the Covid-19
pandemic was 0.87. Therefore, the average LDR
before the Covid-19 pandemic was higher than
during the Covid-19 pandemic. In addition, there is
a significant difference between the LDR before the
Covid-19 pandemic and the LDR during the Covid-
19 pandemic, which Pr indicates (|T| > |t|) = 0.0000,
which is <0.05. Furthermore, the results of the T-
test on the ROA variable in the period before the
Covid-19 pandemic with ROA during the Covid-19
pandemic are as follows:
Table 3. T-Test (ROA before the Covid-19
Pandemic and ROA during the Covid-19 Pandemic)
Based on Table 3 above, it is known that the
average ROA value in the period before the Covid-
19 pandemic was 0.010, while during the Covid-19
pandemic, it decreased to 0.007. Therefore, based
on Pr (|T| > |t|) = 0.0211 or <0.05, there is a
significant difference between ROA before the
Covid-19 pandemic and ROA during the Covid-19
pandemic.
4.2 Linear Regression
Furthermore, to determine the effect of LDR on
ROA in the period before the Covid-19 pandemic,
the results of linear regression are as follows:
Table 4. Linear Regression Test of the Effect of
LDR on ROA Before the Covid-19 Pandemic
Moreover, referring to Table 4 above, it is
known that LDR did not affect ROA in the period
before the Covid-19 pandemic. Furthermore, the
table below shows the effect of LDR on ROA
during the Covid-19 pandemic as follows:
Table 5. Linear Regression Test of the Effect of
LDR on ROA during the Covid-19 Pandemic
Based on Table 5 above, it is known that LDR
has a negative and significant effect on ROA. Thus,
if there is an increase in LDR, it will decrease the
banking industry’s ROA.
4.3 Liquidity of the Banking Industry
before the Covid-19 Pandemic and during
the Covid-19
From the statistical analysis of this study, it was
found that there was a significant difference
between liquidity (LDR) before the Covid-19
pandemic and LDR during the Covid-19 pandemic.
Pr(T < t) = 0.9895 Pr(|T| > |t|) = 0.0211 Pr(T > t) = 0.0105
Ha: diff < 0 Ha: diff != 0 Ha: diff > 0
Ho: diff = 0 degrees of freedom = 262
diff = mean(ROAB4Covid) - mean(ROAinCovid) t = 2.3203
diff .0028523 .0012293 .0004317 .0052728
combined 264 .0087511 .0006197 .0100696 .0075308 .0099714
ROAinC~d 132 .007325 .0007478 .0085917 .0058457 .0088043
ROAB4C~d 132 .0101773 .0009757 .0112095 .0082472 .0121074
Variable Obs Mean Std. Err. Std. Dev. [95% Conf. Interval]
Two-sample t test with equal variances
_cons .0126819 .0025683 4.94 0.000 .0076008 .0177631
LDRB4Covid -.0020323 .0019279 -1.05 0.294 -.0058464 .0017818
ROAB4Covid Coef. Std. Err. t P>|t| [95% Conf. Interval]
Total .016460472 131 .000125652 Root MSE = .0112
Adj R-squared = 0.0008
Residual .01632096 130 .000125546 R-squared = 0.0085
Model .000139512 1 .000139512 Prob > F = 0.2938
F( 1, 130) = 1.11
Source SS df MS Number of obs = 132
_cons .0110938 .0017283 6.42 0.000 .0076746 .014513
LDRinCovid -.0043406 .0018018 -2.41 0.017 -.0079052 -.0007759
ROAinCovid Coef. Std. Err. t P>|t| [95% Conf. Interval]
Total .009670048 131 .000073817 Root MSE = .00844
Adj R-squared = 0.0354
Residual .009256807 130 .000071206 R-squared = 0.0427
Model .00041324 1 .00041324 Prob > F = 0.0174
F( 1, 130) = 5.80
Source SS df MS Number of obs = 132
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Before the Covid-19 pandemic, liquidity from the
banking industry was very tight, at an average of
123% (Table 2). However, during the Covid-19
pandemic, liquidity eased, and the average LDR
became 87% (Table 2). This is in line with the
slowdown in economic growth during the Covid-19
pandemic, [62]. The slowdown in economic growth
has resulted in a decline in demand for credit,
resulting in loose bank liquidity, [63]. Therefore,
during the Covid-19 pandemic, banks must be able
to place their excess liquidity in securities
instruments that can provide optimal yields, [64].
Moreover, prior to the COVID-19 pandemic,
many countries reported stable or increasing credit
growth. The world economy was generally stable
and economic growth was good in many regions.
Thus, economic conditions in the world before the
Covid-19 pandemic were favorable for increased
credit activity, as consumers and entrepreneurs felt
more confident to borrow and invest, [65]. During
the pre-COVID-19 period, credit distribution could
be allocated to a variety of things based on need, for
example:
Consumer Credit: Individuals generally use this
credit to buy consumer goods or services such
as cars, houses (mortgages), or electronic
equipment. This type of credit may also be used
for purposes such as travel and education costs,
[66], [67].
Productive credit: Productive credit or loans are
usually used by companies or individuals for
activities that will generate income or profits in
the future. These may include business loans or
working capital, investments in equipment or
infrastructure, or research and development,
[68], [69].
At the same time, the COVID-19 pandemic has
created many uncertainties and challenges for
business owners. Here are some of the reasons why
they may be afraid or hesitant to apply for credit due
to, among others:
Economic uncertainty: The pandemic has
resulted in drastic changes in consumer habits
and market behavior, complicating forecasting
and business planning. Entrepreneurs may
worry that they will not be able to meet credit
payments if economic conditions deteriorate or
change rapidly, [70].
Decreased Revenue: Many businesses,
especially in sectors such as tourism,
entertainment, and restaurants, have experienced
a significant drop in revenue due to the
pandemic. With lower revenues, they may
struggle to meet their credit obligations, [71].
Shifting priorities: Amid the pandemic, many
entrepreneurs may prefer to maintain cash flow
and mitigate risk rather than scale up or invest
in their businesses, [72].
4.4 Profitability of the Banking Industry
Before the Covid-19 Pandemic and During
the Covid-19 Pandemic
Furthermore, the statistical analysis results found a
significant difference in profitability (ROA) during
the pre-pandemic period and the Covid-19
pandemic. Before the Covid-19 pandemic, the ROA
of the banking industry had a higher average, which
was 0.010; during the Covid-19 pandemic, it fell to
0.007. Therefore, based on the results of this study,
the banking industry experienced a significant
decline in performance during the Covid-19
pandemic. However, the average ROA of the
banking industry is still positive. The OJK provides
relaxation through the OJK letter (POJK) No.
11/POJK.03/2020 about the Covid-19 stimulus.
Therefore, there are three primary relaxations on
credit during the Covid-19 pandemic to support
bank business, [73]. The relaxation includes:
Relaxation of credit quality assessment or other
provision of funds with a ceiling below Rp 10
billion is only based on the accuracy of payment
of principal and/or interest, margin, profit
sharing, or ujrah until March 31, 2022.
Determining the quality of credit or financing to
be smooth after being restructured during the
POJK Covid-19 stimulus.
Banks can provide new loans or financing funds
to debtors who have received special treatment
following the POJK Covid-19 stimulus by
determining the credit quality separately from
the previous credit quality.
However, in the banking environment, the decrease
in ROA during the COVID-19 pandemic can be
caused by several factors, including:
Increase in Loan Loss Reserves: During the
pandemic, bad credit risk increased because
many debtors (individuals and companies)
experienced financial difficulties. This forces
banks to increase their loan loss reserves, which
reduces net profit and therefore lowers ROA.
Decreased Interest Income: With low
benchmark interest rates during the pandemic to
stimulate the economy, interest income from
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loans and investments will likely decline. This
has a negative impact on profits, which in turn
lowers ROA.
Economic uncertainty: Economic uncertainty
during the pandemic could make banks more
prudent in issuing new loans, potentially
reducing loan volumes and interest revenues.
4.5 Effect of Liquidity on Profitability
before the Covid-19 Pandemic
In the period before the Covid-19 pandemic, it has
yet to be able to create significant credit growth
despite economic growth. It is shown that banking
liquidity (LDR) does not affect profitability (ROA).
However, to maintain performance and public trust,
there is an opportunity for banks to earn profits from
other business activities that generate fee-based
income in the period before the Covid-19 pandemic.
These business activities include remittance
services, support trade such as bank guarantees and
letters of credit, and cash management systems.
Furthermore, related to, [74], [75], [76], the
development of financial technology (fintech) may
also cause banking revenues to stagnate for a variety
of reasons, including:
Increased competition: Fintechs often offer
similar services to banks but with reduced fees
or quicker and more convenient processes. This
could make some bank customers switch to
fintech services.
Changes in Payment Transactions: Fintechs
have also introduced new payment methods,
such as e-wallets and peer-to-peer transfers,
which could reduce banks' revenue from
traditional payment services.
Pressure on Interest Rates: Some fintech, such
as peer-to-peer lending platforms, may offer
better interest rates to borrowers or investors,
forcing banks to lower their interest rates to
compete, thus reducing interest income.
Innovation in Products and Services: Fintech
has introduced a range of innovative products
and services, from robo-advisors for
investments to digital insurance. Traditional
banking products and services may be less
attractive to customers.
4.6 The Effect of Liquidity on Profitability
during the Covid-19 Pandemic
Moreover, during the Covid-19 pandemic, all
business sectors experienced disruptions that
impacted the economic slowdown, resulting in a
decline in the financial capacity of the community.
This is indicated by the results of this study which
state that banking liquidity (LDR) has a negative
and significant effect on profitability (ROA). Thus,
if the bank disburses its credit, it can significantly
reduce profits. Therefore, during the Covid-19
pandemic, the banking industry must implement
business refocusing, determining which sectors have
low risk during the current Covid-19 pandemic so
that bank ROA remains positive. In addition, to
mitigate credit that can result in bank losses in the
future, banks need to make risk acceptance criteria
for lending and implement three aspects in credit
termination, namely business aspects, risk aspects,
and operational aspects, into one unified
consideration in deciding credit. Nevertheless,
according to, [60], [77], [78], during the COVID-19
pandemic, lending can have an impact on declining
asset performance due to:
Increase in bad debts: In an uncertain economic
situation such as a pandemic, the risk of bad
debts can increase as many debtors, individuals,
and businesses experience financial difficulties.
These bad loans reduce the bank's net profit and
lowering ROA.
Increase in Loan Loss Provision: Banks need to
increase their loan loss reserves due to an
increase in bad loans. These reserves reduce the
bank's net profit, which will also lower ROA.
Lower interest revenue: This has a negative
impact on earnings and depreciates returns on
assets.
4.7 Differences in the Effect of Liquidity on
Profitability in the period before the Covid-
19 Pandemic and during the Covid-19
Pandemic
Regarding the results of this study, it was found that
there was a difference in the effect of LDR on ROA
in the period before the Covid-19 pandemic and
during the Covid-19 pandemic. In the period before
the Covid-19 pandemic, LDR did not affect ROA in
the banking industry, while during the Covid-19
pandemic, LDR had a negative and significant effect
on ROA. Based on these findings, the banking
industry must extend credit to the industrial sector
during the current Covid-19 pandemic. However,
even though during the Covid-19 pandemic, all
businesses were exposed to risk, some sectors have
low risks, such as lending to state civil servants
(ASN) and employees of State-Owned Enterprises
(BUMN).
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.6
Lucky Nugroho, Ildiko Orban,
Wiwik Utami, Nurul Hidayah, Erik Nugraha
E-ISSN: 2224-2899
65
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5 Conclusion
Regarding the outcomes and differences of this
study, the following are known:
There is a significant difference in liquidity in
the banking industry during the period before
and during the Covid-19 pandemic. During the
Covid-19 pandemic, liquidity was looser than
before the Covid-19 pandemic because during
the Covid-19 pandemic, credit distribution
experienced a slowdown.
There is a significant difference in profitability
in the banking industry before the Covid-19
pandemic and during the Covid-19 pandemic.
During the Covid-19 pandemic, lending was
constrained by the high risk of non-performing
loans due to customers' decreased ability to pay.
In the period before the Covid-19 pandemic, the
liquidity of the banking industry did not affect
the profitability of the banking industry.
During the COVID-19 pandemic, the liquidity
of the banking industry had a significant
negative effect on the profitability of the
banking industry.
There is a difference between the impact of
liquidity on the banking industry's profitability
in the pre-COVID-19 period and during
COVID-19 where during COVID-19, increased
lending is impacting lower returns on assets.
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
- Wiwik Utami and Ildiko Orban contributed to the
editing of this study.
- Nurul Hidayah contributed to the formulation and
hypothesis development.
- Lucky Nugroho and Erik Nugraha contributed to
data processing and discussion.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
No funding was received for conducting this study.
Conflict of Interest
The authors have no conflict of interest to declare.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
Creative Commons Attribution License 4.0
https://creativecommons.org/licenses/by/4.0/deed.en
_US
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2024.21.6
Lucky Nugroho, Ildiko Orban,
Wiwik Utami, Nurul Hidayah, Erik Nugraha
E-ISSN: 2224-2899
70
Volume 21, 2024