The impact of COVID-19 on bank stability: Do bank size and ownership matter?

Siti Maria · Rizky Yudaruddin · Yanzil Azizil Yudaruddin

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Banking stability, regulation, efficiency Banking Sector Performance and Management COVID-19 Pandemic Impacts

Abstract

During the COVID-19 pandemic, bank stability became a priority for the Indonesian Financial Services Authority and the government. Economic activity is expected to be restored by muffling the shocks caused by the COVID-19 outbreak. This paper investigates the inﬂuence of COVID-19 on banking stability by differentiating bank core capital size and ownership. Using data from 108 commercial banks in Indonesia for the period March 2020 and March 2021, the paper analyzes data using fixed effects regression. The results show that COVID-19 has a detrimental and significant effect on bank stability in Indonesia. Regardless of the size and ownership of a bank’s core capital, it was found that no bank is immune for a year to the severe implications of COVID-19. This condition was experienced by both state banks and private banks, large and small. To assist in the absorption of COVID-19 shocks, this paper proposes policies for regulators that include stimulus packages and countercyclical roles in the banking system via government-owned banks.

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References

2001Econometric Analysis of Cross Section and Panel Data 2021Econometric Analysis of Panel Data 2020Financial markets under the global pandemic of COVID-19 1997Problem loans and cost efficiency in commercial banks 2013How does capital affect bank performance during financial crises?2020The Global Macroeconomic Impacts of COVID-19: Seven Scenarios 2020Death and contagious infectious diseases: Impact of the COVID-19 virus on stock market returns 2020Stock markets’ reaction to COVID-19: Cases or fatalities?

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