The Effect of Credit Portfolio Concentration on the Risk and Profitability during the Covid-19 Pandemic Evidence from of Commercial Banks in Indonesia

Abstract:

This paper examines the effect of credit portfolio concentration on bank performance during the Covid-19 Pandemic, which is important because bank has to make right policies to avoid the risk of payment default caused by economic shock during the covid-19 pandemic. The nature of this research is quantitative using the EGLS Panel estimation method on panel data from 47 commercial banks that go-public in Indonesia during 2016–2021. In the present study, the Hirshmann-Herfindahl Index (HHI) based on the economic sector are used as a measure of the concentration credit portfolio, non performing loans (NPL) as a measure of risk and return on equity (ROE) as a measure of profitability. The results of the research revealed that the concentration of the credit portfolio will reduces credit risk and bank profitability before the Covid 19 pandemic. On the contrary the concentration of credit portfolios will increases credit risk and bank profitability after Covid-19 pandemic.