BANK EFFICIENCY BEFORE, DURING, AND AFTER COVID-19: A LESSON LEARNED FROM INDONESIA

Abstract

The COVID-19 pandemic has had a significant impact on the global banking industry, primarily because there has been an increase in non-performing loans, which has reduced bank profitability. Responding to this challenge, the Financial Services Authority has put in place a series of stimulus measures aimed at maintaining operational efficiency within the banking sector. It is crucial to thoroughly analyse the effects of the stimulus measures implemented by the Financial Services Authority (OJK) on the banking sector. This study seeks to assess the technical efficiency of banking in Indonesia prior to, during, and post the COVID-19 pandemic (2018-2022). In addition, the research highlights the countercyclical policies implemented by the Indonesian Banking Authority in reaction to the risks brought about by COVID-19. The study sample comprises data from 106 Commercial Banks (Conventional Banks), 13 Sharia Banks, 20 Sharia Business Units, and 167 Sharia Rural Banks. During the pandemic period in 2020, the Data Envelopment Analysis revealed that Commercial Banks, Sharia Business Units, and Sharia Rural Banks collectively faced inefficiency. Collectively, Sharia Banks were not operating efficiently both before and during the pandemic. In 2022, following the conclusion of the COVID-19 pandemic, all banks reached optimal efficiency levels. This study highlights the beneficial effects of implementing countercyclical policies by the Indonesian Financial Services Authority on the banking sector's resilience amid the COVID-19 pandemic. Based on the results, this study suggests that banking authorities in each country should adopt countercyclical policies in response to different crisis triggers.