Does capital adequacy ratio matter during the Covid-19 outbreak? Evidence on state-owned banks in Indonesia

Abstract

The Covid-19 epidemic has brought significant changes in the financial performance of the Indonesian banking sector. Weak economic indicators lead to a reduction in bank capital due to insufficient working capital loans. This study was conducted to find out changes in the capital adequacy ratio of state-owned banks in Indonesia during the Covid-19 pandemic. The data set is based on quarterly financial reports of state-owned banks for the 2020-2021 period. We prove that lending and NPL have an effect on CAR. In condition, there was a significant decrease in credit and a significant increase in non-performing loans starting in the third quarter of 2020 and increased slightly in the third quarter of 2021. Meanwhile, the capital adequacy ratio tends to be stable, because the government has strengthened bank capital. The study shows that state-owned banks can maintain CAR consistently and safely. This level of safe defense increases capital consistently in line with growth in lending while maintaining banking industry regulations.