Impact of Restructuritation Strategies and Financial Instruments for Loan Loss Provision

Abstract

When the COVID-19 pandemic started in April 2020, there was a swift change for portfolio banks in the lending sector. Loan at risk still dominated all of the lending portfolio banks. As a result, the quality of the portfolio and bank assets is getting worse. Furthermore, the banking industry is advised to continue paying attention to the adequacy of loan loss provisioning for impairment losses in anticipating the potential for deteriorating credit quality. The condition of the banking business portfolio, especially in the lending sector, is experiencing worsening conditions due to the COVID-19 pandemic. Loan loss provisioning as the bank’s anticipation of the risk of losing productive assets could contribute in a significant way to the financial crisis in the banking sector. This study analyzes the restructuritation, bank size, capital, inflation, operating expenses management, and productivity growth on loan loss provision. Data collection is done by recording every data needed from The Financial Services Authority (OJK) in the audited financial report. The data were collected for five years quarterly from Q2 2017–Q4 2022, with the object of research being ten banks of group BUKU IV. In total, there are 220 data observations. The dependent variable in this study is loan loss provision. Moreover, the independent variables in this study are restructuritation, bank size, capital, inflation, operating expenses management, and productivity growth. This study uses a quantitative approach with an explanatory or causal design. The data analysis used in this study is panel data regression with the help of the EViews 13 program. The results show that restructuritation policy, inflation rate, and bank size during the COVID-19 pandemic have a significant positive impact on loan loss provision. However, capital bank productivity growth before the COVID-19 pandemic occurred. Also, the operating expense management during the restructuring policy implementation period significantly negatively affects loan loss provision.