Liquidity Surplus and Profitability: How Does Liquidity Affect Profitability prior to and during COVID-19? (Empirical Indonesian Banking Sector)

Abstract

This study aims to analyse the liquidity and profitability of the banking sector before the COVID-19 pandemic and during the COVID-19 pandemic. In addition, the focus of this research is also related to the effect of liquidity on profitability during the period prior to COVID-19 and during COVID-19. The research method used is quantitative, using secondary data, namely published financial reports from the banking industry. The total number of data observations used in this study is 132 banks. The problem formulation of this research includes: (i) How was the liquidity of the banking industry before the Covid-19 pandemic and during the Covid-19 pandemic?, (ii) How was the profitability of the banking industry before the Covid-19 pandemic and during the Covid-19 pandemic?, (iii) Does liquidity affect profitability in the pre-Covid-19 pandemic?, (iv) Does liquidity affect profitability during the Covid-19 pandemic?; (v) How is the comparison of the effect of liquidity on profitability between the period before the Covid-19 pandemic and during the Covid-19 pandemic?. The results of this study found that: (i) There is a significant difference in liquidity in the banking industry during the period before the Covid-19 pandemic and the Covid-19 pandemic, (ii) There is a significant difference in profitability in the banking industry before the Covid-19 pandemic and during the Covid-19 pandemic. During the Covid-19 pandemic, lending was constrained by the high risk of non-performing loans due to the decreased ability to pay from customers, (iii) In the period before the Covid-19 pandemic, the liquidity of the banking industry had no effect on the profitability of the banking industry, (iv) During the Covid-10 pandemic, the liquidity of the banking industry had a significant and negative effect on the profitability of the banking industry, (v) There is a difference between the impact of liquidity on the profitability of the banking industry in the pre-COVID-19 period and during COVID-19. This research implies that it is a benchmark for pre-researchers and practitioners affected by the banking sector's liquidity aspects. In addition, the novelty of this research is the object of research related to the analysis that compares the relationship between liquidity and profitability in the period before the Covid-19 pandemic and during the Covid-19 pandemic.