Measuring the Resilience of Rural Banks Against COVID-19 Pandemic: Evidence from West Java, Indonesia

Abstract

The potential disruption of operational activities in rural banks is linked to MSME actors'
inability to repay loans amid the COVID-19 pandemic. The quality of credit and financing
provided by these banks is vital in ensuring income and interest continuity, thereby impacting
profitability. This study aims to analyze the financial performance dynamics and factors
influencing rural banks' profitability in West Java, Indonesia, during COVID-19. The research
utilized multiple linear regression with REM estimation. Despite the pandemic's challenges, the
ROA, CAR, and equity values of the rural banks met minimum standards, though NPL values
exceeded maximum limits. The combined factors of CAR, NPL, equity, net income, and the
pandemic collectively influence profitability. Specifically, NPL and the pandemic have
significant negative effects, while net income positively impacts profitability. To bolster the
resilience of rural banks during crises, suggested policy measures include strengthening capital
reserves, tightening credit policies, implementing good governance practices, and enhancing
operational cost efficiency.