The Determinants of Non-Performing Loans in the Indonesian Banking Industry: An Asymmetric Approach Before and During the Pandemic Crisis

The outbreak has created an unprecedented crisis that influences macroeconomic variables. These circumstances are predicted to be contagious for banking performance. To understand the related influences, this study attempts to examine the asymmetric relationship between macroeconomic variables and non-performing loans/financing of the Indonesian banking industry before and during the COVID-19 pandemic. The nonlinear autoregressive distributed lag (NARDL) is adopted based on the time-series data from 2005QI to 2021QI. The study provides evidence that an asymmetric relationship between macroeconomic variables and the banks' non-performing loans/financing exists both before and during the pandemic. In addition, asymmetric relationships of macroeconomic variables on Islamic banks are more prominent before the pandemic even though it occurs inversely during the pandemic. As for policy implication, the financial authority needs to be prudent in implementing financial policies due to the presence of an asymmetric relationship between macroeconomic variables and the banks' non-performing loans/financing. Moreover, the authority must ensure that all financial policies will be effective to all types of banks regardless of conventional or Islamic banks.