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Impact Of The Covid-19 Shock On Banking And Corporate Sector Vulnerabilities In Indonesia

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Listed:
  • Reza Y. Siregar
  • Anton H. Gunawan
  • Adhi N. Saputro

Abstract

Indonesia’s economic contraction eased and its Covid-19 handling improved in the first quarter of 2021, with at least 13% of the targeted population receiving their first vaccination by the third week of June. The economic improvement was driven by external sectors, but the pace of the recovery differed considerably across sectors. This Survey looks at the balance sheets of corporations and the banking sector in the midst of the pandemic. We find that the worsening of corporate balance sheets may require government intervention to prevent liquidity problems from turning into solvency problems. While the banks’ capital position remains adequate, the deterioration of loan quality, reflecting real sector conditions, is worse than it appears. Recent stress testing of the banking sector confirms the potential vulnerabilities in the sector. We end the article by highlighting policies the government could consider to position Indonesia for a post-pandemic future, particularly over the next two years.

Suggested Citation

  • Reza Y. Siregar & Anton H. Gunawan & Adhi N. Saputro, 2021. "Impact Of The Covid-19 Shock On Banking And Corporate Sector Vulnerabilities In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 57(2), pages 147-173, May.
    • Handle: RePEc:taf:bindes:v:57:y:2021:i:2:p:147-173
    DOI: 10.1080/00074918.2021.1956397
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    Cited by:

    1. Susamto, Akhmad Akbar & Octavio, Danes Quirira & Risfandy, Tastaftiyan & Wardani, Dyah Titis Kusuma, 2023. "Public ownership and local bank lending at the time of the Covid-19 pandemic: Evidence from Indonesia," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    2. Gupta, Krisna & Gretton, Paul & Patunru, Arianto, 2022. "Projecting the long run impact of an economic reform: the case of the Indonesian Omnibus Law and concurrent changes in trade policy," Conference papers 333472, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Farida Farida & Sugiharti Binastuti & Widya Silfianti & Budi Hermana, 2023. "The impact of Covid-19 on electronic payment system: Lesson learned from Indonesian banking," Technium Social Sciences Journal, Technium Science, vol. 40(1), pages 200-212, February.

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