Analysis Of Profitability Determinants of Microfinance Institutions in Central Java During the Covid-19 Pandemic with Macroeconomics As A Moderating Variable

Abstract

This paper examines the profitability determinants of Rural Banks (BPR) and Islamic Rural Banks (BPRS) in Central Java during 2018-2024, particularly focusing on the impact of the COVID-19 pandemic. Using panel data regression analysis on 235 BPRs and 24 BPRS, the research investigates the influence of NPL/NPF, CAR, BOPO, LDR/FDR, Third Party Funds (DPK), credit restructuring policy, and COVID-19 on Return on Assets (ROA), with inflation and BI-Rate as moderating variables. The findings reveal that NPL/NPF, CAR, BOPO, DPK, BIRate, and COVID-19 have significant negative effects on ROA, while LDR/FDR and inflation show significant positive effects. The credit restructuring policy implemented during the pandemic shows no significant impact on profitability. Regarding moderating effects, both inflation and BI-Rate significantly moderate the relationship between DPK and ROA. However, while inflation significantly moderates the relationship between LDR/FDR and ROA, BI-Rate does not show a significant moderating effect on this relationship. The study indicates that the pandemic has significantly impacted rural banks' profitability, as evidenced by increasing NPL/NPF ratios, declining operational efficiency, and challenges in maintaining optimal liquidity levels. These findings provide valuable insights for bank management and regulators in developing strategies to enhance rural banks' resilience during crises and improve their operational efficiency in the post-pandemic era.

Keywords: Bank Profitability; Rural Banks (BPR); Islamic Rural Banks (BPRS); Non- Performing Loan (NPL); COVID-19 Pandemic; Credit Restructuring; Third Party Funds (DPK); Operational Efficiency (BOPO); Capital Adequacy Ratio (CAR); Macroeconomic Moderation