MSME Lending, Risk, Capital, and Macroeconomic Drivers Across Bank Types in the COVID-19 Cycle

DOI

10.2991/978-94-6239-709-5_88How to use a DOI?

Keywords

Bank Profitability; MSME-LAR; MSME Lending; Capital Adequacy; COVID-19

Abstract

This study examines how MSME lending, MSME Loan at Risk (MSME-LAR), capital adequacy, and macroeconomic conditions influence bank profitability across ownership types in Indonesia, and how the COVID-19 crisis moderates these relationships. Using balanced quarterly panel data from 2013Q1–2025Q1 covering state-owned banks (BUMN), private national banks (BUSN), and regional development banks (BPD), the analysis employs a Fixed Effects Model (FEM) with cluster-robust standard errors and diagnostic tests for heterogeneity, multicollinearity, autocorrelation, and heteroskedasticity. The results show that MSME lending reduces profitability, and this adverse effect intensifies during the COVID-19 crisis. MSME-LAR consistently erodes returns, confirming its role as a forward-looking credit risk measure. Capital adequacy exhibits heterogeneous effects—insignificant overall but negative for BPDs, indicating overcapitalization constraints. Among macroeconomic variables, GDP growth is negatively associated with profitability, inflation modestly improves margins, and commodity prices strongly enhance returns, particularly for BUMN and BUSN. COVID-19 amplifies the risks of MSME lending and strengthens the profitability benefits of commodity price increases. This study contributes to the literature by introducing MSME-LAR as a risk metric, demonstrating ownershipspecific vulnerabilities, and conceptualizing COVID-19 as a moderating shock. Policy implications emphasize the need for countercyclical buffers, risk-sharing schemes, and differentiated regulatory approaches to balance inclusive MSME intermediation with sustainable bank profitability.

Copyright

© 2026 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Andi Muhammad Yusuf
PY  - 2026
DA  - 2026/06/20
TI  - MSME Lending, Risk, Capital, and Macroeconomic Drivers Across Bank Types in the COVID-19 Cycle
BT  - Proceedings of the 10th International Conference on Accounting, Management, and Economics (10th ICAME 2025)
PB  - Atlantis Press
SP  - 1267
EP  - 1289
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6239-709-5_88
DO  - 10.2991/978-94-6239-709-5_88
ID  - Yusuf2026
ER  -