Portfolio Quality And Profitability In The Microcredit Sector Under Crisis Conditions: Panel Evidence From Bosnia And Herzegovina

The aim of this research is to empirically examine the impact of the COVID-19 pandemic on the profitability of the microcredit sector in Bosnia and Herzegovina, with a particular focus on changes in the quality of microcredit portfolios. The analysis is conducted on a sample of the largest microcredit institutions in B&H, covering approximately 80% of the market, using panel data from 2018 to 2024 through 28 quarterly reports. Portfolio quality is operationalized through the portfolio at risk rate (PAR>30), loan write-offs, and the loss reserve ratio, while profitability is measured by return on assets (ROA) and return on equity (ROE). The research employs basic and additional panel regression models, including income diversification indicators and the “COVID portfolio.” The results show that all key portfolio quality variables had a negative impact on profitability, with statistically significant effects recorded for the loan write-off rate, PAR>30, and the pandemic period. Additionally, the analysis of a focused portfolio strategy shows that greater income diversification reduces profitability, while the ' COVID portfolio' further weakens the positive effects of a focused portfolio strategy. The results obtained confirm that the pandemic had a strong negative impact on the financial performance of the microcredit sector, highlighting the importance of credit risk management, strategic portfolio focus and the implementation of regulatory measures to preserve the stability of institutions under crisis conditions.