Impact Of Corporate Loan Deleveraging On Banking Performances In Indonesia

This study examines the trend of corporate deleveraging in Indonesia, particularly in response to economic uncertainties like the COVID-19 pandemic. Historically, corporate deleveraging has been observed globally, with companies in Japan, the US, and Europe adopting strategies to reduce debt levels during periods of financial crisis and stagnation. In Indonesia, companies tend to shift from debt financing to equity-based funding, especially in sectors that saw increased demand during the pandemic. This shift reflects a broader global trend of deleveraging as companies aim to mitigate risk and maintain financial stability. Using an analysis of financial ratios, this study identifies patterns of deleveraging among Indonesia’s nonfinancial companies and evaluates its potential impacts on banking performance. In response to COVID-19's financial challenges, many companies shifted from debt to equity-based financing to maintain stability. This shift led to a decrease in the debtto-equity ratio for non-financial companies in Indonesia, indicating reduced reliance on debt. An increase in the Interest Coverage Ratio post-pandemic showed that some companies became less dependent on debt as their earnings improved. The Bayesian network model use to analyzes banking performance, with factors such as the BI rate, Economic Condition, Macro-Prudential Policy, Corporate Leveraging, and Credit Risk playing a role. Results indicate a 57% likelihood of corporate deleveraging and a 79% probability of high banking performance, with Economic Condition and Credit Risk being the most significant factors for banking performance. Sensitivity analysis shows that low BI rate, economic expansion, and low credit risk are the most influential for high banking performance.