The Indonesias Financial Landscape: P2P Loan Growth, Banking Performance, and The Covid-19 Connection

Abstract

Introduction/ Main Objectives: This study investigated the impact of peer-to-peer (P2P) loan growth on banking credit growth in Indonesia, specifically focusing on regions with low and high-risk nonperforming loan (NPL) banking, both before and during the exogenous shock of the COVID-19 pandemic. Background Problems: The digitalization of the banking industry faces a new challenge caused by start-up companies taking advantage of financial technology (FinTech) to create a new business model and financial innovation that can create financial solutions for the community. Research Methods: The research employed a panel regression model using monthly data from 33 provinces in Indonesia. The data spans from July 2019 to March 2020, representing the period before the COVID19 pandemic, and from July 2020 to March 2021, covering the pandemic period. Finding / Results: The regression analysis of data from the pre-COVID-19 periods revealed that the P2P loan growth negatively affects the banking credit growth in the provinces with low-risk banking NPLs; while on the contrary, during the COVID-19 pandemic, the P2P loan growth positively affects the banking credit growth in the provinces with high-risk banking NPL. Conclusion: The complementary impact of the P2P platform on banking occurred during the COVID-19 pandemic, but banks must remain vigilant because the P2P platform had become a substitute for banking prior to the COVID-19 pandemic. Therefore, when the COVID-19 pandemic passes and the stimulus from the financial services authority is no longer valid, there are still potentials for the P2P platform to substitute banks in Indonesia.