Loan restructuring as a banking solution in the COVID-19 pandemic: Based on contingency theory

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The world’s economic growth has decreased due to the COVID-19 pandemic. Many companies are experiencing financial distress, so they cannot pay off their maturing debts. Banks as lenders face the risk of non-performing loans. The increasing number of unpaid loans will reduce a bank’s operating income and gain. The contingency approach is used as a conditional factor that can increase the effectiveness of firm performance. The relevance of this study is how banking strategies overcome the problem of uncertainty regarding risk and return during a pandemic. Contingency theory describes organizational success as influenced by contextual factors and established strategies. The purpose of this study is to systematically review the literature related to loan restructuring as a solution to non-performing loans in banking companies in Indonesia. The research method is a review of 40 articles from Scopus and a descriptive analysis of company financial statement notes to see what strategies banks are using during the COVID-19 pandemic. Based on contingency theory, the results of the study explain organizational success which is influenced by contextual factors and the established strategy. The more appropriate the strategy chosen in a given situation, the higher the achievement of organizational performance. A qualitative analysis provides a solution for a bank to overcome the problem of unpaid loans at maturity through a restructuring model strategy with modified loan terms.

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    • Figure 1. Bank loan restructuring
    • Table 1. Grouping of bank loans restructuring
    • Conceptualization
      I Gusti Ayu Eka Damayanthi, Ni Luh Putu Wiagustini, I Wayan Suartana, Henny Rahyuda
    • Data curation
      I Gusti Ayu Eka Damayanthi
    • Formal Analysis
      I Gusti Ayu Eka Damayanthi, Ni Luh Putu Wiagustini, I Wayan Suartana, Henny Rahyuda
    • Funding acquisition
      I Gusti Ayu Eka Damayanthi
    • Investigation
      I Gusti Ayu Eka Damayanthi
    • Methodology
      I Gusti Ayu Eka Damayanthi, Ni Luh Putu Wiagustini, I Wayan Suartana, Henny Rahyuda
    • Project administration
      I Gusti Ayu Eka Damayanthi
    • Resources
      I Gusti Ayu Eka Damayanthi
    • Visualization
      I Gusti Ayu Eka Damayanthi
    • Writing – original draft
      I Gusti Ayu Eka Damayanthi
    • Writing – review & editing
      I Gusti Ayu Eka Damayanthi, Ni Luh Putu Wiagustini, I Wayan Suartana, Henny Rahyuda
    • Validation
      Ni Luh Putu Wiagustini