Bank Performance Under Varying Urban and Rural Governance: Evidence From the COVID-19 Pandemic

Raz A. F., Gokmen S.

Journal of Regional Science, 2026 (SSCI) identifier

  • Publication Type: Article / Article
  • Publication Date: 2026
  • Doi Number: 10.1111/jors.70087
  • Journal Name: Journal of Regional Science
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, Academic Search Premier, IBZ Online, International Bibliography of Social Sciences, Periodicals Index Online, ABI/INFORM, Agricultural & Environmental Science Database, Aquatic Science & Fisheries Abstracts (ASFA), Business Source Elite, Business Source Premier, EconLit, Geobase, PAIS International, Political Science Complete, Public Affairs Index, Worldwide Political Science Abstracts, DIALNET
  • Keywords: bank performance, local government, state capacity, urban and rural areas
  • Abdullah Gül University Affiliated: Yes

Abstract

This paper examines how state capacity influences the effect of economic shocks on local bank performance in urban and rural areas. Our identification strategy exploits COVID-19's impact on Indonesia's community credit banks, which can only operate in a single region. Using loan loss provisions to represent credit risk and return on assets for profitability, we find that COVID-19 provoked more adverse impacts on the rural banking sector compared to urban areas. This heterogeneity is driven by greater state capacity in urban areas, allowing prompt and effective policy responses to mitigate the adverse effects of COVID-19 on the local economy.