Credit Diversification and Its Role in Supporting the Growth of the Tourism and Hospitality Sector: Evidence from Indonesia’s Banking Industry

This study aims to analyze the influence of tourism sector credit diversification on banking performance and risk in Indonesia. Using panel data of 204 observations from several banks during the study period, multiple linear regression models were estimated using a fixed effects approach. The results showed that the model was significant overall, with an R² value of 0.5150 for ROA and 0.2241 for NPL. Partially, the credit exposure of the tourism sector (HHIE_Tourism) has a significant negative effect on profitability (ROA) and a significant positive effect on NPLs, indicating that increased financing in this sector increases credit risk, while depressing profitability. On the other hand, NIM, LDR, and Z-Score had a significant positive effect on ROA, while foreign ownership (FOREIGN) and Z-Score significantly reduced NPLs. Covid-19 macro variables negatively impacted ROA, reflecting a decline in bank performance during the pandemic. These results confirm the importance of credit diversification across sectors, strengthening banking stability and implementing stricter risk management in high-risk sectors. The findings of this study make an empirical contribution to the banking risk management literature and provide policy implications for regulators to drive the resilience of the banking sector.