What does this research mean for the field?

The COVID-19 pandemic negatively impacted the profitability of the microcredit sector in Bosnia and Herzegovina, with significant effects from portfolio quality variables such as loan write-off rates and portfolio at risk. Novelty: ClaimNovelty.NOVEL_FINDING. Consensus alignment: ConsensusAlignment.CHALLENGES_CONSENSUS.

What question did this study set out to answer?

This research aims to investigate how the COVID-19 pandemic affected profitability and portfolio quality in Bosnia and Herzegovina's microcredit sector.

February 17, 2026BH Ekonomski forum0 citationsOpen Access

Portfolio Quality And Profitability In The Microcredit Sector Under Crisis Conditions: Panel Evidence From Bosnia And Herzegovina

JDJasmina Džafić MMMirza Mulic

Key Points

This research aims to investigate how the COVID-19 pandemic affected profitability and portfolio quality in Bosnia and Herzegovina's microcredit sector.
Analyzed panel data from 2018 to 2024 based on 28 quarterly reports from major microcredit institutions.
Measured portfolio quality with the portfolio at risk rate, loan write-offs, and loss reserve ratio.
Assessed profitability using return on assets and return on equity.
Employed panel regression models including indicators for income diversification and a specific 'COVID portfolio'.
Found negative impacts of portfolio quality variables on profitability, especially from loan write-off rates and portfolios at risk.
Observed that income diversification negatively affected profitability.
Confirmed the pandemic significantly harmed the financial performance of the microcredit sector.

Abstract

pThe aim of this research is to empirically examine the impact of the COVID-19 pandemic on the profitability of the microcredit sector in Bosnia and Herzegovina, with a particular focus on changes in the quality of microcredit portfolios. The analysis is conducted on a sample of the largest microcredit institutions in Bamp;H, covering approximately 80% of the market, using panel data from 2018 to 2024 through 28 quarterly reports. Portfolio quality is operationalized through the portfolio at risk rate (PARgt;30), loan write-offs, and the loss reserve ratio, while profitability is measured by return on assets (ROA) and return on equity (ROE). The research employs basic and additional panel regression models, including income diversification indicators and the ldquo;COVID portfolio.rdquo; The results show that all key portfolio quality variables had a negative impact on profitability, with statistically significant effects recorded for the loan write-off rate, PARgt;30, and the pandemic period. Additionally, the analysis of a focused portfolio strategy shows that greater income diversification reduces profitability, while the COVID portfolio further weakens the positive effects of a focused portfolio strategy. The results obtained confirm that the pandemic had a strong negative impact on the financial performance of the microcredit sector, highlighting the importance of credit risk management, strategic portfolio focus and the implementation of regulatory measures to preserve the stability of institutions under crisis conditions./p

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