RISK OF INDONESIAN BANKS: AN APPLICATION OF HISTORICAL EXPECTED SHORTFALL METHOD
Keywords:
expected shortfall, value at risk, banks, risk
Abstract
Asian and European crises were witnesses of banks’ vulnerable due to market risks. The Basel Committee requires an internal risk assessment applying Value at Risk (VaR). However, a replacement of VaR with Expected Shortfall (ES) has been suggested recently due to an excessive losses produced by banks which are beyond VaR estimations. This paper studied the risk of Indonesian banks applying a historical expected shortfall. We used JIBOR (overnight) from 2009 – 2012 as a proxy of market risk. The assessment of a historical expected shortfall of the net position of 27 banks accounts for October 2012 showed that state owned banks placed among the five highest value of each component (net position) in the balance sheet, namely placement to Bank Indonesia, interbank placement, spot and derivatives claims, securities, and loans. It means that the state owned banks had the highest risk and were the most aggressive among Indonesian banks. It might be due to carrying some of the government’s program, such as small enterprise loans. Keywords: expected shortfall, value at risk, banks, risk. JEL Classification: D81, G210Downloads
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References
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Woods, M., Dowd, K. & Humphrey, C. (2008).The Value of Risk Reporting: A Critical Analysis of Value at Risk Disclosures in the Banking Sector. International Journal of Financial ServicesManagement, Vol. 8, No. 1, pp. 45-64
Artzner, P., Delbaen F., Eber J. & Heath D. (1999). Coherent measures of risk. Mathematical Finance, 9, 203-228.
Basel Committee (2003). Public Disclosure by Banks: Results of the 2001 Survey, Basel Committee on Banking Supervision, Publications, No. 97 (May). Bank for International Settlements.
Basel Committee (2012).Fundamental Review of Trading Book. Basel Committee on Banking Supervision, Bank for International Settlements.
Begenau, J., Piazzesi, M., & Schneider. M. (2012).Banks’ Risk Exposures. [Online] Available:www.stanford.edu/~piazzesi/banks.pdf (December 12, 2012)
Berry, R. (2008). Value -at- Risk: an Overview of Analytical VaR. [Online] Available: http://www.jpmorgan.com/tss/General/Risk_Management/1159360877242 (August 22, 2010)
Butler, C. (1999). Mastering Value at Risk. Great Britain:Financial Times, Pitman Publishing.
Bank Indonesia (n.d). [Online] Available: http://www.bi.go.id/ (February 21, 2012)
Beltratti , A., &Stulz, R. M. (2009). Why Did Some Banks Perform Better during the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation. [Online] Available: http://ssrn.com/abstract=1433502 or http://dx.doi.org/10.2139/ssrn.1433502 (February 19, 2012)
Carver, L. (2012). Basel Committee proposes scrapping VAR. [Online] Available: http://www. risk.net/risk-magazine/news/2172332/basel-committee-proposes-scrapping-var (July 26, 2012)
Damodaran, A. (2007). Strategic Risk Taking: A framework for risk Management.[Online] Available:http://my.safaribooksonline.com/book/strategy-business-planning/9780131990487 (July 26, 2012)
Dobránszky, P. (2009). Comparison of Historical and Parametric Value-at-Risk Methodologies.[Online] Available: http://ssrn.com/abstract=1508041 (August 22, 1999)
Dzeawuni, W. A. &Tanko, M. (2008). CAMELs and Banks Performance Evaluation: The Way Forward. [Online] Available: http://ssrn.com/abstract=1150968 or http://dx.doi.org/10.2139/ssrn.1150968 (February 19, 2012)
Economic Report on Indonesia (2008).Bank Indonesia. [Online] Available: www.bi.go.id (February 19, 2012)
Elliot, R. J., & Miao, H. (2007).VaR and CVaR: A Non-normal Regime Switching Framework.[Online] Available: http://69.175.2.130/~finman/Orlando/Papers/VaRandCVaRANonnormalRegimeSwitchingFramework.pdf (March 22, 2011)
Elsinger, H., Lehar, A., &Summer, M. (2003, January). Risk Assessment for Banking Systems.Paper presented at 14th Annual Utah Winter Finance Conference Paper; EFA 2003 Annual Conference Paper No. 437. [Online] Available: http://ssrn.com/abstract=423985 or http://dx.doi.org/10.2139/ssrn.423985 (December 19, 2012)
Estrella, A., Park, S., &Peristiani, S. (2000). Capital Ratios as Predictors of Bank Failure. Economic Policy Review, Vol. 6, No. 2.
Jackson, P., Maude, D., &Perraudin, W. (1998).Bank Capital and Value at Risk. Bank of England Working Paper No. 79. [Online] Available: http://ssrn.com/abstract=87288 or http://dx.doi.org/10.2139/ssrn.87288 (February 20, 2012)
Letmark, M. (2010). Robustness of Conditional Value-at-Risk (CvaR) when Measuring Market Risk Accros Different Asset Clasess. Unpublished master’s thesis, Royal Institute of Technology. [Online] Available: http://www.math.kth.se/matstat/seminarier/100308a.htm (April 2,2011)
Linsmeier, T. J., & Pearson, N. D., (2000).Value at Risk. Financial Analyst Journal, March/April,47-67.
Mehta, A. ,Neukirchen, M., Pfetsch, S., &Poppensieker, T. (2012). Managing market risk: Today and tomorrow. McKinsey Working Papers on Risk, Number 32, May. [Online] Available: www.mckinsey.com/~/.../Risk/.../Working_Papers_on_Risk_32.ashx (December 21, 2012)
Munenzon, M. (2010). Risk Measurement from Theory to Practice: Is Your Risk Metric Coherent and Empirically Justified?.[Online] Available: http://ssrn.com/abstract=1605315 (March 15, 2011)
Muresan, E., &Danila, N. (2005, June).Using Earn ings-at-Risk (EaR) Technique to Assess the Risk of Indonesian Banks. Paper presented at 6th Pacific Basin Finance, Economics and Accounting Conference, New Jersey, USA.
Nath, G. C., &Samanta, G. P. (2003). Value at Risk: Concept and It’s Implementation for Indian Banking System. SSRN Paper.[Online] Available: http://ssrn.com/abstract=473522 or http://dx.doi.org/10.2139/ssrn.473522 (December 20, 2012)
Pérignon, C., & Smith, D.R. (2008).The Level and Quality of Value-at-Risk Disclosure by Commercial Banks.[Online] Available: www.unifr.ch/controlling/seminar/2007-2008/Perignon_ParisII.pdf (December 20, 2012)
Pflug, G. (2000). Ch. Some Remarks On The Value-at-Risk And The Conditional Value-at-Risk.In S. Uryasev, ed., Probabilistic Constrained Optimization: Methodology and Applications, Dordrecht: Kluwer,2000, 272-281.
Roulstone, D. (1999). Effect of the SEC financial reporting release on derivative and market risk disclosures, Accounting Horizons, Vol. 13, pp.343–363
Reserve Bank of New Zealand (n.d).Capital adequacy ratios for banks - simplified explanation and example of calculation. [Online] Available: http://pages.stern.nyu.edu/~igiddy/articles/capital_adequacy_calculation.pdf (January 23, 2013)
Sinha, T., and Chamu, F. (2000).Comparing Different Methods of Calculating Value at Risk.SSRN Paper. [Online] Available: http://ssrn.com/abstract=706582 or http://dx.doi.org/10.2139/ssrn.706582 (February 21, 2012)
Trenca, I. (2009). The Use In Banks Of Value At Risk Method In Market Risk Management.[Online]Available: anale.feaa.uaic.ro/anale/resurse/16_F12_Trenca.pdf (December 20, 2012)
Vensel, V., Aarma, A., &Vainu, J. (2004). Bank Performance Analysis: Methodology and EmpiricalEvidence (Estonian Banking System, 1994-2002). SSRN Paper. [Online] Available: http://ssrn.com/abstract=499434 or http://dx.doi.org/10.2139/ssrn.499434 (November 20, 2012)
Woods, M., Dowd, K. & Humphrey, C. (2008).The Value of Risk Reporting: A Critical Analysis of Value at Risk Disclosures in the Banking Sector. International Journal of Financial ServicesManagement, Vol. 8, No. 1, pp. 45-64
Published
2015-01-10
How to Cite
Danila, N., Bunyamin, B., & Munfaqiroh, S. (2015). RISK OF INDONESIAN BANKS: AN APPLICATION OF HISTORICAL EXPECTED SHORTFALL METHOD. Buletin Ekonomi Moneter Dan Perbankan, 17(3), 299-314. https://doi.org/10.21098/bemp.v17i3.3
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Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
