MACROECONOMIC CONDITION AND BANKING INDUSTRY PERFORMANCE IN INDONESIA
Keywords:
Credit, PVAR, Banking, Interest Rate, Exchange Rate
Abstract
The ratio of non-performing loan (NPL) and capital adequacy ratio (CAR) is still a measure of bank soundness in various countries including Indonesia. Interdependence acros bank’s condition, diversity of the size, market structure within banking industry, and macroeconomic variables, may be very complex and dynamic. This paper utilizes the advantage of PVAR model on capturing this complexity to analyze the dynamic relationship between the macroeconomic variables and the soundness of the banks. The result shows NPL of banks with small asset will increases rapidly when interest rate fluctuates. For banks with large asset, the increase in interest rates leads to larger reduction on their CAR. On the other hand, the result shows banks with smaller capital are less able to adapt quickly to an increase in NPL due to exchange
rate depreciation, therefore banks with smaller capital should be cautious about the exchange rate risk.
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References
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Pedroni, P. 2000. Fully Modified OLS for Heterogeneous Cointegrated Panels. in Baltagi, B.
H. ed., Nonstationary Panels. Panel Cointegration and Dynamic Panels. 15. Amsterdam:
Elsevier. 93–130.
Pedroni, P. 2001. Purchasing Power Parity Tests in Cointegrated Panels. The Review of Economics
and Statistics. 83: 727–731.
Pesaran, M.H. 2007. A Simple Panel Unit Root Test in The Presence of Crosssection Dependence.
Journal of Applied Econometrics. 27(2): 265-312.
Ranjan, R. dan Dahl, S.C. 2003. Non-Performing Loan and Terms of Credit of Public Sector Banks
in India : An Emperical Assessment. Reserve Bank of India Occasional Papers. 24 (3): 81-121.
Salas, V. dan J. Saurina. 2002. Credit Risk in Two Institutional Regimes: Spanish Commercial
and Savings Banks. Journal of Financial Services Research. 22 (3): 203–24.
Shu, C. 2002. The Impact of macroeconomic environment on the asset quality of Hong Kong’s
banking sector. Hong Kong Monetary Authority Research Memorandums.
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23 (3).
Wu, Chang dan Selvili. 2003. Banking System, Real Estate Markets and Non Performing Loans.
International Real Estate Review. 6 (1): 43-62.
Banking. Journal of Banking and Finance. 24: 1605-1628.
Benes, J. 2014. Estimate Panel VAR. The IRIS Toolbox Project.
Breitung, J. 2000. “The Local Power of Some Unit Root Tests for Panel Data” in B. Baltagi (2nd
ed.), Advances in Econometrics, Vol. 15: Nonstationary Panels, Panel Cointegration, and
Dynamic Panels. Amsterdam: JAI Press.
Breitung, J. dan Pesaran, M.H. 2008. “Unit Roots and Cointegration in Panels” in Mátyás,
László and Patrick Sevestre, eds., The Econometrics of Panel Data, Berlin: Springer-Verlag
Berlin Heidelberg.
Buncic, D. dan Melecky, M., 2012. Macroprudential Stress Testing of Credit Risk – A Prac-tical
Approach for Policy Makers. World Bank Policy Research. Working Paper. 5936.
Canovaa. F. dan Ciccarelli. M. 2004. Forecasting and turning point predictions in a Bayesian
panel VAR model. Journal of Econometrics. 120: 327 – 359.
Choi, I. 2001. Unit Root Tests for Panel Data. Journal of International Money and Finance. 20:
249– 272.
Cooley, T. dan Dwyer, M. 1998. Business Cycle Analysis without much Theory: A Look at
Structural VARs. Journal of Econometrics. 83: 57-88.
Ekananda, M. 2014. Time Series Analysis for Research in Economy and Business. Publisher :
Mitra Wacana Media, Jakarta.
Ekananda, M. 2016. Data Panel Analysis for Research in Economy and Business. 2nd Ed, Publisher
: Mitra Wacana Media, Jakarta.
Enders, W. 2005. Applied Econometrics Time Series. John Wiley and Sons, Inc, New York.
Faust, J. dan Leeper, E. 1997. Do Long Run Restrictions Really Identify Anything?. Journal of
Business and Economic Statistics. 15: 345-353.
Farhan, M. 2012. Economic Determinants of Non-Performing Loans: Perception of Pakistani
Bankers. European Journal of Business and Management. 4 (19).
Firmansyah, I. 2014. Determinant of Non Performing Loan: The Case Of Islamic Bank In Indonesia.
Buletin Ekonomi Moneter dan Perbankan. 17 (2).
Girardone, C., Molyneux, P., dan Gardener, E. P. 2004. Analysing the Determinants of Bank
Efficiency: The Case of Italian Bank. Applied Economics. 36: 215-227.
Gosh, A. 2015. Banking-industry specific and regional economic determinants ofnon-performing
loans: Evidence from US States. Journal of Financial Stability. 93 (104).
Greene, W.H. 2008. Econometric Analysis, Macmillan Publishing Company, Fifth Edition, New
York.
Hadri, K. 2000. Testing for Stationarity in Heterogeneous Panel Data. Econometric Journal.
3:(148–161).
Hamilton, D. 1994. Time Series Analysis. Princeton University Press.
Holtz-Eakin, D., Newey, W., dan Rosen, H.S. 1988. Estimating Vector Autoregressions with
Panel Data. Econometrica. 56 (6): 1371-1395. Published by: The Econometric Society
Hughes, J. P., dan Mester, L. J. 1993. A Quality and Risk-adjusted Cost Function for Banks:
Evidence on the ‘Too-Big-to-Fail’ Doctrine. Journal of Productivity Analysis. 4: 293- 315.
Im, K. S., M. H. Pesaran, dan Shin. 2003. Testing for Unit Roots in Heterogeneous Panels.
Journal of Econometrics. 115: 53–74.
Islam, M. S., dan Nishiyama, S.I. 2016. The determinants of bank net interest margins: A panel
evidence from South Asian countries. Research in International Business and Finance. 37:
501–514.
Jim´enez, G., J. dan Saurina. 2004. Collateral, Type of Lender and Relationship Banking as
Determinants of Credit Risk. Journal of Banking and Finance. 28 (9): 2191–2212.
Kao, C. dan Chiang, M. 2000. On the Estimation and Inference of a Cointegrated Regression
in Panel Data. in Baltagi, B. H. et al. eds. Nonstationary Panels. Panel Cointegration and
Dynamic Panels. 15. Amsterdam: Elsevier. 179–222.
Kao, C., Chiang, M, dan Chen, B. 1999. International R&D Spillovers: An Application of
Estimation and Inference in Panel Cointegration. Oxford Bulletin of Economics and Statistics.
61: 693–711.
Levin, A., C. F. Lin, dan C. Chu. 2002. Unit Root Tests in Panel Data: Asymptotic and Finite-
Sample Properties. Journal of Econometrics. 108: 1–24.
Long J., dan Plosser, C. 1983. Real Business Cycles. Journal of Political Economy. 91: 39-69.
Louis, D.P., Vloudis, A.T., dan Metaxas, V.L. 2011. Macroeconomic and Bank-specific
Determinants of Non-performing Loans in Greece: A Comparative Study of Mortgage,
Business and Consumer Loan Portfolios. Journal of Banking & Finance. 201—215.
Love, I. dan Zicchino, L. 2006. Financial development and dynamic investment behavior: Evidence
from Panel VAR. Quarterly Review of Economics and Finance. 46 (2): 190-210.
Love, I., dan Zicchino, L. 2002. Financial development and dynamic investment behavior: Evidence
from Panel VAR. The World Bank. Development Research Group. Finance.
Maddala, G. S. dan Wu, S. 1999. A Comparative Study of Unit Root Tests with Panel Data and
a New Simple Test. Oxford Bulletin of Economics and Statistics. 6: 631-652.
Misra, B.M., Sarat Dhal. 2010. Pro-Cyclical Management of Non-Performing Loans by The Indian
Public Sector Banks. BIS Asian Research Papers. June.
Pesaran, M. 2004. General Diagnostic Tests for Cross Section Dependence in Panels. Cambridge
Working Papers in Economics no. 435 and CE-Sifo Working Paper Series no. 1229, University
of Cambridge, Cambridge, United Kingdom.
Pedroni, P. 2000. Fully Modified OLS for Heterogeneous Cointegrated Panels. in Baltagi, B.
H. ed., Nonstationary Panels. Panel Cointegration and Dynamic Panels. 15. Amsterdam:
Elsevier. 93–130.
Pedroni, P. 2001. Purchasing Power Parity Tests in Cointegrated Panels. The Review of Economics
and Statistics. 83: 727–731.
Pesaran, M.H. 2007. A Simple Panel Unit Root Test in The Presence of Crosssection Dependence.
Journal of Applied Econometrics. 27(2): 265-312.
Ranjan, R. dan Dahl, S.C. 2003. Non-Performing Loan and Terms of Credit of Public Sector Banks
in India : An Emperical Assessment. Reserve Bank of India Occasional Papers. 24 (3): 81-121.
Salas, V. dan J. Saurina. 2002. Credit Risk in Two Institutional Regimes: Spanish Commercial
and Savings Banks. Journal of Financial Services Research. 22 (3): 203–24.
Shu, C. 2002. The Impact of macroeconomic environment on the asset quality of Hong Kong’s
banking sector. Hong Kong Monetary Authority Research Memorandums.
Stiglitz, J.E. 2010. Lessons from the Global Financial Crisis of 2008. Seoul Journal of Economics.
23 (3).
Wu, Chang dan Selvili. 2003. Banking System, Real Estate Markets and Non Performing Loans.
International Real Estate Review. 6 (1): 43-62.
Published
2017-09-28
How to Cite
Ekananda, M. (2017). MACROECONOMIC CONDITION AND BANKING INDUSTRY PERFORMANCE IN INDONESIA. Buletin Ekonomi Moneter Dan Perbankan, 20(1), 71-98. https://doi.org/10.21098/bemp.v20i1.725
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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.
