Credit Risk Models For Five Major Sectors In Indonesia
Abstract
This paper analyze Nonperforming Loan ratio to total credit (NPL), as a proxy for
credit risk, for five major economic sectors by utilizing panel data of 117 commercial
banks in Indonesia over period 2000Q1 to 2016Q3. Our empirical analysis shows that
real economic growth is the main driver that is negatively correlated with credit risks
in all sectors. The inverse relation is also found in commodity and housing price.
Commodity price inflation affects NPL in manufacturing industry and trade sectors,
meanwhile housing price inflation influences NPL in manufacturing industry, trade,
and construction sectors. In addition, decreased in policy rate will decline credit risk
in commodity, trade, and other sectors, meanwhile nominal exchange rate only affects
credit risks in other sector. Our assessment shows that credit risks in commodity and
other sectors are more sensitive to real economic growth than those on manufacturing
industry and trade sectors. Real economic growth elasticities to credit risk for
commodity and other sectors are almost twice higher than for manufacturing industry
and trade sectors. Thus, during economic contraction phase, NPL in commodity and
other sectors will increase higher than NPL in manufacturing industry and trade
sectors.
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