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The lending implication of a funding for lending scheme policy during COVID-19 pandemic: The case of Indonesia Banks

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  • Naiborhu, Elis Deriantino
  • Ulfa, Dhanita

Abstract

We investigate the lending implication of the PMK 70, a low-cost funding for lending scheme introduced by the Indonesian Ministry of Finance in June 2020 as a response to the COVID-19 pandemic. We utilize a quasi-experimental design of difference-in-differences to compare the lending of participating state-owned banks to the non-participating banks before and after the introduction of the policy. Overall, our findings suggest that the policy encourages participating banks to lend more than the non-participating banks during the distress period. We find no evidence that the low-cost funds lead to a moral hazard of liquidity hoarding for the state-owned banks. Our findings also highlight the important role of unconventional policies in alleviating banks’ risk aversion during downturns.

Suggested Citation

  • Naiborhu, Elis Deriantino & Ulfa, Dhanita, 2023. "The lending implication of a funding for lending scheme policy during COVID-19 pandemic: The case of Indonesia Banks," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 1059-1069.
    • Handle: RePEc:eee:ecanpo:v:78:y:2023:i:c:p:1059-1069
    DOI: 10.1016/j.eap.2023.04.025
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank lending; Unconventional economic policy; Assets allocation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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