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The Impact Of Macroeconomic Condition On The Bank’S Performance In Indonesia

Author

Listed:
  • Aviliani

    (STIE Perbanas)

  • Hermanto Siregar

    (Bogor Agricultural University)

  • Tubagus Nur Ahmad Maulana

    (Bogor Agricultural University)

  • Heni Hasanah

    (Bogor Agricultural University)

Abstract

This paper analyzes the impact of macroeconomic indicator (including the production index, inflation, Bank Indonesia rate, Jakarta stock index, exchange rate and the crude oil price) on the state owned banks’ performance. We apply the Vector Error Correction Model (VECM) on the banking data ranging from 2006-2013, and provide us several findings. First, the impulse response function shows the largest response of the bank overhead cost (BOPO) due to the macroeconomic shock; we argue the volatility of this bank efficiency indicator, reflects the inefficiency of the banks in Indonesian. Second, the amount of loan and the lending to deposit ratio (LDR) provide the weakest response due to the macroeconomic shock. This is in line with the result of variance decomposition, where the macroeconomic variable explains the least of the NPL variation. Third, from all macroeconomic variables we observe, the shock of Bank Indonesia’s rate generally provides the largest response of most of the bank performance indicators; which supports the use of the Bank Indonesia’s rate as effective monetary instrument.

Suggested Citation

  • Aviliani & Hermanto Siregar & Tubagus Nur Ahmad Maulana & Heni Hasanah, 2015. "The Impact Of Macroeconomic Condition On The Bank’S Performance In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 17(4), pages 1-24, April.
    • Handle: RePEc:idn:journl:v:17:y:2015:i:4:p:1-24
    DOI: https://doi.org/10.21098/bemp.v17i4.503
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    Citations

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    Cited by:

    1. Juhro, Solikin M. & Narayan, Paresh Kumar & Iyke, Bernard Njindan & Trisnanto, Budi, 2020. "Is there a role for Islamic finance and R&D in endogenous growth models in the case of Indonesia?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    2. Sharma, Susan Sunila & Phan, Dinh Hoang Bach & Iyke, Bernard, 2019. "Do oil prices predict Indonesian macroeconomy?," Economic Modelling, Elsevier, vol. 82(C), pages 2-12.
    3. Phan, Dinh Hoang Bach & Narayan, Paresh Kumar & Rahman, R. Eki & Hutabarat, Akhis R., 2020. "Do financial technology firms influence bank performance?," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    4. MB Hendrie Anto & Faaza Fakhrunnas & Yunice Karina Tumewang, 2022. "Islamic banks credit risk performance for home financing: Before and during Covid-19 pandemic," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 14(1), pages 113-125.

    More about this item

    Keywords

    Macroeconomic Shocks; State-Owned Banks; Indicators Of Bank Performance; VECM;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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