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Determinants of Credit Market in Indonesian Banking Industry

Author

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  • Tri Rahayu, Siti Aisyah

    (Universitas Sebelas Maret Jl. Ir. Sutami No.36 A Pucangsawit Kec. Jebres Kota Surakarta Jawa Tengah 57126 INDONESIA)

  • Mulyaningsih, Tri

    (Universitas Sebelas Maret Jl. Ir. Sutami No.36 A Pucangsawit Kec. Jebres Kota Surakarta Jawa Tengah 57126 INDONESIA)

  • Cahyadin, Malik

    (Department of Economics Faculty of Economics and Business Universitas Sebelas Maret Jl. Ir. Sutami No.36 A Pucangsawit Kec. Jebres Kota Surakarta Jawa Tengah 57126 INDONESIA)

Abstract

This study aims to find out determinants of conventional banks’ credit supply and demand in Indonesia between 2005 and 2014, a period after recovery from financial crisis in 1997/1998. Some literatures suggest that demand and supply of credit are determined by the rates of credit and bonds. This study contribute to the literature by considering the role of prudential policy, market structure and banks ownership on supply and demand for credits. By using the bank level yearly data, the Seemingly Unrelated Regression model is employed to manage simultaneity between demand and supply of credit. The empirical findings support the literature that in the case of Indonesian banking, demand and supply of credit are determined by the rates of lending yields of bonds and the rates of Bank Indonesia Certificate (Sertifikat Bank Indonesia/SBI). This study also reveals that prudential regulation has even dampened the banks’ capability to supply lending. By implication, banks’ higher lending capacity could improve their supply of credits. Hence, larger banks are proved to be able to supply more credits than the smaller ones; whereas the demands for credit remain to be substantially determined by the macroeconomic conditions.

Suggested Citation

  • Tri Rahayu, Siti Aisyah & Mulyaningsih, Tri & Cahyadin, Malik, 2019. "Determinants of Credit Market in Indonesian Banking Industry," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 11-21.
    • Handle: RePEc:ukm:jlekon:v:53:y:2019:i:3:p:11-21
    DOI: http://dx.doi.org/10.17576/JEM-2019-5303-2
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    References listed on IDEAS

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