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Risk of Indonesian Banks: An Application of Historical Expected Shortfall Method

Author

Listed:
  • Nevi Danila

    (Malangkucecwara School of Economics)

  • Bunyamin

    (Malangkucecwara School of Economics)

  • Siti Munfaqiroh

    (Malangkucecwara School of Economics)

Abstract

Asian and European crises were witnesses of banks vulnerable due to market risks. The Basel Committee requires an internal risk assessment applying Value at Risk (VaR). However, a replacement of VaR with Expected Shortfall (ES) has been suggested recently due to an excessive losses produced by banks which are beyond VaR estimations. This paper studied the risk of Indonesian banks applying a historical expected shortfall. We used JIBOR (overnight) from 2009 � 2012 as a proxy of market risk. The assessment of a historical expected shortfall of the net position of 27 banks accounts for October 2012 showed that state owned banks placed among the five highest value of each component (net position) in the balance sheet, namely placement to Bank Indonesia, interbank placement, spot and derivatives claims, securities, and loans. It means that the state owned banks had the highest risk and were the most aggressive among Indonesian banks. It might be due to carrying some of the government�s program, such as small enterprise loans.

Suggested Citation

  • Nevi Danila & Bunyamin & Siti Munfaqiroh, 2015. "Risk of Indonesian Banks: An Application of Historical Expected Shortfall Method," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 17(3), pages 299-314, January.
    • Handle: RePEc:idn:journl:v:17:y:2015:i:3:p:299-314
    DOI: https://doi.org/10.21098/bemp.v17i3.3
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    References listed on IDEAS

    as
    1. Beltratti, Andrea & Stulz, René M., 2012. "The credit crisis around the globe: Why did some banks perform better?," Journal of Financial Economics, Elsevier, vol. 105(1), pages 1-17.
    2. Patricia Jackson & David Maude & William Perraudin, 1998. "Bank Capital and Value at Risk," Bank of England working papers 79, Bank of England.
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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