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Tri-Cycles Analysis On Bankperformance: Panel Var Approach

Author

Listed:
  • Denny Irawan

    (PPIE)

  • Febrio Kacarib

    (PPIE)

Abstract

The previous financial crisis has revealed the importance of risk in the financial and business cycle within the economy. This paper examines relationship among three cycles in the economy, namely (i) business cycle macro risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle macro risk and its consequence to the bank performance. We use Indonesian data for period of 2005q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by Abrigo and Love (2015). The result shows dynamic relationship between business cycle macro risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle macro risk.

Suggested Citation

  • Denny Irawan & Febrio Kacarib, 2017. "Tri-Cycles Analysis On Bankperformance: Panel Var Approach," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 19(4), pages 1-40, April.
    • Handle: RePEc:idn:journl:v:19:y:2017:i:4:p:1-40
    DOI: https://doi.org/10.21098/bemp.v19i4.694
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    Cited by:

    1. Chao Li & Mian Wu & Wenli Huang, 2023. "Environmental, Social, and Governance Performance and Enterprise Dynamic Financial Behavior: Evidence from Panel Vector Autoregression," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(2), pages 281-295, January.
    2. 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).

    More about this item

    Keywords

    Business Cycle Risk; Credit Cycle; Bank Lending; Financial Risk;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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