IDEAS home Printed from https://ideas.repec.org/a/idn/journl/v25y2022i4dp597-622.html
   My bibliography  Save this article

Macro-Financial Determinants Of Default Probability Using Copula: A Case Study Of Indonesian Banks

Author

Listed:
  • Maulana Harris Muhajir

    (NEOMA Business School)

  • Pierre SIX

    (NEOMA Business School)

  • Jung-Hyun Ahn

    (NEOMA Business School)

Abstract

We investigate the default probability of Indonesian banks using the copula approach and analyze the macro-financial factors that drive them. We use quarterly data comprised of 80 banks from 2005 to 2019. We find empirical evidence that Common Equity Tier 1 (CET 1) ratio, inefficiency ratio, and deposit ratio have negatively impacted the bank’s default probability. We also find that macroeconomic variables such as policy rate, real exchange, economic growth, and unemployment reduce the default probability. Our study suggests that regulators should focus on capital and deposit management policies to reduce bank risk-taking behaviour. Additionally, the policy rate effectively anticipated the banks’ default risk.

Suggested Citation

  • Maulana Harris Muhajir & Pierre SIX & Jung-Hyun Ahn, 2022. "Macro-Financial Determinants Of Default Probability Using Copula: A Case Study Of Indonesian Banks," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(4), pages 597-622, January.
    • Handle: RePEc:idn:journl:v:25:y:2022:i:4d:p:597-622
    DOI: https://doi.org/10.21098/bemp.v25i4.1748
    as

    Download full text from publisher

    File URL: https://bulletin.bmeb-bi.org/cgi/viewcontent.cgi?article=2015&context=bmeb
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.21098/bemp.v25i4.1748?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Macroeconomic variables; Default probability; Panel-data; Copula;
    All these keywords.

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idn:journl:v:25:y:2022:i:4d:p:597-622. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lutzardo Tobing or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.