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The impact of macroeconomic variables on credit risk: Evidence from Indonesian business sector level data

Author

Listed:
  • M. Khoerul Mubin

    (Department of Economics, Universitas Airlangga, Surabaya, 60286,Indonesia)

  • Arif Sugara

    (Department of Economics, Universitas Airlangga, Surabaya, 60286,Indonesia)

Abstract

This study aims to empirically examine the effect of macroeconomic variables on credit risk in each business sector in Indonesia. Using time-series quarterly data during the period 2011q1-2019q2, this study utilized the Autoregressive Distributed Lag (ARDL) model. The results of this study explain that macroeconomic variables namely GDP growth in the long run have a significant negative effect on credit risk in 6 sectors and in the short term have a significant negative effect on 6 sectors. Inflation has a significant positive effect in the long run on one sector, namely the provision of accommodation and provision of food and drink, and a significant negative effect on 6 sectors, in the short term inflation has a significant positive effect on 7 sectors and a significant negative effect on one sector, namely education services. The last variable is the long-term loan interest rate which has a positive effect on 7 sectors and in the short term has a significant positive effect on 6 sectors on the high value of credit risk in each business sector in Indonesia. The result indicating that macroeconomic variables have a real impact on credit risk. Key Words: Credit Risk, GDP Growth, Inflation, Interest rates.

Suggested Citation

  • M. Khoerul Mubin & Arif Sugara, 2020. "The impact of macroeconomic variables on credit risk: Evidence from Indonesian business sector level data," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 9(5), pages 235-244, September.
    • Handle: RePEc:rbs:ijbrss:v:9:y:2020:i:5:p:235-244
    DOI: 10.20525/ijrbs.v9i5.804
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    References listed on IDEAS

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    1. Castro, Vítor, 2013. "Macroeconomic determinants of the credit risk in the banking system: The case of the GIPSI," Economic Modelling, Elsevier, vol. 31(C), pages 672-683.
    2. Ali, Asghar & Daly, Kevin, 2010. "Macroeconomic determinants of credit risk: Recent evidence from a cross country study," International Review of Financial Analysis, Elsevier, vol. 19(3), pages 165-171, June.
    3. Ghosh, Amit, 2015. "Banking-industry specific and regional economic determinants of non-performing loans: Evidence from US states," Journal of Financial Stability, Elsevier, vol. 20(C), pages 93-104.
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