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Excess capital and bank behavior : evidence from Indonesia

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  • Hamada, Miki

Abstract

The Indonesian banking sector has been restructured since Asian financial crisis and restored to soundness. The capital adequacy ratio (CAR) returned to a sound level; however, the average excess capital has become too high, while credit disbursement has remained low. This paper investigates the determinants of excess capital among Indonesian banks and its effects on credit growth during the 2000s. The results indicate that the determinants of excess capital vary widely depending on bank type. Return on equity (ROE) affects excess capital negatively among domestic banks, and the effect of non-performing loans is mixed, differing for various bank types. Excess capital affects credit growth positively, except among foreign banks.

Suggested Citation

  • Hamada, Miki, 2016. "Excess capital and bank behavior : evidence from Indonesia," IDE Discussion Papers 588, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper588
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    References listed on IDEAS

    as
    1. Francis, William B. & Osborne, Matthew, 2012. "Capital requirements and bank behavior in the UK: Are there lessons for international capital standards?," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 803-816.
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    4. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
    5. Ayuso, Juan & Perez, Daniel & Saurina, Jesus, 2004. "Are capital buffers pro-cyclical?: Evidence from Spanish panel data," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 249-264, April.
    6. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
    7. Jose M. Berrospide & Rochelle M. Edge, 2010. "The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 1-50, December.
    8. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: what do we know, and what does it mean?," Finance and Economics Discussion Series 2010-44, Board of Governors of the Federal Reserve System (U.S.).
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    Cited by:

    1. Ilmiawan Auwalin, 2021. "The effect of a credit policy change on microenterprise upward transition and growth: evidence from Indonesia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 611-636, December.
    2. Hamada, Miki, 2017. "Bank capital and bank lending in the Indonesian banking sector," IDE Discussion Papers 662, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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    More about this item

    Keywords

    Banks; Finance; Bank capital; Bank lending; Bank behavior;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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