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Macroprudential Policy and Financing Behaviour in Dual Banking System: Bank-Level Evidence from Indonesia

Author

Listed:
  • Zulkhibri, Muhamed

    (The Islamic Research and Teaching Institute (IRTI))

  • Sakti, Muhammad Rizky Prima

    (Islamic Economic Forum for Indonesian Development (ISEFID), Indonesia.)

Abstract

The loan-to-funding ratio based reserve-requirement (called as RR-LFR) is a macroprudential instrument used by Bank Indonesia to maintain the stability of Indonesian financial system by considering the bank liquidity condition. This paper examines the impact of RR-LFR on financing behaviour in Indonesian dual banking system. The paper uses generalized method of moment estimation (GMM) technique to address the endogeneity of explanatory variables and reduce the possible biases from residual correlation. Using a bank-level data for both Islamic and conventional banks covering the period 2001-2015, we analyze the reaction of bank financing behavior toward RR-LFR policy. The findings indicate that RRLFR is observed to be effective in curtailing financing behaviour of banking institutions. Further, we show that RR-LFR exerts more impacts in managing credit expansion of conventional banks as compared to Islamic banks.

Suggested Citation

  • Zulkhibri, Muhamed & Sakti, Muhammad Rizky Prima, 2017. "Macroprudential Policy and Financing Behaviour in Dual Banking System: Bank-Level Evidence from Indonesia," Working Papers 2017-5, The Islamic Research and Teaching Institute (IRTI).
    • Handle: RePEc:ris:irtiwp:2017_005
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    References listed on IDEAS

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    Cited by:

    1. Arif Widodo, 2020. "Measuring Cyclical Behavior of Islamic and Conventional Financing: Evidence from Indonesian Dual Banking System قياس سلوك التمويل الإسلامي والتمويل التقليدي: دليل من النظام المصرفي الإندونيسي المزدوج," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(2), pages 173-192, July.

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    More about this item

    Keywords

    Macroprudential; Dual Banking System; Financing Behaviour; Indonesia; GMM;
    All these keywords.

    JEL classification:

    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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