IMPACT OF CORPORATE LOAN DELEVERAGING ON BANKING PERFORMANCES IN INDONESIA

Cicilia Anggadewi Harun, Danny Hermawan, Ade Dwi Aryani and Fariz Ahmad Sultansyah
Additional contact information
Cicilia Anggadewi Harun: Bank Indonesia
Danny Hermawan: Bank Indonesia
Ade Dwi Aryani: Bank Indonesia
Fariz Ahmad Sultansyah: Bank Indonesia

No WP/08/2024, Working Papers from Bank Indonesia

Abstract: This study examines the trend of corporate deleveraging in Indonesia, particularly in response to economic uncertainties like the COVID-19 pandemic. Historically, corporate deleveraging has been observed globally, with companies in Japan, the US, and Europe adopting strategies to reduce debt levels during periods of financial crisis and stagnation. In Indonesia, companies tend to shift from debt financing to equity-based funding, especially in sectors that saw increased demand during the pandemic. This shift reflects a broader global trend of deleveraging as companies aim to mitigate risk and maintain financial stability. Using an analysis of financial ratios, this study identifies patterns of deleveraging among Indonesia’s nonfinancial companies and evaluates its potential impacts on banking performance. In response to COVID-19's financial challenges, many companies shifted from debt to equity-based financing to maintain stability. This shift led to a decrease in the debtto-equity ratio for non-financial companies in Indonesia, indicating reduced reliance on debt. An increase in the Interest Coverage Ratio post-pandemic showed that some companies became less dependent on debt as their earnings improved. The Bayesian network model use to analyzes banking performance, with factors such as the BI rate, Economic Condition, Macro-Prudential Policy, Corporate Leveraging, and Credit Risk playing a role. Results indicate a 57% likelihood of corporate deleveraging and a 79% probability of high banking performance, with Economic Condition and Credit Risk being the most significant factors for banking performance. Sensitivity analysis shows that low BI rate, economic expansion, and low credit risk are the most influential for high banking performance.

Keywords: bayesian network; corporate leveraging; deleveraging; sensitivity analysis (search for similar items in EconPapers)
JEL-codes: C11 E44 G21 G32 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://publication-bi.org/repec/idn/wpaper/WP082024.pdf First version, 2024 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:idn:wpaper:wp082024

Access Statistics for this paper

More papers in Working Papers from Bank Indonesia Contact information at EDIRC.
Bibliographic data for series maintained by Lutzardo Tobing ( this e-mail address is bad, please contact ) and Jimmy Kathon ().