Bank Borrowing and Financing of Medium-sized Firms in Indonesia

Miki Hamada

No 144, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: The improvement of financial intermediation functions is crucial for a robust banking system. When lending, banks have to cope with such problems as information asymmetry and adverse selection. In order to mitigate these problems, banks have to product information and improve their techniques of lending. During the 1998 financial crisis, Indonesia's banking system suffered severe damage and revealed that the country's banking intermediation functions did not work well. This paper examines the financial intermediation functions of banks in Indonesia and analyzes the importance of bank lending to firms. The focus is on medium-sized firms, and "relationship lending", one of the bank lending techniques, is used to examine financial intermediation in Indonesia. The results of logit regressions show that the relationship between a bank and a firm affects the probability of bank lending. The amount of borrowing and collateral are also affected by a firm's relationship with a bank. When viewed from the standpoint of relationship lending to medium-sized firms, Indonesian banks cannot be criticized for any malfunction of financial intermediation.

Keywords: Relationship lending; Financial intermediation function; Medium-sized firms; Indonesia; Banks; Finance; Small and medium-scale enterprises; リレーションシップ貸出; 金融仲介機能; インドネシア; 銀行; 金融; 中小企業 (search for similar items in EconPapers)
JEL-codes: G21 G30 N25 (search for similar items in EconPapers)
Date: 2008-03-01
New Economics Papers: this item is included in nep-ban, nep-dev and nep-sea
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 144. 2008-03-01

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