Excess capital and bank behavior: evidence from Indonesia

Hamada Miki

No 588, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

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.

Keywords: Banks; Finance; Bank capital; Bank lending; Bank behavior (search for similar items in EconPapers)
JEL-codes: G21 G30 N25 (search for similar items in EconPapers)
Date: 2016-03-01
New Economics Papers: this item is included in nep-ban, nep-eff and nep-sea
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Citations: View citations in EconPapers (2)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 588. 2016-03-01

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