The lending implication of a funding for lending scheme policy during COVID-19 pandemic: The case of Indonesia Banks

Elis Naiborhu and Dhanita Ulfa

Economic Analysis and Policy, 2023, vol. 78, issue C, 1059-1069

Abstract: We investigate the lending implication of the PMK 70, a low-cost funding for lending scheme introduced by the Indonesian Ministry of Finance in June 2020 as a response to the COVID-19 pandemic. We utilize a quasi-experimental design of difference-in-differences to compare the lending of participating state-owned banks to the non-participating banks before and after the introduction of the policy. Overall, our findings suggest that the policy encourages participating banks to lend more than the non-participating banks during the distress period. We find no evidence that the low-cost funds lead to a moral hazard of liquidity hoarding for the state-owned banks. Our findings also highlight the important role of unconventional policies in alleviating banks’ risk aversion during downturns.

Keywords: Bank lending; Unconventional economic policy; Assets allocation (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:78:y:2023:i:c:p:1059-1069

DOI: 10.1016/j.eap.2023.04.025

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