RISK OF INDONESIAN BANKS: AN APPLICATION OF HISTORICAL EXPECTED SHORTFALL METHOD

Nevi Danila (), Bunyamin () and Siti Munfaqiroh ()
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Nevi Danila: Malangkucecwara School of Economics
Bunyamin: Malangkucecwara School of Economics
Siti Munfaqiroh: Malangkucecwara School of Economics

Bulletin of Monetary Economics and Banking, 2015, vol. 17, issue 3, 1-16

Abstract: Asian and European crises were witnesses of banks’ vulnerable due to market risks. The Basel Committee requires an internal risk assessment applying Value at Risk (VaR). However, a replacement of VaR with Expected Shortfall (ES) has been suggested recently due to an excessive losses produced by banks which are beyond VaR estimations. This paper studied the risk of Indonesian banks applying a historical expected shortfall. We used JIBOR (overnight) from 2009 – 2012 as a proxy of market risk. The assessment of a historical expected shortfall of the net position of 27 banks accounts for October 2012 showed that state owned banks placed among the five highest value of each component (net position) in the balance sheet, namely placement to Bank Indonesia, interbank placement, spot and derivatives claims, securities, and loans. It means that the state owned banks had the highest risk and were the most aggressive among Indonesian banks. It might be due to carrying some of the government’s program, such as small enterprise loans.

Keywords: expected shortfall; value at risk; banks; risk (search for similar items in EconPapers)
JEL-codes: D81 G21 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:17:y:2015:i:3:p:1-16

DOI: 10.21098/bemp.v17i3.3

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