EconPapers    
Economics at your fingertips  
 

The Impact of Macroeconomic and Internal Factors on Banking Distress

Yulita Wulandari, Musdholifah and Suhal Kusairi
Additional contact information
Yulita Wulandari: Department of Management, Faculty of Economics, Universitas Negeri Surabaya, Indonesia,
Musdholifah: Department of Management, Faculty of Economics, Universitas Negeri Surabaya, Indonesia,
Suhal Kusairi: Economics Programme, School of Social and Economic Development, Universiti Malaysia Terengganu, Malaysia.

International Journal of Economics and Financial Issues, 2017, vol. 7, issue 3, 429-436

Abstract: The bank is a financial institution that collects funds from the surplus, distributing them to those in deficit as credit, as well as providing other banking services. The bank cannot be separated from external and internal factors which can cause banking distress such as liquidity problems and bank runs. This study aimed to examine the impact of economic growth, inflation, interest rate, exchange rate, capital, asset quality, management quality, earnings, liquidity, and sensitivity toward market risk for predicting banking distress using the banking stability index. The sample of the study is 27 conventional Banks in Indonesia, assessed from 2010 to 2014, and the method of analysis is an ordinal logistic. Results showed that economic growth was negatively significant for predicting banking distress. For internal banking factors, capital positively affected banking distress, while asset quality, management, and earnings have negative effects for predicting banking distress. However, inflation as well as interest rate, exchange rate, liquidity, and sensitivity to market risk did not significantly affect banking distress. These results indicate that the Indonesian banking system is mostly affected by macroeconomics and internal bank conditions in terms of probability of banking distress. These factors have consequences for policy makers, who have to be more careful in respect of the conditions of declining economic growth, the bank’s capital, asset quality deterioration and decline in bank profits - as these can lead to the banking crisis.

Keywords: Banking Distress; Banking Stability Index; Macroeconomic Variable; Internal Bank (search for similar items in EconPapers)
JEL-codes: G21 E44 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/download/4631/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/view/4631/pdf (text/html)

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:eco:journ1:2017-03-56

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Series data maintained by Ilhan Ozturk ().

 
Page updated 2017-09-29
Handle: RePEc:eco:journ1:2017-03-56