Bank fundamental dynamics: the role of optimal bank management

Moch. Doddy Ariefianto, Tasha Sutanto and Cecilia Jesslyn

Journal of Financial Economic Policy, 2024, vol. 16, issue 6, 825-855

Abstract: Purpose - This study aims to investigate the dynamic relationships between profitability, credit risk, liquidity risk and capital in Indonesian banking industry. Design/methodology/approach - The authors use a panel vector autoregression model that incorporates macroeconomic variables: growth, interest rate, foreign exchange. The analysis is based on a monthly panel data set of 88 banks spanning from January 2012 to September 2021, which comprises 10,296 bank-month observations. Findings - Our key findings highlight (i) permanent credit cost and liquidity cost pass through practices, (ii) complementary function of liquidity and capital, (iii) earning management motivated asset write off and (iv) credit risk-liquidity risk neutrality. In addition, the authors observe that the banks demonstrated resilience to macroeconomic shocks. Research limitations/implications - Our study have shown some interesting dynamic patterns of fundamentals; nevertheless, unified theoretical underpinning of the process is still unavailable. This should be an important future reasearch avenue. Practical implications - The study brings significant implications for regulatory and supervisory practices aimed at enhancing the financial stability of banks. Originality/value - We conduct estimation of Indonesian banks system in dynamic perspective and perform impulses responses.

Keywords: Bank; Panel data; Vector autoregression; Fundamental dynamics; C33; C54; G21; G32 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

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:eme:jfeppp:jfep-04-2023-0094

DOI: 10.1108/JFEP-04-2023-0094

Access Statistics for this article

Journal of Financial Economic Policy is currently edited by Prof Franklin Mixon

More articles in Journal of Financial Economic Policy from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().