THE IMPACT OF MACROECONOMIC CONDITION ON THE BANK’S PERFORMANCE IN INDONESIA

Aviliani (), Hermanto Siregar (), Tubagus Nur Ahmad Maulana () and Heni Hasanah ()
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Aviliani: STIE Perbanas
Hermanto Siregar: Bogor Agricultural University
Tubagus Nur Ahmad Maulana: Bogor Agricultural University
Heni Hasanah: Bogor Agricultural University

Bulletin of Monetary Economics and Banking, 2015, vol. 17, issue 4, 379-402

Abstract: This paper analyzes the impact of macroeconomic indicator (including the production index, inflation, Bank Indonesia rate, Jakarta stock index, exchange rate and the crude oil price) on the state owned banks’ performance. We apply the Vector Error Correction Model (VECM) on the banking data ranging from 2006-2013, and provide us several findings. First, the impulse response function shows the largest response of the bank overhead cost (BOPO) due to the macroeconomic shock; we argue the volatility of this bank efficiency indicator, reflects the inefficiency of the banks in Indonesian. Second, the amount of loan and the lending to deposit ratio (LDR) provide the weakest response due to the macroeconomic shock. This is in line with the result of variance decomposition, where the macroeconomic variable explains the least of the NPL variation. Third, from all macroeconomic variables we observe, the shock of Bank Indonesia’s rate generally provides the largest response of most of the bank performance indicators; which supports the use of the Bank Indonesia’s rate as effective monetary instrument.

Keywords: Macroeconomic Shocks; State-Owned Banks; Indicators Of Bank Performance; VECM (search for similar items in EconPapers)
JEL-codes: C32 E10 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:4a:p:379-402

DOI: 10.21098/bemp.v17i4.503

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