Tri-Cycles Analysis On Bankperformance: Panel Var Approach

Denny Irawan () and Febrio Kacarib ()
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Denny Irawan: University of Indonesia, Indonesia
Febrio Kacarib: University of Indonesia, Indonesia

Bulletin of Monetary Economics and Banking, 2017, vol. 19, issue 4, 403-442

Abstract: The previous financial crisis has revealed the importance of risk in the financial and business cycle within the economy. This paper examines relationship among three cycles in the economy, namely (i) business cycle macro risk, (ii) credit cycle and (iii) risk cycle, and their impacts toward individual bank performance. We examine the responses of individual bank credit cycle and risk cycle toward a shock in business cycle macro risk and its consequence to the bank performance. We use Indonesian data for period of 2005q1 to 2014q4. We use unbalanced panel data of individual banks’ balance sheet with Panel Vector Autoregressive approach based on GMM style estimation by implementing PVAR package developed by Abrigo and Love (2015). The result shows dynamic relationship between business cycle macro risk and financial risk cycles. The study also observes prominent role of risk cycles in driving bank performance. We also show the existence of financial accelerator phenomenon in Indonesian banking system, in which financial cycles precede the business cycle macro risk.

Keywords: Business Cycle Risk; Credit Cycle; Bank Lending; Financial Risk (search for similar items in EconPapers)
JEL-codes: E32 G21 G31 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:19:y:2017:i:4b:p:403-442

DOI: 10.21098/bemp.v19i4.694

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