Document Type
Article
Abstract
The ratio of non-performing loan (NPL) and capital adequacy ratio (CAR) is still a measure of bank soundness in various countries including Indonesia. Interdependence acros bank’s condition, diversity of the size, market structure within banking industry, and macroeconomic variables, may be very complex and dynamic. This paper utilizes the advantage of PVAR model on capturing this complexity to analyze the dynamic relationship between the macroeconomic variables and the soundness of the banks. The result shows NPL of banks with small asset will increases rapidly when interest rate fluctuates. For banks with large asset, the increase in interest rates leads to larger reduction on their CAR. On the other hand, the result shows banks with smaller capital are less able to adapt quickly to an increase in NPL due to exchangerate depreciation, therefore banks with smaller capital should be cautious about the exchange rate risk.
Recommended Citation
Ekananda, Mahjus
(2017)
"MACROECONOMIC CONDITION AND BANKING INDUSTRY PERFORMANCE IN INDONESIA,"
Bulletin of Monetary Economics and Banking: Vol. 20:
No.
1, Article 2.
DOI: https://doi.org/10.21098/bemp.v20i1.725
Available at:
https://bulletin.bmeb-bi.org/bmeb/vol20/iss1/2
First Page
71
Last Page
98
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Country
Indonesia
Affiliation
University of Indonesia
