Macro-Financial Determinants Of Default Probability Using Copula: A Case Study Of Indonesian Banks

Authors

Maulana Harris Muhajir, NEOMA Business School, FranceFollow
Pierre SIX, NEOMA Business School, FranceFollow
Jung-Hyun Ahn, NEOMA Business School, FranceFollow

Document Type

Article

Abstract

We investigate the default probability of Indonesian banks using the copula approach and analyze the macro-financial factors that drive them. We use quarterly data comprised of 80 banks from 2005 to 2019. We find empirical evidence that Common Equity Tier 1 (CET 1) ratio, inefficiency ratio, and deposit ratio have negatively impacted the bank’s default probability. We also find that macroeconomic variables such as policy rate, real exchange, economic growth, and unemployment reduce the default probability. Our study suggests that regulators should focus on capital and deposit management policies to reduce bank risk-taking behaviour. Additionally, the policy rate effectively anticipated the banks’ default risk.

Recommended Citation

Muhajir, Maulana Harris; SIX, Pierre; and Ahn, Jung-Hyun (2022) "Macro-Financial Determinants Of Default Probability Using Copula: A Case Study Of Indonesian Banks," Bulletin of Monetary Economics and Banking: Vol. 25: No. 4, Article 4.
DOI: https://doi.org/10.21098/bemp.v25i4.1748
Available at: https://bulletin.bmeb-bi.org/bmeb/vol25/iss4/4

First Page

597

Last Page

622

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

France

Affiliation

NEOMA Business School