Slowdown in Bank Credit Growth: Aggregate Demand or Bank Non-performing Assets?

2018 ◽  
Vol 12 (3) ◽  
pp. 257-275 ◽  
Author(s):  
Ashima Goyal ◽  
Akhilesh Verma
Keyword(s):  
Interest Rates ◽  
Aggregate Demand ◽  
Balance Sheet ◽  
Bank Lending ◽  
Jel Classification ◽  
Capital Adequacy ◽  
Credit Growth ◽  
Bank Ownership ◽  
Negative Effect ◽  
Asset Quality

We estimate the determinants of credit and of non-performing assets (NPAs) using a firm and a bank panel with data up to 2015 in order to test bank lending against the aggregate demand channel as an explanation for slow Indian credit growth. The results support demand as the key constraint. Only demand variables affect corporate credit for a broad set of firms. Balance sheet weakness reduced credit only for a narrow subset of indebted firms in a difference-in-difference type analysis. Even so, sales remained the dominant variable. From the bank panel, the asset quality review (AQR) did have a strong negative effect on advances but gross NPAs did not. While high interest rates and low growth raised NPAs, so did past credit. Low demand not only reduced credit, it also increased NPAs. That the capital adequacy ratio (CAR) significantly reduces NPAs points to the productivity of fund infusion. When other determinants are controlled, bank ownership does not affect NPA ratios, again supporting external shocks as causal. The results suggest that apart from structural reform to clean balance sheets, recovery of demand is necessary for revival of credit growth. JEL Classification: G21, E51

Pengaruh Likuiditas, Pertumbuhan Kredit, Efisiensi, dan Kecukupan Modal Terhadap Profitabilitas

2020 ◽  
Vol 1 (1) ◽  
pp. 27-35
Author(s):  
Lia Hendrawati ◽  
Said Djamaludin
Keyword(s):  
Stock Exchange ◽  
Growth Efficiency ◽  
Research Data ◽  
Capital Adequacy ◽  
Annual Data ◽  
Significant Positive Effect ◽  
Credit Growth ◽  
Negative Effect ◽  
Positive Effect ◽  
Observation Period

This study to examine and analyze the effect of liquidity, credit growth, efficiency, and capital adequacy on the Bank’s profitability listed on the IDX partially and simultaneously. The research data are annual data for the 5-year observation period (2009-2013). This research was conducted at 33 banks listed on Indonesia Stock Exchange. Banks Analyzed that met the population criteria were 23 banks. The analytical method used in multiple linier regression. The results showed that liquidity, credit growth, efficiency, and capital adequacy together (simultaneously) significantly influence profitability. Partially,  liquidity has a significant positive effect on profitability, while efficiency has a significant negative effect. Credit growth and capital adequacy have no significant effect on profitability. Liquidity is the variable that has the biggest effect on the Bank’s profitability. 

Bank soundness and liquidity creation

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmad Sahyouni ◽  
Mohammad A.A. Zaid ◽  
Mohamed Adib
Keyword(s):  
Balance Sheet ◽  
Negative Relationship ◽  
Capital Adequacy ◽  
Rating System ◽  
Content Type ◽  
Mena Countries ◽  
Earning Ability ◽  
Asset Quality ◽  
The Relationship ◽  
Bank Soundness

PurposeThe purpose of this paper is to investigate how much liquidity banks create and how liquidity creation changed over time in the MENA countries and to examine the soundness of banks in these countries based on the CAME rating system, in addition to investigating the relationship between CAME ratios and liquidity creation of these banks.Design/methodology/approachThe study regresses the CAME ratios together with other control variables to model liquidity creation. The robustness of the results is evaluated by using a different measure of liquidity creation and by excluding the observations of the Islamic banks.FindingsThe results show that the CAME rating system, as an indicator of bank soundness, is negatively related to bank liquidity creation. Specifically, capital adequacy, management efficiency and earning ability ratios affect the on-balance sheet components of liquidity creation, while asset quality ratio affects its off-balance sheet component.Practical implicationsThe paper offers insights to regulators and banks managers in terms of better understanding of the negative relationship between CAME rating system and bank liquidity creation.Originality/valueThis paper sheds more light on the relationship between bank soundness and liquidity creation by using the ratios of the CAMEL rating system as an indicator of bank strength and soundness.

scholarly journals The Effects of Bank-Level and Macroeconomic Variables on Commercial Bank Lending Based on Type of Use

2021 ◽  
Vol 24 (1) ◽  
pp. 105
Author(s):  
Arintoko Arintoko
Keyword(s):  
Interest Rates ◽  
Bank Lending ◽  
Bank Loans ◽  
Capital Adequacy ◽  
Working Capital ◽  
Macroeconomic Variables ◽  
Distributed Lag ◽  
Real Gdp ◽  
Long Run ◽  
Lending Behavior

ABSTRACTThe purpose of this study was to analyze the effect of interest rates, bank-level and macroeconomic variables on bank lending based on the type of use. The analysis method uses an autoregressive distributed lag (ARDL) model with quarterly data for the period of 2011Q1 - 2020Q1. The results show that investment lending behavior can be explained well by all bank-level and macroeconomic variables for the long run. The bank-level variable also reflects the performance and soundness of the bank, namely the capital adequacy ratio and loan to deposit ratio. Meanwhile, macroeconomic variables include inflation and real GDP. Consumer lending behavior is better explained by macroeconomic variables than bank-level variables. Meanwhile, GDP is the only variable that has a significant effect on working capital loans, which means that the behavior of working capital loans is more influenced by the business cycle as indicated by changes in real GDP. GDP is the only variable that consistently has a significant positive effect on bank loans for the three types of loans. Banks need to continue to emphasize the principle of prudence in providing credit by taking into account the term and credit risk, as well as internal and external factors.

scholarly journals What Most Influence on Non-Performing Loan in Indonesia? Bank Accounting Perspective with Mars Analysis

2020 ◽  
Vol 3 (2) ◽  
pp. 136-153
Author(s):  
Nanang Shonhadji
Keyword(s):  
Gross Domestic Product ◽  
Exchange Rates ◽  
Interest Rates ◽  
Capital Adequacy ◽  
Operating Costs ◽  
Domestic Product ◽  
Credit Growth ◽  
Operating Income ◽  
Capital Adequacy Ratio ◽  
Private Banks

The research objective is to examine factors that affect non-performing loans at conventional private banks in Indonesia. These factors include growth in gross domestic product, interest rates, currency exchange rates, exports, credit growth, inflation, return on asset, operating costs to operating income, and the capital adequacy ratio. The sample used in this study was conventional private banks listed on the Indonesia Stock Exchange 2014-2019. Data analysis techniques using Multivariate adaptive regression spline (MARS). The study results inform an influence between the predictor variables and the response variables based on functions in the model. The variables that affect non-performing loans are credit growth, exchange rates, inflation, capital adequacy ratio, return on asset, operating costs to operating income, and interest rates. In contrast, gross domestic product growth and export growth in this study do not affect non-performing loans in conventional private banks. The MARS model has informed that the most influential variable on non-performing loans is credit growth. Banking authorities need to control lending by applying credit risk management and regulating the quality of credit loans to contribute to the results in this study.

scholarly journals PERAN DANA PIHAK KETIGA DALAM MEMEDIASI PENGARUH NET INTEREST MARGIN TERHADAP PERTUMBUHAN KREDIT PADA PERBANKAN YANG GO PUBLIC DI BURSA EFEK INDONESIA

2020 ◽  
Vol 21 (1) ◽  
pp. 51
Author(s):  
Pristin Prima Sari ◽  
Ardian Prima Putra
Keyword(s):  
Interest Rates ◽  
Stock Exchange ◽  
Bank Lending ◽  
Third Party ◽  
Bank Credit ◽  
Process Data ◽  
Credit Growth ◽  
Net Interest Margin ◽  
The Government ◽  
Interest Margin

AbstractsThe study found empirical proof the role of third party funds (DPK) mediate the influence of net interest margin (NIM) on bank credit growth listed in Indonesia Stock Exchange on 2015-2018. The study uses data from the bank�s annual financial statements. The Study covers 22 commercial banks resulting in 88 bank-year observations. Research using Smartpls 3.0 statistical tools to process data and path analysis to compute data. The results obtained are third party funds (DPK) that can positively mediate the influence of net interest margin (NIM) on credit growth. The greater DPK create the profitability of bank interest rates increases bank credit growth. Partially Net interest margin (NIM) and third party funds (DPK) can increase bank credit growth. Net interest margin (NIM) also can increase the amount of third party funds (DPK). This study is useful for bank management to make decisions on determining bank margins, obtaining third party funds (DPK) and credit, for the government for study and mapping materials related to bank lending and the amount of bank interest rates, for further research is for reference material related to factors affecting lending.Keywords : Net Interest Margin, Third Party Fund, Credit, IDX

scholarly journals Determinants Of Liquidity Risk In Banking Sector On The Indonesia Stock Exchange

2019 ◽  
Vol 23 (3) ◽  
pp. 461
Author(s):  
Susy Muchtar, Gianvha Sena Rustimulya
Keyword(s):  
Banking Sector ◽  
Stock Exchange ◽  
Liquidity Risk ◽  
Capital Adequacy ◽  
Economic Cycle ◽  
Capital Adequacy Ratio ◽  
Bank Managers ◽  
Negative Effect ◽  
Independent Variable ◽  
Asset Quality

This research aims to determine the factors that impact liquidity risk. The sample used in this research is a banking sector that is listed on the Indonesia Stock Exchange (IDX) in the period 2008-2017. Independent variable in this research bank size, deposits, profitability, cost of funds, asset quality, capital adequacy ratio, economic cycle, and inflation and the dependent variable is liquidity risk. The amount of the sample of the research amounted to 25 banking sector, by using purposive sampling. The result of this research indicates that bank size, profitability, cost of funds, and asset quality have a negative effect on liquidity risk, while deposits, capital adequacy ratio, economic cycle, and inflation have no impact on liquidity risk. The results of this study are expected to be used as a reference for bank managers and investors in looking at the factors that affect the liquidity risk in the banking industry.

scholarly journals Internal Factors Affecting Commercial Bank Lending: Symmetric and Asymmetric Effects of Macro-Level Data Evidence

2021 ◽  
Vol 25 (3) ◽  
pp. 717-733
Author(s):  
Arintoko Arintoko
Keyword(s):  
Bank Lending ◽  
Capital Adequacy ◽  
Macro Level ◽  
Analysis Model ◽  
Internal Factors ◽  
Operating Income ◽  
Asymmetric Effects ◽  
Long Run ◽  
Level Data ◽  
Negative Effect

The purpose of this study is to estimate the symmetric and asymmetric effects of internal factors on bank lending measured by loan to deposit ratio (LDR). The analysis model applies the Autoregressive Distributed Lag (ARDL) and nonlinear ARDL models. The data analyzed are monthly time series and cover the period of 2012M01 – 2020M06. The contribution of this research is the provision of empirical evidence of the asymmetric effect of internal bank performance on bank lending at the macro-level data. The results show that the non-performing loan (NPL) is a consistent and robust variable that has a negative effect on bank lending both in the short and long run, both symmetrically and asymmetrically. The capital adequacy ratio (CAR) positively affects bank lending when it decreases in the long run. Operating expense to operating income (OEOI) has a negative effect only in the short run, assuming symmetric and asymmetric effects. The liquid assets ratio (LAR) has a negative effect on bank lending when it increases both in the short and long run. The banking supervisory agency needs to consistently supervise and enforce regulations effectively related to bank soundness, especially those concerning increasing performing loans, strengthening the capital structure, and improving efficiency.DOI: 10.26905/jkdp.v25i3.5760

scholarly journals Local and international dimensions of credit provision by commercial banks in Kenya

2017 ◽  
Vol 12 (3) ◽  
pp. 87-99
Author(s):  
Roseline Misati ◽  
Anne Kamau
Keyword(s):  
Interest Rates ◽  
Commercial Bank ◽  
Home Ownership ◽  
Bank Lending ◽  
Bank Loans ◽  
Foreign Banks ◽  
Interest Rate Spread ◽  
Bank Ownership ◽  
Main Determinants

Although considerable research has focused on the determinants of credit to the private sector, the issue still remains controversial, particularly with respect to the role of foreign banks in emerging markets. This study sought to understand the factors that affect lending of commercial bank loans both in form of foreign and local loans. It used panel data methods on quarterly bank-specific data covering the period from 2000 to 2013. In general, the results reveal that the ownership structure, housing variable and the size of the bank are the main determinants of aggregate commercial bank lending. This conclusion is maintained even when the determinants of foreign loans and local loans are specifically examined separately. However, the role of the liquidity measure is in not consistent in the different specifications while the role of interest rates is largely in line with expectation in most of the specifications. Implicitly, the results seem to suggest a need for mergers of small banks, policy focus on incentives for more local bank ownership and continued efforts on minimization of interest rate spread, which not only promote mortgage financing and home ownership, but also overall credit growth.

Bank Ownership vs Credit Growth: Empirical Evidence from Vietnamese Commercial Banks

2021 ◽  
Vol 8 (11) ◽  
pp. 32-43
Author(s):  
Nam V. Nguyen ◽  
Ngoc T. Nguyen ◽  
Mai T.T. Ngo
Keyword(s):  
Growth Rate ◽  
Interest Rates ◽  
Commercial Banks ◽  
Growth Management ◽  
Banking System ◽  
Maximum Growth ◽  
Maximum Growth Rate ◽  
Credit Growth ◽  
Bank Ownership ◽  
The Government

This paper is aimed at analyzing the relationship between bank ownership and credit growth of Vietnamese commercial banks. With the data of 20 commercial banks in period 2009-2018 period, the REM method is applied. The key findings are: First, credit growth rate of state-owned commercial banks in Vietnam is higher than of private commercial banks, which is opposite to the expected signal. The main reasons are (i) decision making of state-owned commercial banks on lending are backed by the government, which is more straight-forward than private banks; (ii) State Bank of Vietnam considers credit policy as one of the important monetary policy tools, of which state-owned commercial banks are the key drivers; (iii) state-owned commercial banks have stable and cheap funding sources, which create the good base for expanding credit with cheap interest rates. Second, asset size does not have any impact on credit growth. Credit growth rates are determined by the bank’s overall performance and maximum growth rate set by State Bank of Vietnam, not on assets. Third, the other bank-specific factors are statistically significant with credit growth, of which liquidity and ROA have the strongest influences. Recommendations for better credit growth management of commercial banks include: (i) State Bank of Vietnam and the Government to ensure soundness of the banking system, including applying the Basel II requirements to all banks; and establish more support packages in order to boost the lending activities of privately-owned banks. (ii) Commercial banks to reduce its non-performing loans in order to stimulate the growth in lending. Keywords: bank liquidity, bank ownership, credit growth, non-performing loans, ROA.

The Macroeconomic Determinants of House Prices and Rents

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Jakob Shida
Keyword(s):  
Interest Rates ◽  
Housing Stock ◽  
House Prices ◽  
Bank Lending ◽  
Negative Effects ◽  
Positive Effects ◽  
Negative Effect ◽  
Per Capita ◽  
Pricing Power ◽  
Macroeconomic Determinants

Abstract Based on panel error correction models for a sample of up to 21 countries, this paper analyses the macroeconomic determinants of house prices and rents. In accordance with the existing literature, I find significantly positive effects of per capita income and bank lending on house prices, whereas the housing stock per capita and interest rates have negative effects. For rents, the results are somewhat more remarkable, indicating that both the housing stock and interest rates have a negative effect. While contradicting conventional economic theory, the latter finding might be explained by real estate investors exploiting their pricing power with varying degree depending on the level of real interest rates. Moreover, the estimated impact of interest rates on both house prices and rents varies with structural housing market characteristics. For instance, while interest rates have a more pronounced effect on house prices in countries with more developed mortgage markets, the same does not hold for the effect of interest rates on rents.

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