Analyzing the Influence of Bank Competition on Credit Risk: Perspectives from Indonesia's Dual Banking System
Abstract
This study analyzes the effect of competition banks on credit risk in the dual banking system in Indonesia. This research was conducted using a purposive sampling technique in selecting a sample of 5 conventional commercial banks and 5 Islamic commercial banks. The method used is the Generalized Method of Moments (GMM) from 2011 to 2020. Credit risk for Conventional Banks is measured by the value of Non-Performing Loan (NPL), while Islamic Bank Financing is measured by the value of Non-Performing Financing (NPF). The results of this study indicate that Return on Assets (ROA) for Conventional Banks and Islamic Banks has a significant effect on credit risk in the dual banking system, Loan to Deposit Ratio (LDR) for Conventional Banks does not have a significant effect on Non-Performing Loan (NPL) while Financing to Deposit Ratio (FDR) of Islamic Banks has a significant level 2 influence on Non-Performing Financing (NPF). Bank size does not have a significant influence on credit risk in the dual banking system, and the Lerner Index for Conventional Banks has a significant effect on Non-Performing Loan (NPL), while the Lerner Index for Islamic Banks has no effect on Non-Performing Financing (NPF). The Central Bank in making policies can see that the level of competition for banks in the dual banking system in Indonesia is categorized as a monopolistic competition market, where each bank has its own market segment so that it has market power that is strong enough to set prices that are relatively.
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References
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Brei, M., (2020). Credit Risk and Bank Competition in Sub-Saharan Africa. Emerging Markets Review, 44(July), 100716. https://doi.org/10.1016/j.ememar.2020.100716
Castro, V. (2018). Macroeconomic and bank-spesific determinants of the credit risk in the banking system: The case of GIPSI. Journal Economic Modelling 31, 672-683
Catherine, N. (2020). Credit Risk Management and Financial Performance: A Case of Bank of Africa (U) Limited. Open Journal of Business and Management, 08(01), 30–38. https://doi.org/10.4236/ojbm.2020.81002
Chen, S., Zhang, Y., & Li, L. (2022). A Comparative Study of Credit Risk Infection at Domestic and Abroad Based on Knowledge Map. Procedia Computer Science, 199, 215–222. https://doi.org/10.1016/j.procs.2022.01.027
Cheng, N., & Bang, Y. (2021). A Comment on The Practice of The Arellano-Bond/Blundell-Bond Generalized Method of Moments Estimator in Research. Communications of the Association for Information Systems, 48, 423–442. https://doi.org/10.17705/1cais.04838
Demirguc-Kunt, A. (2020). A Framwork for Analyzing Competition in The Banking Sector. Poliy Research Working Paper, 21(1), 1–12.
Duffie, & Singleton, K. (2015). Modeling the Term Structure of Defaul table Bonds, Review of Financial Studies. The Review of Financial Studies, 12. https://doi.org/https://doi.org/10.1093/rfs/12.4.687
Hao, X., Sun, Q., & Xie, F. (2022). The COVID-19 pandemic, consumption and sovereign credit risk: Cross-country evidence. Economic Modelling, 109(February), 105794. https://doi.org/10.1016/j.econmod.2022.105794
Isnaini, F., Sahara, S., & Nursyamsiah, T. (2021). Faktor-faktor yang Memengaruhi Tingkat Non Performing Financing dan Non Performing Loan pada Dual Banking System di Indonesia. Al-Muzara’ah, 7(1), 47–59. https://doi.org/10.29244/jam.7.1.47-59
Isnaini, L, & Muhdir, I. (2021). Pengaruh ROA, CAR, BOPO, FDR, Dan Inflasi Terhadap Pembiayaan Bermasalah (NPF) Di Bank Umum Syariah. JPEK (Jurnal Pendidikan Ekonomi Dan Kewirausahaan), 5(1), 65–75. https://doi.org/10.29408/jpek.v5i1.3095
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Kusuma, & Haryanto. (2021). Analisis pengaruh variabel kinerja bank (CAR, ROA, BOPO, dan LDR), serta pertumbuhan kredit dan kualitas kredit terhadap Non Performing Loan (NPL). Diponegoro Journal of Management, 5(2015), 1–13.
Laksono & Setyawan, I. R. (2019). Faktor Penentu Non Performing Loan Pada Bank Umum Konvensional Di Indonesia. Jurnal Manajerial Dan Kewirausahaan, 1(3), 506. https://doi.org/10.24912/jmk.v1i3.5362.
Louis D.P., Vouldis A.T., & Metaxas V.L. (2019). Macroeconomic and bank-spesific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portofolios. Journal of Banking & Finance 36,1012-1027.
Martinez, & Repullo, R. (2010). Does competition reduce the risk of bank failure. Review Financial Studies 23(10), 3638–3664.
Munandar, A. (2022). Faktor – Faktor Yang Memengaruhi Financing To Deposit Ratio ( FDR ) Terhadap Return on Assets ( ROA ) Dan Net Operating Margin ( NOM ) Pada Bank Umum Syariah Periode. Universitas Indo Global Mandiri, 7, 1–12.
Ozdaglar, A. (2020). Systemic Risk and Stability in Financial Networks. American Economic Review, 2, 105. https://doi.org/ 10.1108/ijoem-01-2020-0035
Prasetyo, A. (2017). Pengaruh Risiko Kredit, Likuiditas, Kecukupan Modal, Dan Efisiensi Operasional Terhadap Profitabilitas Pada PT. BPD Bali. E-Jurnal Manajemen Unud, 4(9), 2590–2617. https://doi.org/ 10.1108/ijoem-01-2020-0035
Pratiwi, & Masdupi, E. (2021). Effect of Credit Risk, Market Risk and Liquidity Risk on Return on Assets of Conventional Commercial Banks Registered in The Financial Services Authority During the COVID-19 Pandemic. Financial Management Studies, 4(29), 29–46. https://doi.org/ 10.1108/ijoem-01-2020-0035
Loffler, G & Posch. (2019). Credit Risk Modeling using excel and vba. Journal of Banking and Finance. 90 (1), 147 - 165
Rai, N., & Thapa, B. (2015). a Study on Purposive Sampling Method in Research. Kathmandu: Kathmandu School of Law, 1–12.
Roski, D. (2019). Dual Banking System di Indonesia dalam Perspektif Politik Hukum Ekonomi Syari’ah Mukhlisha Dina Roski. Jurnal Studi Islam, 2 no., 61–73.
Saadaoui & Hamza, H. (2020). Lending cyclicality in dual banking system: empirical evidence from GCC countries. Journal of Islamic Accounting and Business Research, 11(9), 2113–2135. https://doi.org/10.1108/-03-2020-0082
Scott, (2019). Competition and financial stability. Journal of Money Credit and Banking, 453–480. https://doi.org/10.12695/jmt.2018.17.3.1
Seho, (2021). Does sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems? Pacific Basin Finance Journal, 68(July). https://doi.org/10.1016/j.pacfin.2021.101619
Tan, Y. (2020). The Impact of Risk and Competition on Bank Profitability in China. Journal of Internasional Financial Market, Institution and Money 5(1), 90–106.
Tawfik & Osman (2020). Banking Crises in the Dual Banking System in Indonesia: The markov Switching Approach. JKAU: Islamic Econ, 33(1), 101–116. https://doi.org/10.4197/Islec
Valaskova, K. (2014). Assessing Credit Risk by Merton Model. International Conference on Management, Education, Business, and Information Science (Icmebis 2014), February, 27–30.
Wheelock & Wilson, P. (2020). New estimates of the Lerner index of market power for US banks. Unpublishe January.
Brei, M., (2020). Credit Risk and Bank Competition in Sub-Saharan Africa. Emerging Markets Review, 44(July), 100716. https://doi.org/10.1016/j.ememar.2020.100716
Castro, V. (2018). Macroeconomic and bank-spesific determinants of the credit risk in the banking system: The case of GIPSI. Journal Economic Modelling 31, 672-683
Catherine, N. (2020). Credit Risk Management and Financial Performance: A Case of Bank of Africa (U) Limited. Open Journal of Business and Management, 08(01), 30–38. https://doi.org/10.4236/ojbm.2020.81002
Chen, S., Zhang, Y., & Li, L. (2022). A Comparative Study of Credit Risk Infection at Domestic and Abroad Based on Knowledge Map. Procedia Computer Science, 199, 215–222. https://doi.org/10.1016/j.procs.2022.01.027
Cheng, N., & Bang, Y. (2021). A Comment on The Practice of The Arellano-Bond/Blundell-Bond Generalized Method of Moments Estimator in Research. Communications of the Association for Information Systems, 48, 423–442. https://doi.org/10.17705/1cais.04838
Demirguc-Kunt, A. (2020). A Framwork for Analyzing Competition in The Banking Sector. Poliy Research Working Paper, 21(1), 1–12.
Duffie, & Singleton, K. (2015). Modeling the Term Structure of Defaul table Bonds, Review of Financial Studies. The Review of Financial Studies, 12. https://doi.org/https://doi.org/10.1093/rfs/12.4.687
Hao, X., Sun, Q., & Xie, F. (2022). The COVID-19 pandemic, consumption and sovereign credit risk: Cross-country evidence. Economic Modelling, 109(February), 105794. https://doi.org/10.1016/j.econmod.2022.105794
Isnaini, F., Sahara, S., & Nursyamsiah, T. (2021). Faktor-faktor yang Memengaruhi Tingkat Non Performing Financing dan Non Performing Loan pada Dual Banking System di Indonesia. Al-Muzara’ah, 7(1), 47–59. https://doi.org/10.29244/jam.7.1.47-59
Isnaini, L, & Muhdir, I. (2021). Pengaruh ROA, CAR, BOPO, FDR, Dan Inflasi Terhadap Pembiayaan Bermasalah (NPF) Di Bank Umum Syariah. JPEK (Jurnal Pendidikan Ekonomi Dan Kewirausahaan), 5(1), 65–75. https://doi.org/10.29408/jpek.v5i1.3095
Km. Suli Astrini, I Wayan Suwendra. (2018). Pengaruh CAR, LDR, dan Bank Size Terhadap NPL Pada Lembaga Perbankan Yang Terdaftar di Bursa Efek Indonesia. 9.
Kusuma, & Haryanto. (2021). Analisis pengaruh variabel kinerja bank (CAR, ROA, BOPO, dan LDR), serta pertumbuhan kredit dan kualitas kredit terhadap Non Performing Loan (NPL). Diponegoro Journal of Management, 5(2015), 1–13.
Laksono & Setyawan, I. R. (2019). Faktor Penentu Non Performing Loan Pada Bank Umum Konvensional Di Indonesia. Jurnal Manajerial Dan Kewirausahaan, 1(3), 506. https://doi.org/10.24912/jmk.v1i3.5362.
Louis D.P., Vouldis A.T., & Metaxas V.L. (2019). Macroeconomic and bank-spesific determinants of non-performing loans in Greece: A comparative study of mortgage, business and consumer loan portofolios. Journal of Banking & Finance 36,1012-1027.
Martinez, & Repullo, R. (2010). Does competition reduce the risk of bank failure. Review Financial Studies 23(10), 3638–3664.
Munandar, A. (2022). Faktor – Faktor Yang Memengaruhi Financing To Deposit Ratio ( FDR ) Terhadap Return on Assets ( ROA ) Dan Net Operating Margin ( NOM ) Pada Bank Umum Syariah Periode. Universitas Indo Global Mandiri, 7, 1–12.
Ozdaglar, A. (2020). Systemic Risk and Stability in Financial Networks. American Economic Review, 2, 105. https://doi.org/ 10.1108/ijoem-01-2020-0035
Prasetyo, A. (2017). Pengaruh Risiko Kredit, Likuiditas, Kecukupan Modal, Dan Efisiensi Operasional Terhadap Profitabilitas Pada PT. BPD Bali. E-Jurnal Manajemen Unud, 4(9), 2590–2617. https://doi.org/ 10.1108/ijoem-01-2020-0035
Pratiwi, & Masdupi, E. (2021). Effect of Credit Risk, Market Risk and Liquidity Risk on Return on Assets of Conventional Commercial Banks Registered in The Financial Services Authority During the COVID-19 Pandemic. Financial Management Studies, 4(29), 29–46. https://doi.org/ 10.1108/ijoem-01-2020-0035
Loffler, G & Posch. (2019). Credit Risk Modeling using excel and vba. Journal of Banking and Finance. 90 (1), 147 - 165
Rai, N., & Thapa, B. (2015). a Study on Purposive Sampling Method in Research. Kathmandu: Kathmandu School of Law, 1–12.
Roski, D. (2019). Dual Banking System di Indonesia dalam Perspektif Politik Hukum Ekonomi Syari’ah Mukhlisha Dina Roski. Jurnal Studi Islam, 2 no., 61–73.
Saadaoui & Hamza, H. (2020). Lending cyclicality in dual banking system: empirical evidence from GCC countries. Journal of Islamic Accounting and Business Research, 11(9), 2113–2135. https://doi.org/10.1108/-03-2020-0082
Scott, (2019). Competition and financial stability. Journal of Money Credit and Banking, 453–480. https://doi.org/10.12695/jmt.2018.17.3.1
Seho, (2021). Does sectoral diversification of loans and financing improve bank returns and risk in dual-banking systems? Pacific Basin Finance Journal, 68(July). https://doi.org/10.1016/j.pacfin.2021.101619
Tan, Y. (2020). The Impact of Risk and Competition on Bank Profitability in China. Journal of Internasional Financial Market, Institution and Money 5(1), 90–106.
Tawfik & Osman (2020). Banking Crises in the Dual Banking System in Indonesia: The markov Switching Approach. JKAU: Islamic Econ, 33(1), 101–116. https://doi.org/10.4197/Islec
Valaskova, K. (2014). Assessing Credit Risk by Merton Model. International Conference on Management, Education, Business, and Information Science (Icmebis 2014), February, 27–30.
Wheelock & Wilson, P. (2020). New estimates of the Lerner index of market power for US banks. Unpublishe January.
Published
2024-01-12
How to Cite
FEBRIANA, Adella; SUHEL, Suhel; ANDAIYANI, Sri.
Analyzing the Influence of Bank Competition on Credit Risk: Perspectives from Indonesia's Dual Banking System.
Jurnal Ekonomi Kuantitatif Terapan, [S.l.], v. 17, n. 1, p. 52-62, jan. 2024.
ISSN 2303-0186.
Available at: <https://ojs.unud.ac.id/index.php/jekt/article/view/111621>. Date accessed: 27 apr. 2024.
doi: https://doi.org/10.24843/JEKT.2024.v17.i01.p04.
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