What Drives Banking Risk? Evidence from People’s Credit Banks in an Emerging Economy

Oktavera Rizki, Helvina Sari, Yusrizal Yusrizal, Zuhrinal M. Nawawi, M. Ridwan

Abstract


This study examines the determinants of banking risk in People’s Credit Banks (Bank Perkreditan Rakyat/BPR) in North Sumatra, Indonesia. The research aims to analyze the influence of macroeconomic variables on banking risk, proxied by total credit disbursement. The study uses panel data from 53 rural banks during 2015–2024 and applies panel data regression with a Random Effects Model (REM). The independent variables include inflation, interest rates, exchange rates, Gross Regional Domestic Product (GRDP), and the Composite Stock Price Index (IHSG). The findings reveal that interest rates have a negative and significant effect on credit disbursement, indicating that tighter monetary policy reduces lending activity. Conversely, exchange rates and regional economic growth positively and significantly affect lending expansion. Meanwhile, inflation and stock market performance do not significantly influence lending behavior in rural banks. The results imply that macroeconomic stability and regional economic growth are important factors in maintaining the resilience and sustainability of rural banking institutions, particularly in supporting effective financial intermediation in developing economies.

Keywords


banking risk, rural bank, credit disbursement, macroeconomic factors, financial intermediation, panel data analysis

Full Text:

PDF

References


Allen, F., Santomero, A. M., 1997. The theory of financial intermediation. Journal of Banking & Finance, 21(11–12), 1461–1485. https://doi.org/10.1016/S0378-4266(97)00032-0

Ahamed, M. M., Mallick, S. K., 2019. Is financial inclusion good for bank stability? International evidence. Journal of Economic Behavior & Organization, 157, 403–427. https://doi.org/10.1016/j.jebo.2017.07.027

Baltagi, B. H., 2021. Econometric analysis of panel data, 6th ed. Springer. https://doi.org/10.1007/978-3-030-53953-5

Beck, T., Cull, R. 2014. SME finance in Africa. Journal of African Economies, 23(5), 583–613. https://doi.org/10.1093/jae/eju016

Beck, T., Demirgüç-Kunt, A., Levine, R., 2021. Financial institutions and markets across countries and over time. World Bank Economic Review, 35(3), 565–591. https://doi.org/10.1093/wber/lhaa020

Berger, A. N., Udell, G. F., 2006. A more complete conceptual framework for SME finance. Journal of Banking & Finance, 30(11), 2945–2966. https://doi.org/10.1016/j.jbankfin.2006.05.008

Bernanke, B. S., Gertler, M., 1995. Inside the black box: The credit channel of monetary policy transmission. Journal of Economic Perspectives, 9(4), 27–48. https://doi.org/10.1257/jep.9.4.27

Borio, C., Drehmann, M., Xia, F. D., 2017. The financial cycle and recession risk. BIS Quarterly Review, March, 59–71.

Bui, H. T., Nguyen, T. P., Pham, T. T., 2021. Bank characteristics and SME lending: Evidence from Vietnam. Economies, 9(4), 188. https://doi.org/10.3390/economies9040188

Croissant, Y., Millo, G., 2019. Panel data econometrics in R: The plm package. Journal of Statistical Software, 27(2), 1–43. https://doi.org/10.18637/jss.v027.i02

Demirgüç-Kunt, A., Pedraza, A., Ruiz-Ortega, C., 2020. Banking sector performance during the COVID-19 crisis. Journal of Banking & Finance, 133, 106305. https://doi.org/10.1016/j.jbankfin.2021.106305

Fuster, A., Goldsmith-Pinkham, P., Ramadorai, T., Walther, A., 2022. Predictably unequal? The effects of machine learning on credit markets. The Journal of Finance, 77(1), 5–47. https://doi.org/10.1111/jofi.13090

Greene, W. H., 2018). Econometric analysis, 8th ed. Pearson Education.

Gujarati, D. N., Porter, D. C., 2009. Basic econometrics, 5th ed. McGraw-Hill Education.

Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., 2022. Multivariate data analysis, 8th ed. Cengage Learning.

Hasan, I., Politsidis, P., Sharma, Z., 2022. Global syndicated lending during crises. Journal of Financial Stability, 58, 100978. https://doi.org/10.1016/j.jfs.2021.100978

Liu, H., Sun, P., Zhang, Y., 2020. Government policy and bank lending to small and medium enterprises. Sustainability, 12(15), 6109. https://doi.org/10.3390/su12156109

Mishkin, F. S., 2016. The economics of money, banking, and financial markets, 11th ed. Pearson Education.

Wooldridge, J. M., 2019. Introductory econometrics: A modern approach, 7th ed. Cengage Learning.

World Bank. 2022. Global financial development report 2022: Financial inclusion and stability. World Bank Publications. https://openknowledge.worldbank.org




DOI: http://dx.doi.org/10.33087/ekonomis.v10i2.2852

Refbacks

  • There are currently no refbacks.


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

Ekonomis: Journal of Economics and Business Published by Lembaga Penelitian dan Pengabdian kepada Masyarakat
Adress: LPPM Universitas Batanghari, Jl.Slamet Ryadi, Broni-Jambi, Kec.Telanaipura, Kodepos: 36122, email: ekonomis.unbari@gmail.com, Phone: 0741-670700

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