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Nexus Of Competition And Stability: Case Of Banking In Indonesia

Author

Listed:
  • Tri Mulyaningsih

    (Sebelas Maret University, Indonesia)

  • Anne Daly

    (University of Canberra, Australia)

  • Riyana Miranti

    (University of Canberra, Australia)

Abstract

This paper analyzes the relationship between banking competition and banking stability in Indonesia, where the bank lending is the major source of funding on this country with a series of structural changes including deregulation, economic crisis, and consolidation. We apply generalized method of moment approach on individual bank data, and the result shows that competitive banking will increase the economic stability. Under a competitive industry, banks must improve their efficiency, increase their loans disbursement, diversify their business, boost their assets and enhance their capitalization. This paper emphasize that the efficiency is a critical to reduce risk, both for large and small banks. Furthermore, regardless their size, an adequate capital is an important factor for the bank to cope with shocks in the market.

Suggested Citation

  • Tri Mulyaningsih & Anne Daly & Riyana Miranti, 2016. "Nexus Of Competition And Stability: Case Of Banking In Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 18(3), pages 333-350, January.
    • Handle: RePEc:idn:journl:v:18:y:2015:i:3d:p:333-350
    DOI: https://doi.org/10.21098/bemp.v18i3.555
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    More about this item

    Keywords

    Bank competition; stability; GMM;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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