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The lending implications of loan loss provisioning and monetary policy in Indonesia

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  • Naiborhu, Elis Deriantino

Abstract

This study investigates the heterogeneity of loan loss provisioning (LLP) and monetary policy effects on bank lending in Indonesia. The findings indicate that an increasing LLP and monetary policy interest rates lead to lower credit growth. This effect is more substantial among banks with low capital or liquidity. High LLP incentivizes banks to reduce credit lines and increase loan interest rates. The results suggest that prior high capital and liquidity may moderate the impact of high provisions and tight monetary policy on bank lending while mitigating financial stability concerns during an economic downturn. This study also discusses the policy implications of these findings.

Suggested Citation

  • Naiborhu, Elis Deriantino, 2024. "The lending implications of loan loss provisioning and monetary policy in Indonesia," Pacific-Basin Finance Journal, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:pacfin:v:86:y:2024:i:c:s0927538x24001975
    DOI: 10.1016/j.pacfin.2024.102446
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    More about this item

    Keywords

    Business cycle; Loan loss provisions; Credit growth; Monetary policy;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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