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Early Warning Early Action for the Banking Solvency Risk in the COVID-19 Pandemic Era: A Case Study of Indonesia

Author

Listed:
  • Taufiq Hidayat

    (STIE Indonesia Banking School, Jakarta 12730, Indonesia)

  • Dian Masyita

    (Fakultas Ekonomi dan Bisnis, Universitas Padjadjaran, Bandung 40132, Indonesia)

  • Sulaeman Rahman Nidar

    (Fakultas Ekonomi dan Bisnis, Universitas Padjadjaran, Bandung 40132, Indonesia)

  • Fauzan Ahmad

    (System Dynamics Bandung Bootcamp, Bandung 40534, Indonesia)

  • Muhammad Adrissa Nur Syarif

    (System Dynamics Bandung Bootcamp, Bandung 40534, Indonesia)

Abstract

The COVID-19 pandemic has affected people’s lives and increased the banking solvency risk. This research aimed to build an early warning and early action simulation model to mitigate the solvency risk using the system dynamics methodology and the Powersim Studio 10© software. The addition of an early action simulation updates the existing early warning model. Through this model, the effect of policy design and options on potential solvency risks is known before implementation. The trials conducted at Bank BRI (BBRI) and Bank Mandiri (BMRI) showed that the model had the ability to provide an early warning of the potential increase in bank solvency risk when the loan restructuring policy is revoked. It also simulates the effectiveness of management’s policy options to mitigate these risks. This research used publicly accessible banking data and analysis. Bank management could also take advantage of this model through a self-stimulation facility developed in this study to accommodate their needs using the internal data.

Suggested Citation

  • Taufiq Hidayat & Dian Masyita & Sulaeman Rahman Nidar & Fauzan Ahmad & Muhammad Adrissa Nur Syarif, 2021. "Early Warning Early Action for the Banking Solvency Risk in the COVID-19 Pandemic Era: A Case Study of Indonesia," Economies, MDPI, vol. 10(1), pages 1-21, December.
    • Handle: RePEc:gam:jecomi:v:10:y:2021:i:1:p:6-:d:710441
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    References listed on IDEAS

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    1. Mr. W. A Bauer & Mr. R. S Craig & Jose M Garrido & Mr. Kenneth H Kang & Kenichiro Kashiwase & Sung Jin Kim & Ms. Yan Liu & Mr. Sohrab Rafiq, 2021. "Flattening the Insolvency Curve: Promoting Corporate Restructuring in Asia and the Pacific in the Post-C19 Recovery," IMF Working Papers 2021/016, International Monetary Fund.
    2. Chris Bloor & John Knowles & Ken Nicholls, 2020. "Outcomes from a COVID-19 stress test of New Zealand banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 83, pages 1-12, September.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. Bipasha Barua & Suborna Barua, 2021. "COVID-19 implications for banks: evidence from an emerging economy," SN Business & Economics, Springer, vol. 1(1), pages 1-28, January.
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