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Liquidity and Credit Risk in Indonesia: The Role of FinTech Development

Author

Listed:
  • Rizky Yudaruddin
  • Bramantyo Adi Nugroho
  • Mardiany
  • Zhikry Fitrian
  • Pebiansyah Hapsari
  • Yuli Fitrianto
  • Eka Nor Santi

Abstract

This study examines the relationship between liquidity, FinTech development, and credit risk in the Indonesian banking industry. Specifically, it investigates the impact of FinTech, particularly in peer-to-peer lending and payment systems, on credit risk in conjunction with liquidity. The analysis is conducted using panel data from 142 commercial banks in Indonesia over a 15-year period from 2004 to 2018. The results reveal that higher liquidity leads to a reduction in credit risk, whereas FinTech development is found to increase credit risk, particularly in small banks (BUKU 3 and BUKU 4) and private national banks. Notably, this study identifies that the impact of liquidity on credit risk is conditional on the level of FinTech development. Furthermore, the findings suggest that the effects of FinTech on credit risk are contingent on the bank’s characteristics and the economic environment. These results have significant policy implications for designing an inclusive financial framework in the digital era, especially in managing the risks associated with FinTech development. JEL Classification : G231, F31. R10.

Suggested Citation

  • Rizky Yudaruddin & Bramantyo Adi Nugroho & Mardiany & Zhikry Fitrian & Pebiansyah Hapsari & Yuli Fitrianto & Eka Nor Santi, 2024. "Liquidity and Credit Risk in Indonesia: The Role of FinTech Development," SAGE Open, , vol. 14(2), pages 21582440241, May.
    • Handle: RePEc:sae:sagope:v:14:y:2024:i:2:p:21582440241245248
    DOI: 10.1177/21582440241245248
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    Keywords

    liquidity; FinTech; credit risk; generalized method of moments; banking;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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