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Excess capital and bank behavior : evidence from Indonesia

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  • Hamada, Miki

Abstract

The Indonesian banking sector has been restructured since Asian financial crisis and restored to soundness. The capital adequacy ratio (CAR) returned to a sound level; however, the average excess capital has become too high, while credit disbursement has remained low. This paper investigates the determinants of excess capital among Indonesian banks and its effects on credit growth during the 2000s. The results indicate that the determinants of excess capital vary widely depending on bank type. Return on equity (ROE) affects excess capital negatively among domestic banks, and the effect of non-performing loans is mixed, differing for various bank types. Excess capital affects credit growth positively, except among foreign banks.

Suggested Citation

  • Hamada, Miki, 2016. "Excess capital and bank behavior : evidence from Indonesia," IDE Discussion Papers 588, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper588
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    References listed on IDEAS

    as
    1. Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2004. "Does bank capital affect lending behavior?," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 436-457, October.
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    5. Heid, Frank & Porath, Daniel & Stolz, Stéphanie, 2003. "Does capital regulation matter for bank behavior? Evidence for German savings banks," Kiel Working Papers 1192, Kiel Institute for the World Economy (IfW Kiel).
    6. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August.
    7. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: What do we know, and what does it mean?," CAMA Working Papers 2010-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Ayuso, Juan & Perez, Daniel & Saurina, Jesus, 2004. "Are capital buffers pro-cyclical?: Evidence from Spanish panel data," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 249-264, April.
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    Cited by:

    1. Ilmiawan Auwalin, 2021. "The effect of a credit policy change on microenterprise upward transition and growth: evidence from Indonesia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(4), pages 611-636, December.
    2. Hamada, Miki, 2017. "Bank capital and bank lending in the Indonesian banking sector," IDE Discussion Papers 662, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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    More about this item

    Keywords

    Banks; Finance; Bank capital; Bank lending; Bank behavior;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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