Impact of Related Lending on Bank Health: Case Study in Indonesia Banking Industry
Journal Title: International Journal of Current Science Research and Review - Year 2024, Vol 7, Issue 01
Abstract
Related lending is a critical driver of banks’ health, particularly on its profitability and risks profile. As banks engage in related lending activities, they face challenges in managing profitability and assessing various risks, including systemic and credit risks. Nevertheless, the banking literature presents divided views on this: the information view and the looting view. The information view posits that related lending could enhance bank profitability and reduce risks through improved information symmetry between banks and borrowers. Conversely, the looting view theorizes that related lending may deteriorate banks’ performance, reducing profitability and increasing risks, primarily due to the misallocation of resources and the prioritization of personal interests by banks’ insiders. The challenges of related lending have been intensified by the global crisis of the COVID-19 pandemic. Empirical research indicate that banks tend to increase lending to related parties by up to 20% during economic difficulties, with more significant effects in emerging economy such as Indonesia. This trend is reflected in increasing related lending ratio and deteriorating financial indicators of publicly listed Indonesian banks, such as declining profitability ratios of return on assets (ROA) and net interest margin (NIM), as well as increasing risk ratios of higher non-performing loans (NPL) during the pandemic’s onset. Therefore, this study will investigate the impact of related lending on bank health of publicly listed Indonesian banks across two critical periods, before crisis (2013-2019) and during the crisis due to the pandemic (2020-2022). By employing a quantitative approach through regression analysis, this study will be able to assess the relationship between bank profitability and risk ratios with their corresponding variables. The aim is to provide empirical evidence on whether related lending enhance or impair bank performance in terms of profitability and risk, particularly under the economic strains brought by the pandemic.
Authors and Affiliations
Muhamad Pashya Islami, Oktofa Yudha Sudrajad, Ana Noveria,
Keywords
Related Articles
- EP ID EP729648
- DOI 10.47191/ijcsrr/V7-i1-74
- Views 61
- Downloads 0
Understanding Factors That Affect Social Media Advertisement Adoption for Small Medium Enterprises in Indonesia the Case of Facebook Advertisement
Advancement of technology in the field of marketing has been one significant factor in assisting Small Medium Enterprises (SMEs) to increase their competitiveness. Meta, as a technological company, provide Facebook adver...
A Comprehensive Evaluation of Groundwater Quality for Irrigation in Tehsil Bah, Agra, India
A higher agricultural yield depends on the quality of the water used. A significant source for irrigation is groundwater. 84 separate study locations had groundwater samples that were collected and analysed using the pro...
Optimizing Electrical System Performance at PTKP Coal Mining Company: Navigating Operational Challenges, Capitalizing on Load Growth, and Preparing for Future Energy Needs
PTKP Coal Mining Company, a prominent player in the Indonesian coal mining industry, faces operational challenges in optimizing its power generation capacity following the termination of a contract with the national elec...
The T-Shaped Model: A Modern Paradigm for TVET Curriculum Design. Conceptual Framework, Theoretical Foundations and Practical Examples
The T-shaped curriculum in secondary technical VET represents a progressive educational framework designed to equip students with both specialized technical skills and a broad range of transferable competencies. This cur...
Revisiting EPS TOPIK: Addressing Linguistic and Cultural Challenges for Migrant Workers in South Korea
International labor migration has become a global phenomenon driven by the demand for better job opportunities and interconnected labor markets. South Korea, as a major destination for migrant workers, requires proficien...