Macroprudential policy and financing behaviour in emerging markets: bank-level evidence from Indonesian dual banking
by Muhamed Zulkhibri; Muhammad Rizky Prima Sakti
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 10, No. 4, 2020

Abstract: The loan-to-funding ratio-based reserve-requirement (RR-LFR) is a macroprudential instrument used by Bank Indonesia (central bank) to maintain the stability of Indonesian financial system by considering the bank liquidity conditions. This paper examines the impact of RR-LFR on financing behaviour in a dual banking system (Islamic and conventional banks) using generalised method of moment estimation (GMM) technique to address the endogeneity of explanatory variables and reduce the possible biases from residual correlation. Using bank-level data for both Islamic and conventional banks covering the period 2001-2015, we analyse the reaction of bank financing behaviour toward RR-LFR policy. The findings indicate that RR-LFR is effective in curtailing financing behaviour of banking institutions. Further, we show that RR-LFR exerts more impacts on managing credit expansion of conventional banks than of Islamic banks. The study suggests that a specific macroprudential framework should be put in place to address systemic concerns for each type of banks. Hence, the supervisory authorities will be able to identify the channel of macroprudential transmission and to devise an optimum policy mix for their banking system.

Online publication date: Thu, 22-Oct-2020

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the Afro-Asian J. of Finance and Accounting (AAJFA):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com