Determinants of Credit and Financing Risk: Evidence of Dual Banking System in Indonesia

Raditya Sukmana

Abstract


Given the fact that banking is the backbone of the Indonesian economy with a dual banking system. This paper seeks determinants of default rate in Indonesia. Various techniques of econometric tools such as unit root, co-integration test and Impulse Response Function (IRF) utilized. Bank capital has similar influence on the own credit or financing risks. Overall economic performance has a different result to the risk. Among the recommendations are for the government to maintain economic performance to keep default rate as low as possible. Financing Deposit Ratio-based Reserve Requirement policy (which is adopted only in Indonesia) imposed by the central bank seems to be effective in developing the real sector and should adopt in conventional banks.

DOI: 10.15408/aiq.v10i1.5903


Keywords


credit risk; financing risk; Islamic banking; conventional banking

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