IMPACT OF GLOBAL FINANCIAL SHOCK TO INTERNATIONAL BANK LENDING IN INDONESIA
This study intends to determine whether a shock that occurred in developed countries, the source of funding, was transmitted to Indonesia through international bank lending both directly and indirectly. The methods used estimated the determinants of international bank lending. International bank lending is one form of capital flows that have the potential for rapid reversal and that can lead to a financial crisis as it has in the past. Understanding the determinants of bank lending is important as it can be used to mitigate the impact of a financial crisis in the future. The empirical results showed that international bank lending, either directly or indirectly, contributed to the Indonesian crisis. During the shock, Indonesia saw global banking contract financing. It was also found that credit activities by foreign affiliates in Indonesia saw a contraction in the country of the parent bank during the shock. However, it was found that the bank lending by foreign affiliates, as joint ventureswere more stable compared to the branch offices of a foreign bank. In aggregate, international bank lending is affected by push and pulls factors such as economic growth (in developed countries and Indonesia), risk factors, and liquidity conditions, both in Indonesia and globally. As for micro-banking models, other than the push and pull factors, the bank balance sheet and other portfolio assets also affected bank lending activities to Indonesia.
Keywords: Global Financial Shocks, Foreign Affiliates, International Bank Lending, transmission path,dynamic panel.
JEL Classification: C33, E51, G15
Agenor, Pierre-Richard (1998). “The Surge in Capital Flows:Analysis of ‘Pull’ and ‘Push’Factors”. International Journal of Finance and Economics3: 39–57.
Aiyar, Shekhar (2011), “How did the Crisis in International Funding Markets Affect Bank Lending? Balance Sheet Evidence from the United Kingdom”, Bank of England, Working Paper No.424.
Allen, Frankliln, Aneta Hryckiewicz, Oskar Kowalewski, and Günseli Tümer-Alkan (2012), “Transmission of Bank Liquidity Shocks in Loan and Deposit Markets: TheRole of Interbank
Borrowing and Market Monitoring”, Wharton Financial Institutions Center, Working Paper 10-28.
Calvo, Sara, and Carmen Reinhart, 1996, “Capital Flows to Latin America: Is There Evidence of Contagion Effects?” in Private Capital Flows to Emerging Markets, ed.by G. Calvo and others (Washington: Institute for International Economics).
Cetorelli, Nicola and Linda S. Goldberg (2010), “Global Banks and International Shock Transmission: Evidence from the Crisis”, NBER Working Paper Series, Working Paper 15974.
Drukker, David M. (2008), “Summer North American Stata Users Group meeting”, StataCorp .
Elton, Edwin J., Martin J. Gruber, Stephen J. Brown, and William N. Goetzmann (2003). Modern Portfolio Theory and Investment Analysis, 6th ed. New Jersey: John Wiley and Sons Ltd.
Mian, Atif and Asim Ijaz Khwaja (2006), “Tracing the Impact of Bank Liquidity Shocks: Evidence from an Emerging Market”, NBER Working Paper Series, Working Paper 12612.
Pontines, Victor and Reza Siregar (2012), “How Should We Bank With Foreigners? An Empirical Assessment of Lending Behaviour of International Banks To Six East Asian Countries”, Centre For Applied Macroeconomic Analysis, Working Paper 4.
Powell, Andrew, Maria Soledad Martinez Peria and Ivanna Vladkova (2002), “Banking on Foreigners: The Behaviour of International Bank Lending to Latin America, 1985-2000”, Centro de Invetigacion en Finanzas.
Siregar, Reza Y. (2012), “Globalized and Interconnected Banking System: Selected Issues and Challenges”, AMRO.
Siregar, R.Y. and Choy K.M (2010), “Determinants of International Bank Lending from Developed World to East Asia”, IMF Staff Papers, vol 57, no.2, pp.484-516.
Vita, Glauco De and KS Kyaw (2007). “Determinants of Capital Flows to Developing Countries: A Structural VAR Analysis,” Journal of Economic Studies,Vol. 35 No. 4. 2008, pp 304-322.
Zulverdi, Doddy, Iman Gunadi, Bambang Pramono, dan Wahyu Ari Wibowo (2004), “Pengembangan Model Portofolio Bank”, Working Paper DKM BI.
Buletin Ekonomi Moneter dan Perbankan / Bulletin of Monetary Economics and Banking is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.