STRATEGIC FINANCIAL REVIEW

ISSN NO : 3064-9064

Strategic Financial Review is dedicated to advancing the understanding of strategic financial management and its role in driving organizational success. Our journal aims to provide a platform for researchers, practitioners, academics, and policymakers to share insights, research findings, and strategies that contribute to informed financial decision-making and sustainable growth.

Submit Your Article Editorial Board
  • 713
    Views
  • 0
    CrossRef citations to date

Moral Hazard Versus Adverse Selection On The People’s Business Credit Program In Indonesia

1 Universitas Mahasaraswati Denpasar, Bali,,Indonesia

Volume 1

Issue 1

Page: [58 - 66]

Published Online: February 15, 2024

Download Full Article ()
Creative Commons

  • Abstract

    This Paper Discusses The Behavior Of Providing Bank Credit To SMEs During The People’s Business Credit (KUR) Program In Indonesia. Since It Was Launched In 2007, The Average NPL For These Loans Has Increased. This Indicates The Existence Of Moral Hazard Behavior In Lending By Banks. To Prove This Indication, This Paper Implements A Threshold Regression Model. Data Covers 38 Participating Banks, Which Were Observed During Q1-2008 To Q2-2021. The Results Of Data Analysis Show That Moral Hazard Behavior Is Indicated When NPL Below Or Equal To 5.87%, On The Contrary, Experienced Adverse Selection. Specifically, Moral Hazard Behavior Is Dominant In The Case Of Investment Credit And Local Government- Owned Banks. In Working Capital Loans And Others, This Behavior Also Occurs, But Not As In The Case Of Investment Loans. Moral Hazard And Adverse Selection Behavior Were Not Detected At All In Stateowned Banks, While In Private Banks Only Occurred At A Low Level. At The End Of The Analysis, We Also Consider The Shock Effects Of The Global Financial Crisis (2008), European Crisis (2009), And The Covid-19 Pandemic (2020-2021) On The Threshold Regression Model, But The Results Are Negative, Thus Strengthening Our Previous Findings. In General, The Factors That Significantly Determine The Risk Of Non-Performing Loans In The People’s Business Credit Program Are The Increase In Credit Growth, Market Share, Deposit Insurance Interest Rates, And Economic Growth As Well As A Decrease In The Benchmark Interest Rate. However, The Specifics Are Different, Both In Each Type Of Credit And The Type Of Participating Bank.

    Keywords: Moral Hazard Behavior Adverse Selection Non-Performing Loan People’s Business Credit Bank

  • Figures

    Figure Image

  • References

    • Bebchuk, L.A., and Spamann, H. (2010). Regulating Bankers “Pays”. Georgetown Law Journal, Vol. 98, No. 2, 247- 287.
      google scholar link
      Bebchuk, L.A., Cohen, A., and Spamann, H. (2010). The Wages of Failure: Executive Compensation at Bear Streams and Lehman 2000-2008. Yale Journal on Regulation, Vol. 27, 257-282.
      google scholar link
      Beck, R., Jakubik, P., and Piloiu, A. (2015). Key Determinants of Non-Performing Loans: New Evidence from a Global Sample. Open Economies Review, Vol. 156, No. 2, pp. 1-26.
      google scholar link
      Boudriga, A., Taktak, N.B., and Jellouli, S. (2010). Bank Specific and Institutional Environment Determinants of Banks Nonperforming Loans: Evidence from MENA Countries. Working Paper.
      google scholar link
      Carapella, F., and Di Giorgio, G. (2004). Deposit Insurance, Institutions and Bank Interest Rates. Transition Studies Review, Vol. 11, pp. 77-92.
      google scholar link
      Cull, R., Lemma W.S., and Sorge, M. (2005). Deposit Insurance and Financial Development. Journal of Money, Credit and Banking, Vol. 37, pp. 43-82.
      google scholar link
      Demirgüç-Kunt, A., and Detragiache, E. (2002). Does Deposit Insurance Increase Banking System instability? An empirical investigation. Journal of Monetary Economics, Vol. 49, pp. 1373-1406.
      google scholar link
      Dhar, S., and Bakshi, A. (2015). Determinants of Loan Losses of Indian Banks: A Panel Study. Journal of Asia Business Studies, Vol. 9, No. 1, pp. 17- 32.
      google scholar link
      Janda, K. (2006). Agency Theory Approach to the Contracting between Lender and Borrower. Acta Oeconomica Pragensia, Vol. 14, No. 3, 32-45.
      google scholar link
      Laeven, L. (2002). Bank Risk and Deposit Insurance. World Bank Economic Review 16:109-137.
      google scholar link
      Ngalawa, H., Tchana, F.T., and Viegi, N. (2016). Banking Instability and Deposit Insurance: The Role of Moral Hazard. Journal of Applied Economics, Vol. 19, No. 2, pp. 323-350.
      google scholar link
      Nkusu, M. (2011). Non-Performing Loans and Macro Financial Vulnerabilities in Advanced Economies. Working Paper.
      google scholar link
      Novellyni, D., and Ulpah, M. (2017). Non-Performing Loans, Moral Hazard, and Lending Behavior of Indonesian Banks. International Journal of Economics and management, Vol. 11 (S2), 365-378.
      google scholar link
      Pawlowicz, L. (2015). Reflections About Too Big to Fail Banks and Moral Hazard. Bezpieczny Bank, Vol. 3, No. 6, pp. 78-88.
      google scholar link
      Repullo, R., and Suarez, J. (2013). The procyclical effects of bank capital regulation. Review of Financial Studies, Vol. 26, No. 2.
      google scholar link
      Skarica, B. (2014). Determinants of Non-Performing Loans in Central and Eastern European Countries. Financial Theory and Practice, Vol. 38, No. 1, pp. 57-70.
      google scholar link
      Vas, G. (2017). The Moral Hazard Issues of the State-Aid Programs for SME’s. Management, Enterprise and Benchmarking in the 21st Century, Budapest, pp. 453-460.
      google scholar link
      Wheelock, D.C., and Wilson, P.W. (1995). Explaining Bank Failures: Deposit Insurance, Regulation and Efficiency. The Review of Statistics, Vol. 77, pp. 689-700.
      google scholar link
      Zhang, D., Cai, J., Dickinson, D.G., and Kutan, A.M. (2016). Non-Performing Loans, Moral Hazard, and Regulation of the Chinese Commercial Banking System. Journal of Banking and Finance, Vol. 63, 48-60.
      google scholar link

  • Article Metrics

    Views

    713

  • Copyright and Permissions

    At Guinness Press, authors retain the copyright for all articles published in our journals. These articles are licensed under the open-access Creative Commons CC BY 4.0 license, granting free access for reading and download. Additionally, the original published version must be appropriately cited when reusing or quoting the article. These terms ensure widespread accessibility while ensuring proper attribution to the authors.

    All content published by Guinness Press is safeguarded by international copyright and intellectual property regulations. We kindly request that you honor these protections when utilizing our materials.

    For further information, please contact us at info@guinnesspress.org.