Bank Size, Risk and Market Discipline with A Deposit Insurance: Evidence of Banking in Indonesia

Haryanto, Sugeng; Chandrarin, Grahita; Bachtiar, Yanuar

doi:10.26905/afr.v2i2.3717

Cited by 8 publications

(15 citation statements)

References 13 publications

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“…NPL/GL has a significant (at the 99% level) and positive relationship with cost because such loans worry depositors and add pressure on a bank. This result is aligned with past studies (Abou-El-Sood, 2016; Haryanto et al , 2019). OH/TA means managers are less efficient, so depositors impose a higher cost of funds on such banks.…”

Section: Resultssupporting

confidence: 93%

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Do depositors discipline the banking sector? Evidence from an emerging economy

Afzal

Mirza

Firdousi

2023

RAF

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Purpose Market discipline is an important part of financial regulation, under Basel II and III. This paper aims to provide evidence on market discipline in Pakistan. Specifically, the authors have analyzed the impact of CAMEL variables on costs of funds and deposit switching. Design/methodology/approach This study has used panel data related to different banking and macroeconomic variables. The sample period is 2004–2017 so it has covered the changing regulations that became binding for banks under Basel II and III. Quarterly data has been collected from the financial disclosure of publicly listed banks. The total number of banks in the sample is 26. Among these, 24 are publicly listed. Foreign banks have not been included because their activities in Pakistan are quite limited. Findings It has been found that efficiency, liquidity, asset quality and capital adequacy are negatively related to costs of funds for banks. Capital adequacy, liquidity and profitability are negatively related to deposit switching. Research limitations/implications These results indicate the presence of market discipline and have generated valuable implications for bank managers and regulators. Originality/value In this study, the case of Pakistan is interesting. The country has experienced financial liberalization that sought to avoid government intervention and encourage a more “market-based” approach. This change in the system was made more pronounced by the privatization of nationalized banks, improvement in the market structure, reduction in barriers to entry and consolidation of smaller banks. As a result, the banking system has emerged as an important source of financing and it provides us motivation to look deeper into depositor discipline in banking sector.

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Section: Resultssupporting

confidence: 93%

“…Haryanto et al (2019) have found positive relationships of market discipline with bank size and profitability. Arnold et al (2016) have found that depositors remain vigilant and sensitive to a bank’s stability, even when there is blanket coverage offered by the government.…”

Section: Literature Reviewmentioning

confidence: 98%

Do depositors discipline the banking sector? Evidence from an emerging economy

Afzal

Mirza

Firdousi

2023

RAF

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“…Firstly, Indonesia is one of the countries that has implemented a deposit guarantee in its banking system. Deposit insurance is offered to provide customers (depositors) with a sense of security in the banking system where the moral hazard tends to be higher (Haryanto et al, 2019). Secondly, banks are still the main financial intermediaries in Indonesia (Trinugroho et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

“…However, their study does not directly investigate the role of financial literacy in imposing effective market discipline. Hamada (2011), Haryanto et al (2019, and Suliyono and Risfandy (2021) conduct prior research examining market discipline in the Indonesian banking industry. Most studies in the field of market discipline have only focused on companies' financial data.…”

Section: Introductionmentioning

confidence: 99%

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The nexus of financial literacy and depositor discipline in commercial banks

Dewi

Wardhana

2022

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PurposeThis study investigates the relationship between financial literacy, that is, financial knowledge and financial skills, and market discipline, with financial behavior as the mediating variable. The study uses data from Indonesian depositors in commercial banks to estimate the relationship between the variables.Design/methodology/approachThis study applied an explanatory method with a quantitative approach by surveying 343 Indonesian commercial bank depositors, in both public and private banks. The responses were collected using the purposive sampling technique. This study applied structural equation modeling (SEM) using AMOS software to analyze the data and then to estimate the relationships between financial literacy and market discipline.FindingsThis study shows that financial knowledge, financial skills, and financial behavior can improve market discipline. This study also provides empirical evidence that financial behavior has a mediation effect on the relationship between financial skills and financial knowledge to the market discipline.Research limitations/implicationsThe results show that all financial literacy latent variables have a significant positive effect on market discipline. Financial behavior has a mediation effect on the relationship of financial skills and financial knowledge with market discipline. Depositors with good knowledge of financial products and services, who are skillful in managing their money and who demonstrate good financial behavior can effectively discipline the market. They will punish imprudent banking by actions such as the withdrawal of their funds. Financial literacy significantly enhances market discipline.Practical implicationsThis study provides recommendations for regulators, practitioners, academics, and depositors, that is, the actors in the financial industry, on the need to empower consumers with financial literacy, while also promoting market discipline to recognize the importance of these two aspects for the sustainability of financial stability.Originality/valueThis study provides empirical evidence for the market discipline literature, using a behavioral approach, namely, the action of withdrawal of funds. The study then estimates the relationship between financial literacy, that is, financial knowledge and financial skills, and market discipline, with financial behavior as the mediating variable.

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The Effect of Financial Performance on Return on Assets in Banks Before and During the Covid-19 Pandemic in Indonesia

Suharyanto,

Iskandar,

Zaki

et al. 2024

JAM

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The COVID-19 case began in Indonesia in 2020. This condition continues to spread throughout Indonesia and causes all companies not to run optimally. It can affect the company's performance, making it less than optimal. One of them is a service company such as a bank company that must carry out its operational activities in a limited manner, causing credit to the community to run less optimally. The decline in bank performance has an impact on the decline in profits earned by bank companies. The purpose of this study is to examine the financial performance of banks from 2018 to 2019, which was before the covid 19 pandemic. This study also examines the financial performance of banks during the covid 19 pandemic from 2020 to 2021 and provides several alternatives to create better banking performance in Indonesia. This study uses secondary data from audited bank annual reports from 2018 to 2021, accessed on the website www.idx.co.id. The analysis used in this study is multiple regression analysis to assess bank performance using several financial ratios, namely capital adequacy ratio, net interest margin, and loan deposit ratio to return on assets. The findings of this study show that the capital adequacy ratio, net interest margin, and loan deposit ratio have a significant positive effect on return on assets at commercial banks in Indonesia with the phenomenon before and during the COVID-19 pandemic. It proves that the capital adequacy ratio, net interest margin, and loan deposit ratio have a positive influence on company performance. Increasing financial ratios in banks can create banking conditions that are more effective and can attract investors to invest in bank companies.

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Bank Size, Risk and Market Discipline with A Deposit Insurance: Evidence of Banking in Indonesia

Cited by 8 publications

References 13 publications

Do depositors discipline the banking sector? Evidence from an emerging economy

Do depositors discipline the banking sector? Evidence from an emerging economy

The nexus of financial literacy and depositor discipline in commercial banks

The Effect of Financial Performance on Return on Assets in Banks Before and During the Covid-19 Pandemic in Indonesia

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