Investigating the relationship between monetary policy, macro-prudential policy and credit risk in Indonesia banking industry
Year: 2023
Type: article
Abstract: Using a novel panel data set we study the influence of monetary and macro-prudential policies on non-performing loans as a measure of credit risk in Indonesian banking industry from Q1 2010 to Q4 2022. The panel homogeneity assumption was verified through the utilization of the Chow and Roy-Zellner tests. The findings showed that the model was not homogenous, necessitating the use of the Pooled Mean Group (PMG) estimator. The results indicated that monetary and macro-prudential policies significantly impacted credit risk. Furthermore, tight monetary and macro-prudential policies increased and reduced credit risk in the long run, respectively. The findings also showed that a loosening monetary policy reduced credit risk in the short run. Therefore, higher authorities must establish effective monetary and macro-prudential policies to reduce the non-performing loan ratio and maintain credit risk in Indonesia's banking industry.
Source: Heliyon
Institutions: Sultan Ageng Tirtayasa University, Edith Cowan University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $2,100
OpenAlex ID: W4384501504