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PROCYCLICALITY AND BANK LENDING BEHAVIOR IN INDONESIA: THE CASE OF DUAL BANKING SYSTEM

Journal of Islamic Monetary Economics and Finance

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Title PROCYCLICALITY AND BANK LENDING BEHAVIOR IN INDONESIA: THE CASE OF DUAL BANKING SYSTEM
 
Creator Sakti, Muhammad Rizky Prima
Zulkhibri, Mohamed
 
Description It is widely suggested in the literature that procyclicality of bank lending behavior may lead to financial instability. This study examines bank-lending channel over the business cycle for Indonesian dual banking system by ascertaining to what extent Islamic banks have a role in the credit smoothing. In this context, we utilize Indonesian dual banking system unbalanced panel data for the period 2001-2015. By employing two-step dynamic GMM estimators, the study shows that the bank lending behaviour are procyclical. However, when we categorize the lending behaviour into conventional and Islamic banks, the cyclicality of bank lending affects only for conventional banks. As for the Islamic banks, the business cycle does not affect their financing decision. Specifically, large Islamic banks are more counter-cyclical in their financing behavior than small and medium size Islamic banks. Robustness tests using different measures of loans and model specifications confirm the results that Islamic bank is more stable and less procyclical in the case of Indonesia banking system.
 
Publisher Bank Indonesia
 
Date 2018-08-28
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier http://jimf-bi.org/index.php/JIMF/article/view/921
10.21098/jimf.v4i1.921
 
Source Journal of Islamic Monetary Economics and Finance; Vol 4 No 1 (2018): AUGUST; 23 -38
2460-6618
2460-6146
 
Language eng
 
Relation http://jimf-bi.org/index.php/JIMF/article/view/921/728
 
Rights Copyright (c) 2018 Muhammad Rizky Prima Sakti, Mohamed Zulkhibri