BANK LENDING CHANNEL OF MONETARY POLICY TRANSMISSION MECHANISM IN INDONESIA
Nur Satyo Kurniawan, S.ST., Prof. Komatsu Masaaki,
2012 | Tesis | S2 Magister Ek.Pembangunan-
Banks have an important role in any economy, acting as a financial intermediary, channeling funds from depositors to debtors. Significant statistical data confirm this function. In developed countries, such as the United States, Germany, and Japan, banks contribute around 40%, 80%, and 90% of external financing, respectively. In Indonesia, more than 80% of external financing comes from the bank loans. Although it is proven that banks have a significant function as financial intermediaries, there is still debate about whether banks have a significant role in the transmission mechanism process. This study examines the bank function of transmitting monetary policy, specifically the bank lending channel. Data have been gathered primarily from bank balance sheets. Specifically, the objectives of this study are (a) to examine whether bank lending channels work in Indonesia or not; and (b) to examine which group of banks (smaller or bigger) is more sensitive to monetary policy. Those issues are important to understanding the real problems in monetary policy and exploring the effects of bank lending channels on monetary transmission. The lending view was introduced by Bernanke and Blinder (1988) to reject the notion that all nonmonetary assets are perfect substitutes. Based on this view, Bernanke and Gertler (1995) proposed a new channel of monetary policy, the bank lending channel. Afterward, many economists investigated this channel, particularly through bank balance sheets. Bernanke and Blinder (1992) found that monetary policy can be transmitted by bank lending channels through bank loans, bank deposits, and securities. Other researchers use disaggregated data to see which group of banks is more sensitive to monetary policy. This research uses a vector error correction mechanism (VECM) test for both aggregated and disaggregated data by examining the impulse response function and variance decomposition analysis. This test seeks the response of monetary variables in the bank lending channel after a policy instrument shock, specifically the Certificate of Bank Indonesia (SBI) rate shock. Before conducting the VECM test, a unit root test, optimum lag, and cointegration test were conducted to identify the stationarity of data and the presence of stable, long-term relationships among variables. The result of the tests is used to set restrictions in the VECM. The VECM results based on aggregate data show that the bank lending channel does not work effectively. The growth of bank deposits and loans moves contrary to the theory. For disaggregated data, the VECM result illustrates that state owned banks and regional banks are more sensitive to monetary policy than private national banks. This means that monetary policy is transmitted more effectively through small banks than bigger. The same thing also happens in the United States and Germany. There are some factors that explain why monetary policy does not work. The first is that neither bank deposits nor loans are insensitive to the changing of SBI rate. When interest rates increase or decrease, the bank deposits and bank loans rise. Another factor is a lower rate of loan-to-deposit ratio (LDR) which is lower than 80%. Banks put the most of the additional 20% in reserves, SBI and securities. Thus, banks can absorb a shock of monetary policy by liquidate their reserves and investments. Lastly, there is a varies reaction of three group of banks, that are state owned banks, private national banks, and regional banks in respond to a shock of monetary policy. To deal with those conditions, some actions should be taken by Bank Indonesia. First, Bank Indonesia should test the other two major channels of monetary policy since bank lending channel is one of three major channels. Moreover, Bank Indonesia should also encourage banks to extend more loans especially to corporations which will increase their financial intermediary function and the effectiveness of monetary policy transmission. Additionally, Bank Indonesia should more fully understand the needs of each group of banks, in order to create appropriate policies for the banking sector
Kata Kunci : Monetary Policy, Bank Lending Channel, Monetary Transmission Channels, Indonesi
