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MACRO-FINANCIAL DETERMINANTS OF DEFAULT PROBABILITY USING COPULA: A CASE STUDY OF INDONESIAN BANKS

Authors :
Jung-Hyun Ahn
Pierre SIX
Maulana Harris Muhajir
Source :
Buletin Ekonomi Moneter dan Perbankan. 25:597-622
Publication Year :
2023
Publisher :
Bank Indonesia, Central Banking Research Department - Digital Commons, 2023.

Abstract

We investigate the default probability of Indonesian banks using the copula approach and analyze the macro-financial factors that drive them. We use quarterly data comprised of 80 banks from 2005 to 2019. We find empirical evidence that Common Equity Tier 1 (CET 1) ratio, inefficiency ratio, and deposit ratio have negativelyimpacted the bank’s default probability. We also find that macroeconomic variables such as policy rate, real exchange, economic growth, and unemployment reduce the default probability. Our study suggests that regulators should focus on capital and deposit management policies to reduce bank risk-taking behaviour. Additionally, the policy rate effectively anticipated the banks’ default risk.

Subjects

Subjects :
Finance

Details

ISSN :
24609196 and 14108046
Volume :
25
Database :
OpenAIRE
Journal :
Buletin Ekonomi Moneter dan Perbankan
Accession number :
edsair.doi...........c7936b0f82bd894e5bd4a849857a7593
Full Text :
https://doi.org/10.21098/bemp.v25i4.1748