Does Asset Quality Matter in Relationship Between Bank Capital on Lending Growth?

International Journal of Management (IJM), Forthcoming

10 Pages Posted: 6 Feb 2020

See all articles by Ahmad Aziz Putra Pratama

Ahmad Aziz Putra Pratama

Airlangga University - Faculty of Economics and Business

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Date Written: September 28, 2019

Abstract

Mostly, loans are important source of income for banks and capital is used to absorb shocks during a bank’s worst periods. Credit risk is a major concern for the banking industry as the ratio of bad loans increases. The purpose of this research examines the effect of bank capital on lending growth with moderation of asset quality of banking sector listed in Indonesia Stock Exchange (IDX). This study used Fixed Effect Model. Data obtained from the company's financial report published in 2009- 2018 period. Dependent variable in this research is lending growth proxied with Net Loan Growth. Independent variable used bank capital proxied with Capital Adequacy Ratio (CAR). Moderating Variable in this research used asset quality proxied with Non Performing Loan (NPL). In addition, controlling variable in this study are liquidity level, firm size and bank performance. The results showed that bank capital has a significant positive effect on lending growth, while the bad asset quality mitigates the positive effect of bank capital on lending growth. This results are in line with policies that have been made by Otoritas Jasa Keuangan (OJK) about maintaning capital adequacy ratio and non performing loan.

Keywords: Lending Growth, Net Loan Growth, Bank Capital, Asset Quality, Lending Behavior

JEL Classification: G20, G21, G40

Suggested Citation

Pratama, Ahmad Aziz Putra, Does Asset Quality Matter in Relationship Between Bank Capital on Lending Growth? (September 28, 2019). International Journal of Management (IJM), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3470740

Ahmad Aziz Putra Pratama (Contact Author)

Airlangga University - Faculty of Economics and Business ( email )

Airlangga 4-6
Surabaya, East Java
Indonesia
082135948540 (Phone)

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