Determinants of Credit Growth: An Empirical Study of Commercial Banks in Indonesia

Abstract

he banking sector is one of the pillars that forms the country's economy that has an important function: it channels funds in the form of credit to the public. This study aims to analyze determinants affecting credit growth in commercial banks by using a purposive sampling technique to select seven commercial banks in Indonesia with a minimum capital of 30 trillion in the 2017-2021 period. This study hypothesizes that bank size has a positive and significant effect on credit growth while non-performing loans, liquidity, third party funds and capital adequacy ratios have a negative and significant effect on credit growth. Using Generalized Method of Moments (GMM), this research finds that bank size and third-party funds have a positive and significant influence on credit growth; non-performing loans have a negative and significant effect on credit growth, loan deposit ratio has a positive and insignificant effect on credit growth, and capital adequacy ratio has a negative and insignificant effect on credit growth. This study found that Third Party Funds have a positive and significant influence on Credit Growth in Commercial Banks in Indonesia. The positive but significant causality between third party funds and credit growth indicates that the hypothesis that was put forward by the researchers is confirmed in a different direction. This study indicates that maintaining banking stability is important, especially to increase the credibility and existence of the bank in society. The theoretical and practical significance is that it provides knowledge of the determinants of credit to commercial banks in Indonesia so that it can be used as a comparison or reference.