Impact of Macroeconomic Condition on Credit Card Default in Emerging Economy: Empirical Evidence from Indonesia

Abstract

Indonesia is a developing country with the fourth largest population in the world. Household consumption is still the main pillar of national economic growth in Indonesia. One sector that has an important role in national economic growth is banking. Bank carries out an intermediary function that directly or indirectly can encourage the real sector. A credit card is one of the banking products that can encourage growth in household consumption to support the growth of the real sector. However, on the other hand, the credit card is an unsecured consumer loan. This indicates the bank will have a greater percentage of losses than other types of credit if the borrower default. Therefore, the growth of credit card business must be balanced with good credit quality for the safety and soundness of the banking sector. Credit quality can be measured using a Non-Performing Loan (NPL) that reflects credit default risk. This study aimed to analyze the impact of the macroeconomic condition on credit card default which is proxied by credit card NPL ratio. NPL data obtained from Indonesia's biggest private bank with cardholders that are widespread on every island and have average card growth, transaction value, and outstanding credit card were above the national average. ARDL Cointegration model is used to determine macroeconomic variables that significantly affect credit card NPL. This study was found that exchange rate and interest rate variables partially have a significant influence on the credit card NPL in the long-term. ARDL model can be used as an early warning indicator of the condition of Bank credit card NPL if there is a shock to macroeconomic variables and the model can be used to improve the feasibility analysis tool for new cardholders (credit scoring system) and an indicator of behavior scoring system for existing cardholders.