Non-performing loan in fishery sector, Indonesia

Abstract

The fisheries sector’s potential is quite large in Indonesia, and during the administration of President Joko Widodo, the demand for fisheries experienced a positive growth trend, which increased 48 percent from 2014 to 2018, from 6,400 thousand tons in 2014 to 9,480 thousand tons in 2018. On the demand side, in addition to domestic demand, the demand for fisheries exports has also increased. Even though there is great potential in output, the absorption of fisheries sector loans is very low, which is only 0.20 percent on average along 2014-2018, and the Non-Performing Loans (NPL) of bank loans in the fisheries sector are quite high. From the data of April 2019, the NPL of the fisheries sector was 6.9 percent of the total loans in the sector. This study aims to analyze the factors that affect the NPL in the fisheries sector in Indonesia by using the error correction model (ECM) on the 2010-2019 monthly data, for long and short-term of variables relationship. The empirical model developed to analyze the NPL value of the fisheries are affected by the interest rates, inflation, and output growth of the fisheries sector. This study finds that in the long run NPL is negatively affected by output growth of fisheries sector, and positively affected by inflation and the interest rate of fisheries sector. The cointegration test supports the long-term relationship of the dependent and independent variables of the model. The results of the short run model analysis indicate the suitability of the sign with the hypothesis and in line with the results on the long-term model. The results of the long and short-term analysis can be a policy consideration for financial authorities regarding the projection of NPL in the future.