Public ownership and local bank lending at the time of the Covid-19 pandemic: Evidence from Indonesia

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.

Using a firm-bank panel of more than 1m German firms over 2010-2016, we document that local public bank lending to municipalities crowds out private investment. Our results show how crowding-out can happen in a developed economy characterized by low interest rates and fiscal austerity. Our mechanism relies on two structural features of Germany’s banking landscape: First, the geographical segmentation of credit markets for small and medium firms (SME) which are dominated by local banks. Secondly, a special statutory mandate requiring local public banks to lend to municipalities. With yields on local government debt declining to all-time lows, local public banks tried to alleviate stress on their balance sheets by using their local market power to charge higher rates on their SME customers. This crowded out firm investment. Perversely, fiscal consolidation at the state and federal levels contributed to this effect by putting pressure on the budgets of municipal governments which increasingly borrowed from local public banks. Crowding-out lowered aggregate private investment by around 30-40 bio euros per year (or 1 percent of GDP). Thus, we identify a novel channel through which low interest rates can adversely affect bank lending and firm performance. Our results also illustrate how segmented credit markets can amplify negative multiplier effects from fiscal austerity.

The opening of the Chinese banking sector encourages the entry of foreign banks through greenfield investment or cooperation with local banks. The entry strategies of foreign banks are therefore influenced by the strategies of local banks. This paper examines the interaction between local and foreign banks. The results demonstrate that the superior capabilities of foreign banks to liquidate collateral facilitate their greenfield investment. Otherwise, foreign banks will cooperate with local banks, whose cooperation depends on local banks' self-development capability. Our results suggest that foreign banks are more likely to cooperate with large local banks in China unless small local banks have greater self-development capabilities.

This paper examined the determinants of service quality in foreign and local banks in Tanzania, with a focus on Morogoro Municipality. The study employed a cross-sectional research design and used convenience sampling to select 120 customers who hold accounts in both local and foreign banks in the area of study. Data were collected through structured questionnaires, and analysis was conducted using multiple linear regression. The results show that staff conduct, service communication, service credibility, timely bank services, and technology adoption positively and significantly influence customer satisfaction, while access to bank services negatively and insignificantly affects customer satisfaction in both local and foreign banks. Based on these findings, the study recommends that both foreign and local banks strictly should adhere to staff conduct, service communication, service credibility, service accessibility, service duration, and technology adoption to enhance customer satisfaction in the banking sector.

As the rural bank in Indonesia, Bank Perkreditan Rakyat (BPR) serves people with limited products and services and is less regulated compared to Commercial Banks. During the COVID-19 pandemic, the growth rate of BPR slowed down. We developed a hypothesis on the negative influence of financial technology (fintech) on the competitiveness and performance of BPR. Using all BPR companies and 22 Fintech Lending companies as samples to measure the HHI and Lerner Index, we found that BPR and Fintech Lending companies were competing in an unconcentrated market. Several variables could not be examined while studying the determinants of BPR’s competitiveness, including Regional GDP, BOPO, third party funds, Loan Credit, ROE, NIM, and CAR. Several determinants, such as the NPL, Fintech Lending, and COVID-19 pandemic, were found to have significant negative impacts on the BPR’s competitiveness. Interestingly, BPR’s banking digitalization, as represented by its IT capability, was found to be not significant in this study.

This research aims to determine the level of difference in the health of Rural Banks (BPR) throughout Bangli Regency before the implementation of the PSBB and after the implementation of the PSBB. The population in this research is all BPRs in Bangli Regency and the sample in this research is all BPRs in Bangli Regency, namely BPR Regional Bank Bangli (Perseroda), BPR Kintamani Perdana and BPR Mitra Bali Muktijaya Mandiri. The data analysis technique used is the Paired Sample T-Test. The results of the analysis show that there are several ratios that experience differences, the ratios that experience significant differences are the CAR, KAP and LDR ratios and the ratios that do not experience significant differences are the NPM and ROA ratios, the reason there are no significant changes is because before pandemic 19 Bank health levels are still below standard and the Covid-19 pandemic has not had any impact because the bank health level is already below the specified standards. The advice that researchers can give is to maintain the bank's health level using the CAMEL method so that there are no ratio levels that are below reasonable limits, because of the unpredictable time of the Covid-19 pandemic.

This quantitative study investigates the relationship between organizational citizenship behavior (OCB) and service quality among 168 employees working in Bank Perkreditan Rakyat (BPR) establishments in East Bekasi, Indonesia. The research employs linear regression analysis to examine the extent to which OCB influences service quality within the context of BPRs. The sample was drawn from various BPRs in East Bekasi, utilizing structured surveys to collect data on employees' OCB and perceived service quality. The findings reveal a significant and positive relationship between organizational citizenship behavior and service quality. Specifically, employees who exhibit higher levels of OCB tend to contribute positively to the quality of services provided by BPRs. These results underscore the importance of fostering a culture of OCB within BPRs to enhance service quality and meet customer expectations effectively. The implications of this study extend to BPR managers and policymakers, highlighting the importance of promoting and incentivizing OCB among employees as a strategy for improving service quality and maintaining competitiveness in the financial services sector. Further research is recommended to explore additional factors that may influence the relationship between OCB and service quality and to validate the findings in different organizational contexts and geographical locations.

In today’s world of globalization, no country can remain isolated from the impact of changes blowing across the world, be it economic, political or technological. The financial meltdown of 2008 in the United States of America had its repercussion throughout the global markets, especially the banking sector. The UAE is an open economy and was affected too, with banking being the hardest hit. As retail banking constitutes a major part of the banking sector in UAE, catering to a relatively small population, it has traditionally witnessed a high level of internal rivalry. This has forced the retail banks in UAE to pursue different strategies to gain a sustainable competitive edge over the rivals and maintain/increase profitability to remain in the race. This research study was conducted within the local retail banks in UAE to critically evaluate the business processes deployed/managed by them. Established research methodologies were used during the research. Primary data were gathered using a self-administered survey questionnaire, whereas secondary data were sourced from various public domains. The empirical research indicated that there are no specific business process models deployed in local retail banks within the UAE. Although the processes of the banks are linked to its strategy, its internal stakeholders are not happy with them neither they feel the need for a structured approach towards designing good processes. This indicates that there is disengagement between the strategy formulation and strategy implementation; mainly in the areas of processes and people which needs to be addressed by the banks.

This chapter explores whether shocks originating at local banks affect the EU’s economic growth and banking system’s stability. Our analysis proceeds in two steps. In the first step, we identify locally dominant banks that substantially impact their local macroeconomic environment but are not among the largest European banks. We construct a measure of idiosyncratic shocks at these dominant local banks, the so-called Local Banking Granular Residual. We show that idiosyncratic shocks to these locally dominant banks propagate nationally and explain a significant portion of aggregate EU macroeconomic fluctuations. In a second step, we relate idiosyncratic shocks at local dominant banks to EU banking system stability, as measured by an EU Bank Z-score, and find significant evidence. We show that local banks matter in the EU.

Differential effects of credit risk and capital adequacy ratio on profitability of the domestic banking sector in Ghana

This article investigates the role of local banking development, per se, in European SME debt policies, using a cross-country dataset. Moreover, it assesses whether the debt policies of SMEs are mainly driven by local or national banking development. We find that higher levels of local banking development increase the amount of debt used by SMEs. Results suggest that national banking institutions reduce the influence of local banking sectors on SME financial behavior. Several robustness and further tests validate our results, suggesting that whilst the process of international integration and digitalization of financial markets, local banking development is still relevant despite the moderating role of national banking policies. Consequently, policy makers should first and foremost allow headquarters and central banks to better support local banks in integrating national banking policies in order to reduce the financial constraints on SMEs and spur their economic growth.

Comment on: Impact of the COVID-19 pandemic on liver disease-related mortality rates in the United States

- The financial performance of banking institutions reflects the efficiency and effectiveness of their operations, influenced by various internal and external factors. This study examines the effect of Loan Loss Provision (LLP) on the operating performance of Bank Perkreditan Rakyat (BPR). Using a quantitative approach, the research analyzes financial reports of BPRs supervised by the Otoritas Jasa Keuangan (OJK) from 2018 to 2022. Data were collected from the official websites of respective BPRs through online searches. A purposive sampling method was applied, resulting in a sample of 12 BPRs observed over 5 years. Hypothesis testing was conducted using multiple regression analysis with panel data. The results indicate that Loan Loss Provision (LLP) has a negative effect on operating performance, as measured by Return on Assets (ROA). This finding suggests that higher LLP allocations reduce profitability by limiting the capacity of BPRs to extend credit and generate interest income. The study contributes to understanding how risk management practices, particularly LLP, influence the financial outcomes of BPRs. It also provides insights for regulatory authorities, especially the Otoritas Jasa Keuangan (OJK), to evaluate the impact of LLP policies on BPR performance and their implications for the sustainability of small-scale banking operations. Keywords: Profitability; Loan Loss Provision; Operating Performance; Bank Perkreditan Rakyat

PurposeThe purpose of this paper is to examine the effects of board composition on the profitability of banks in Tanzania. First, it examines the differences between local and foreign-owned banks in terms of their boards and profitability, and then the contribution of board composition to banks’ profitability.Design/methodology/approachThe paper utilizes a secondary panel data set of information on the boards, their operations and financial statements of 35 banks. The data were collected between 2009 and 2013. The authors tested the stated hypotheses using descriptive and econometric analyses.FindingsThe results show a significant difference in board composition and profitability between local and foreign-owned banks. Local banks have a higher income and profits. With their contextual knowledge they are able to attract diverse board directors who contribute positively to their performance. The paper also found that large boards and those with women on them were associated with high profitability.Research limitations/implicationsThe study focused on three aspects of boards, which are size, foreign directors and women’s representation. The paper is limited in the sense that other aspects of composition that also affect performance are not included in the study.Practical implicationsThe paper suggests that in order to maximize profitability, banks should increase the number of directors. Many board members can share skills and knowledge, which can improve performance. Women are underrepresented on boards. With current changes in policy and education in emerging countries, there is a need to increase their representation.Originality/valueThis study contributes to the agency theory by showing that large boards are indeed efficient at monitoring and bringing in profits, especially in an emerging economy where there are multifaceted risks at country and company level. These risks require shareholders and investors to have a much better understanding of the banks and that is where a large board plays a key role.