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INTEREST RATE RISK OF BANKING SECTOR: THE EFFECT OF MATURITY GAP ON NET INTEREST INCOME IN INDONESIA

Year 2019, Volume 6, Issue 1, 19 - 31, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1025

Abstract

Purpose - This study aims to examine how the interest rate risk management that has been reflected in banks’ maturity gaps affect the net interest income (NII).

Methodology - The population in this study is all conventional commercial (non-Sharia) banks in Indonesia as many as 99 banks. Of the 99 banks, 57 banks were selected as the sample of in the study. Determination of the sample is based on these criteria: the availability of the bank's annual report containing financial statements providing data about the descriptions of interest rate risk management, which also provides complete data about bank's RSA and RSL from 2013 - 2017. There are five years of the research period, so 285 unit observations are used in the analysis. The study employs multiple regression analysis with panel data. Net interest income is derived from the difference between interest income and interest expense. The maturity gap is calculated as the difference between RSA and Risk RSL. The study uses a dummy variable of IRS, LDR, net NPL and ownership status of banks.

Findings - The results of the study show that maturity gap has a negative effect on NII and banks with positive gaps have higher NII than banks with negative gaps. These results imply that when the interest rate decreases, the widened positive gap will lower NII.

Conclusion - The conclusion of the research is that in conditions of declining interest rates, the more positive gap between RSA and RSL has decreased banks’ NII. The practical implication of the results is that banks need to think about lowering the RSA by means of managing their assets, such as banks need to buy long-term securities, extend the loan maturity, and change the interest rate from the floating rate to a fixed rate. In terms of management liabilities, banks need to think about increasing RSL by giving premium interest rates for deposits with a maturity of less than one year, and by borrowing funds at fair interest rates.

References

  • Acharya, V. V., Cooley, T. F., Richardson, M., Walter, I. (2011). Regulating wall street: The Dodd-Frank Act and the new architecture of global finance. New Jersey: John Wiley & Sons Inc.
  • Ahmed, A. S., Beatty, A., Takeda, C. (1997). Evidence on interest rate risk management and derivatives usage by commercial banks. Retrieved from https://ssrn.com/abstract=33922 doi:http://dx.doi.org/10.2139/ssrn.33922
  • Ali, M. (2004). Asset-liability management: menyiasati risiko pasar dan risiko operasional dalam perbankan. Jakarta: Elex Media Komputindo
  • Bank Indonesia. (2001). Laporan keuangan publikasi triwulanan dan bulanan bank umum serta laporan tertentu yang disampaikan kepada Bank Indonesia, Surat Edaran Bank Indonesia No. 3/30/DPNP C.F.R. Retrieved from https://www.bi.go.id/id/peraturan/arsip-peraturan/Perbankan2001/SE%20Lap.publikasi.PDF
  • Bank Indonesia. (2017). Statistik perbankan Indonesia. Retrieved from http://www.bi.go.id//statistikperbankanindonesia/
  • Baser, N. (2014). Asset and liability management of scheduled commercial banks. International Journals of Marketing and Technology, 2(4), 20-44. https://www.ijmra.us/project%20doc/IJMT_APRIL2012/IJMRA-MT732.pdf
  • BPS. (2017). Realisasi ınvestasi penanaman modal dalam negeri menurut sektor ekonomi. Retrieved from https://www.bps.go.id/statictable/2014/01/15/1317/realisasi-investasi-penanaman-modal-dalam-negeri-menurut-sektor-ekonomi-font-class-font922802-sup-1-sup-font-font-class-font822802-miliar-rupiah-2000-2016.html
  • Budoyo, W. (2017). Outlook ekonomi 2017: Ekonomi Indonesia memasuki fase pemulihan. Retrieved from https://www.btnproperti.co.id/blog/outlook-ekonomi-2017-ekonomi-indonesia-memasuki-fase-pemulihan-1145.html
  • Byrne, J., (2000), Bringing banking risk up to date. Balance Sheet. 8(6).
  • Djinarto, B. (2000). Banking asset liability management: Perencanaan, strategi, pengawasan, dan pengelolaan dana. Jakarta: Gramedia Pustaka Utama.
  • Djohanputro, B. (2004). Manajemen risiko korporat terintegrasi. Jakarta: PPM
  • Doran, D., Fitzpatrick, T. (2003). The Irish banking sector: An overview and some future trends. Ireland: Central Bank and Financial Services Authority of Ireland. Retrieved from http://www.bankinginquiry.gov.ie/the%20irish%20banking%20crisis%20regulatory%20and%20financial%20stability%20policy%202003-2008.pdf
  • Esposito, L., Nobili, A., Ropele, T. (2015). The management of ınterest rate risk during the crisis: Evidence from Italian banks. Journal of Banking & Finance, 59, 486-504. https://doi.org/10.1016/j.jbankfin.2015.04.031
  • Ghozali, I. (2013). Aplikasi analisis multivariate dengan program SPSS (9 ed.). Semarang: Badan Penerbit Universitas Diponegoro.
  • Hair Jr., J. F., Black, W. C., Babin, B. J., Anderson, R. E. (2010). Multivariate data analysis: A global perspective. 7th Edition, Pearson Education, Upper Saddle River
  • Holston, K., Laubach, T., Williams, J. C. (2017). Measuring the natural rate of interest: International trends and determinants. Journal of International Economics, 108(Supplement), S59-S75. DOI: https://doi.org/10.1016/j.jinteco.2017.01.004
  • J.P.Morgan. (1997). Credit metrics-technical document. New York.
  • Kementerian Dalam Negeri. (2017). Modul penilaian kinerja badan usaha milik daerah. Jakarta: Kementerian Dalam Negeri.
  • Koch, T. W., Macdonald, S. S. (2003). Bank management (5 ed.). Ohio: Thomson South-Western.
  • Kuncoro, M., Suhardjono. (2004). Manajemen perbankan. Yogyakarta: BPFE.
  • Meena, A. K., Dhar, J. (2014). empirical analysis and comparative study of liquidity ratios and asset-liability management of banks operating in India. International Journal of Social, Human Science and Engineering. 8, 358-363. https://www.waset.org/publications/9997584
  • Mishkin, F. S., Eakins, S. G. (2012). Financial markets and ınstitutions (Global Edition ed.). Essex: Pearson Education Limited.
  • Murphy, E. V. (2013). Who regulates whom and how? An overview of U.S. financial regulatory policy for banking and securities markets. Washington, DC: Congressional Research Service. Retrieved from https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=2154&context=key_workplace
  • OJK. (2017a). Indonesian banking statistics. Retrieved from http://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Documents/OJKSPIDes2013_1392786491.pdf
  • OJK. (2017b). Penilaian tingkat kesehatan bank umum. Retrieved from https://www.ojk.go.id/id/kanal/perbankan/regulasi/surat-edaran-ojk/Pages/Surat-Edaran-Otoritas-Jasa-Keuangan-Nomor-14-SEOJK.03-2017.aspx
  • Prathap, B. N. (2013). An empirical study of asset liability management by ındian banks. Asia Pacific Journal, 2(4), 1-10.
  • Rachel, L., Smith, T. D. (2015). Secular drivers of the global real interest rate. Staff Working Paper ( ed.): Bank of England
  • Riyadi, S. (2006). Banking asset and liability management (3 ed.). Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
  • Siamat, D. (2004). Manajemen lembaga keuangan (4 ed.). Jakarta: Lembaga Penerbit Fakultas Ekonomi Indonesia.
  • Singh, K. (2013). Asset-liability management in banks: A dynamic approach. Journal of Management & Research, 7(2/4).
  • Vij, M. (2005). Managing gap: A case study approach to asset-liability management of banks. Vısıon-The Journal of Business Perspective, 9(1), 49-58.
  • Winarso, E., Salim, I. A. (2017). The ınfluence of risk management to the return on asset (ROA) banking sector (Case Study of Bank in Indonesia Listed in Indonesia Stock Exchange). Advances in Economics and Business, 5(7), 382-393.

Year 2019, Volume 6, Issue 1, 19 - 31, 30.03.2019
https://doi.org/10.17261/Pressacademia.2019.1025

Abstract

References

  • Acharya, V. V., Cooley, T. F., Richardson, M., Walter, I. (2011). Regulating wall street: The Dodd-Frank Act and the new architecture of global finance. New Jersey: John Wiley & Sons Inc.
  • Ahmed, A. S., Beatty, A., Takeda, C. (1997). Evidence on interest rate risk management and derivatives usage by commercial banks. Retrieved from https://ssrn.com/abstract=33922 doi:http://dx.doi.org/10.2139/ssrn.33922
  • Ali, M. (2004). Asset-liability management: menyiasati risiko pasar dan risiko operasional dalam perbankan. Jakarta: Elex Media Komputindo
  • Bank Indonesia. (2001). Laporan keuangan publikasi triwulanan dan bulanan bank umum serta laporan tertentu yang disampaikan kepada Bank Indonesia, Surat Edaran Bank Indonesia No. 3/30/DPNP C.F.R. Retrieved from https://www.bi.go.id/id/peraturan/arsip-peraturan/Perbankan2001/SE%20Lap.publikasi.PDF
  • Bank Indonesia. (2017). Statistik perbankan Indonesia. Retrieved from http://www.bi.go.id//statistikperbankanindonesia/
  • Baser, N. (2014). Asset and liability management of scheduled commercial banks. International Journals of Marketing and Technology, 2(4), 20-44. https://www.ijmra.us/project%20doc/IJMT_APRIL2012/IJMRA-MT732.pdf
  • BPS. (2017). Realisasi ınvestasi penanaman modal dalam negeri menurut sektor ekonomi. Retrieved from https://www.bps.go.id/statictable/2014/01/15/1317/realisasi-investasi-penanaman-modal-dalam-negeri-menurut-sektor-ekonomi-font-class-font922802-sup-1-sup-font-font-class-font822802-miliar-rupiah-2000-2016.html
  • Budoyo, W. (2017). Outlook ekonomi 2017: Ekonomi Indonesia memasuki fase pemulihan. Retrieved from https://www.btnproperti.co.id/blog/outlook-ekonomi-2017-ekonomi-indonesia-memasuki-fase-pemulihan-1145.html
  • Byrne, J., (2000), Bringing banking risk up to date. Balance Sheet. 8(6).
  • Djinarto, B. (2000). Banking asset liability management: Perencanaan, strategi, pengawasan, dan pengelolaan dana. Jakarta: Gramedia Pustaka Utama.
  • Djohanputro, B. (2004). Manajemen risiko korporat terintegrasi. Jakarta: PPM
  • Doran, D., Fitzpatrick, T. (2003). The Irish banking sector: An overview and some future trends. Ireland: Central Bank and Financial Services Authority of Ireland. Retrieved from http://www.bankinginquiry.gov.ie/the%20irish%20banking%20crisis%20regulatory%20and%20financial%20stability%20policy%202003-2008.pdf
  • Esposito, L., Nobili, A., Ropele, T. (2015). The management of ınterest rate risk during the crisis: Evidence from Italian banks. Journal of Banking & Finance, 59, 486-504. https://doi.org/10.1016/j.jbankfin.2015.04.031
  • Ghozali, I. (2013). Aplikasi analisis multivariate dengan program SPSS (9 ed.). Semarang: Badan Penerbit Universitas Diponegoro.
  • Hair Jr., J. F., Black, W. C., Babin, B. J., Anderson, R. E. (2010). Multivariate data analysis: A global perspective. 7th Edition, Pearson Education, Upper Saddle River
  • Holston, K., Laubach, T., Williams, J. C. (2017). Measuring the natural rate of interest: International trends and determinants. Journal of International Economics, 108(Supplement), S59-S75. DOI: https://doi.org/10.1016/j.jinteco.2017.01.004
  • J.P.Morgan. (1997). Credit metrics-technical document. New York.
  • Kementerian Dalam Negeri. (2017). Modul penilaian kinerja badan usaha milik daerah. Jakarta: Kementerian Dalam Negeri.
  • Koch, T. W., Macdonald, S. S. (2003). Bank management (5 ed.). Ohio: Thomson South-Western.
  • Kuncoro, M., Suhardjono. (2004). Manajemen perbankan. Yogyakarta: BPFE.
  • Meena, A. K., Dhar, J. (2014). empirical analysis and comparative study of liquidity ratios and asset-liability management of banks operating in India. International Journal of Social, Human Science and Engineering. 8, 358-363. https://www.waset.org/publications/9997584
  • Mishkin, F. S., Eakins, S. G. (2012). Financial markets and ınstitutions (Global Edition ed.). Essex: Pearson Education Limited.
  • Murphy, E. V. (2013). Who regulates whom and how? An overview of U.S. financial regulatory policy for banking and securities markets. Washington, DC: Congressional Research Service. Retrieved from https://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=2154&context=key_workplace
  • OJK. (2017a). Indonesian banking statistics. Retrieved from http://www.ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Documents/OJKSPIDes2013_1392786491.pdf
  • OJK. (2017b). Penilaian tingkat kesehatan bank umum. Retrieved from https://www.ojk.go.id/id/kanal/perbankan/regulasi/surat-edaran-ojk/Pages/Surat-Edaran-Otoritas-Jasa-Keuangan-Nomor-14-SEOJK.03-2017.aspx
  • Prathap, B. N. (2013). An empirical study of asset liability management by ındian banks. Asia Pacific Journal, 2(4), 1-10.
  • Rachel, L., Smith, T. D. (2015). Secular drivers of the global real interest rate. Staff Working Paper ( ed.): Bank of England
  • Riyadi, S. (2006). Banking asset and liability management (3 ed.). Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.
  • Siamat, D. (2004). Manajemen lembaga keuangan (4 ed.). Jakarta: Lembaga Penerbit Fakultas Ekonomi Indonesia.
  • Singh, K. (2013). Asset-liability management in banks: A dynamic approach. Journal of Management & Research, 7(2/4).
  • Vij, M. (2005). Managing gap: A case study approach to asset-liability management of banks. Vısıon-The Journal of Business Perspective, 9(1), 49-58.
  • Winarso, E., Salim, I. A. (2017). The ınfluence of risk management to the return on asset (ROA) banking sector (Case Study of Bank in Indonesia Listed in Indonesia Stock Exchange). Advances in Economics and Business, 5(7), 382-393.

Details

Primary Language English
Subjects Social, Humanities, Multidisciplinary, Economics, Management, Business Finance
Journal Section Articles
Authors

Andewi ROKHMAWATİ This is me (Primary Author)

0000-0003-3713-972X

Publication Date March 30, 2019
Published in Issue Year 2019, Volume 6, Issue 1

Cite

APA Rokhmawati, A. (2019). INTEREST RATE RISK OF BANKING SECTOR: THE EFFECT OF MATURITY GAP ON NET INTEREST INCOME IN INDONESIA . Journal of Economics Finance and Accounting , 6 (1) , 19-31 . DOI: 10.17261/Pressacademia.2019.1025

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