THE EFFECT OF P2P LENDING DISBURSED LOAN AND TOTAL ASSETS ON BANKING PERFORMANCE AND STABILITY

• Main Author: Dhianir Rahman Panca, Aqilla
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/75763
• Institution: Institut Teknologi Bandung

Technology development has improved many human activities; the financial sector is no exception. Financial service has gone through innovative technology development that makes human necessities easier. One of the top products is peer- to-peer (P2P) lending. P2P lending is present to create easier funding channelling. Borrowers only fill the credit requirement by online platform; lenders could choose which borrower they want to lend their money to. This easy-to-use of P2P lending might lead them to become the competitor for the banking industry as the traditional financial service provider that existed before P2P lending appeared. However, the competition in the banking industry is not quite clear as it developed two competition theories: fragility-competition and stability competition. Fragility-competition suggests that as the competition level increases, it negatively affects bank performance. In contrast, the stability-competition theory suggests that competition will enhance a bank’s performance. While in consumer and disruptive innovation theory, it suggests that new service provider with technological adaptation could replace the old provider if they could fulfil consumer demand. This unclear direction of competition between P2P lending and banking lead this research to understand the actual condition. Using panel data regression, this research analyzed 98 banks with return on asset (ROA), return on equity (ROE) as profitability proxy, and loan-loss provision (LLP), Z- score as stability proxy. This study found that P2P loans disbursed and their total assets negatively affect bank profitability and stability. The additional test also supports this finding. This study tries to understand profitability and stability as part of a bank’s performance. Moreover, this study also incorporates different P2P lending measurements that more describe its business transaction, unlike previous studies that only use the number of P2P lending and fintech level. However, this research only studies the effect using the time horizon from December 2018 to July 2020 and aggregates data due to data availability. Thus, the future search could investigate more extended time observation, differentiating region-based transactions, and using additional proxies.