THE INFLUENCE OF BANK SPECIFIC VARIABLES AND MACROECONOMICS FACTORS TO LIQUIDITY COVERAGE RATIO OF 19 COMMERCIAL BANKS IN INDONESIA IN PERIOD OF 2008-2014

• Main Author: Wijaya Halim, Ivan
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/78655
• Institution: Institut Teknologi Bandung

Liquidity is important to be maintained by bank as too high liquidity implies that the bank cannot optimize the assets to generate income while the too low liquidity maintained by bank will result in high possibility of insolvency. Based on the experience of global crisis happened in 2008, the sufficient amount of liquidity is important to prevent banks from bankruptcy. The optimal number of liquidity is declared in Basel III Document which will be calculated by using LCR (Liquidity Coverage Ratio) as the comparison of High Quality Liquid Asset (HQLA) with net cash outflow. HQLA consists of all assets that can be converted easily and immediately to be cash without any or small diminishing value while the net cash outflow consists of short term liabilities due within 30 days calendar. This paper aims to analyze the impact of bank specific and macroeconomics variables toward LCR of 19 commercial banks in Indonesia in the period of 2008-2014 by furthermore giving recommendation for banks to reach minimum LCR written on Basel III Document. Especially in Indonesia, banks have not yet achieved the minimum LCR. The bank specific variables include bank size, current asset quality, special mention asset quality, substandard asset quality, doubtful asset quality, and loss asset quality while the macroeconomics variables are inflation rate and exchange rate. The data will be gathered from financial information of 19 commercial banks in Indonesia, which are limited to banks with above 5 trillion rupiahs core capital. It will be processed by using panel data regression through EViews Software to examine the effect of those variables to LCR. As the result, bank size, special mention asset quality, loss asset quality, and exchange rate have negative significant effect to LCR while inflation rate and substandard asset quality have positive significant effect to LCR. Current asset quality and doubtful asset quality have negative but no significant effect to LCR. As the recommendation, the amount of LCR of banks in Indonesia should be increased to achieve minimum amount of LCR stated on 1st January 2019, which is 100%. It is good for bank to have high amount of asset in form of earning assets in order to generate more income. Nevertheless, at certain level, too high number of assets can give disadvantage for bank, especially if the assets are mostly composed by non earning assets. Therefore bank should be aware of the composition in its total asset. In addition, bank should buy securities with good rating (AAA) to lower the risk. Bank should keep the substandard, doubtful, and loss asset quality in very low amount as well as current and special mention asset quality in higher amount by assessing every candidate of debtor carefully through 5C’s principle (Character, Capacity, Capital, Condition of Economy, and Collateral). High level of inflation becomes an indication for management of bank to tighten the process of distributing loan to prevent high amount of NPL (Non Performing Loan). In terms of rupiah exchange rate, bank should scrutinize and differentiate the debtor (exporter or importer) because the decreasing of rupiah exchange rate will make exporters gain much profit, thus if the debtors are mostly composed by exporter, number of NPL will be lower. But, if the debtors are mostly composed by importer or if the local producers use many imports materials to produce goods and services, number of NPL will be higher. Therefore bank should scrutinize together the changing of exchange rate and the kind of debtors (exporter or importer).