ANALYSIS OF DYNAMIC MODELS OF TWO BANKS WITHINTERACTION USING SYSTEMS OF FINITE DIFFERENCE EQUATIONS

• Main Author: Francis Jayadi, Cornelius
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/81427
• Institution: Institut Teknologi Bandung

Banking is one of the sectors that continues to grow in line with the times, and today the banking industry is evolving by providing various digital services. This industry, which plays a vital role in the country’s economy and society’s life, is undoubtedly an interesting subject for research. In practice, banks cannot operate independently without other banks and the central bank as regulators. Therefore, this study constructs a balance sheet model for banks that includes deposits, loans, and bank equity with interactions between two banks, also involving the minimum reserve requirement. The model is developed into a system of 4 finite difference equations by incorporating interaction combinations in deposits and loans between banks. The data used in this study include monthly balance sheet data from 4 banks belonging to different groups based on core capital (KBMI). Thus, in each system, there will be 12 cases/bank pairs studied. Additionally, deposit and loan interest rates for each type of bank based on ownership will be modeled using Fourier series so that the interest rates will be periodic following macroeconomic conditions. All parameters, except for the minimum reserve requirement parameters set by Bank Indonesia, will be estimated using the spiral optimization algorithm. The parameter estimation results provide an average overall mean absolute percentage error of 12%, with a maximum value of less than 20%. Furthermore, each model yields one equilibrium point obtained through numerical and computational methods, along with local asymptotic stability using the eigenvalues of the system’s Jacobian matrix. Sensitivity analysis of several parameters on equilibrium and system stability is also conducted. Changes in the parameters of deposit withdrawals and non-performing loans affect the system’s equilibrium values and even its stability. Meanwhile, the minimum reserve requirement parameter generally does not significantly affect the system’s equilibrium or stability.