Abstract :

This paper aims to build on previous research conducted by Berger and DeYoung (1997) on management behavior in the context of the Indonesian banking industry in 4 different ownership cluster by looking the nexus of NPL ratio and bank operational efficiency which specifically proxied by the non-interest expense/non-interest income in the Indonesian banking industry. This paper is the first to look at the management behavior framework in the Indonesian banking system using the approach of operational efficiency, to the best of the author’s knowledge. This study also aims to give useful insights for regulators in order for them to recognize the real challenges in the banking industry, which might help Indonesia’s banking growth. All datasets were gathered from the Indonesia Banking Statistic Reports, which were collected in quarterly basis from January 2010 to September 2021. The OLS estimation in the granger causality approach were focusing on examining the first two hypotheses: the bad management and bad luck hypotheses. According to the findings, authors found that each of bank cluster in the Indonesian Banking System behaved differently regarding the association between the problem loans and operational efficiency and found sensitive to the lags included in the model. In summary, the bad management, skimping and bad luck hypotheses were found in separately in the 4 different bank cluster models. These findings might bring insights to regulators to act differently towards the different bank cluster in order to create precise regulations that are relevant and in accordance with the current behaviour.

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Keywords :

Bad Management; Bad Luck; Indonesian Banking; Management Behaviour; Non-Performing Loan; Operational Efficiency.

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