By
Nadella Maharani Sembalangi 11500905
BACHELOR’S DEGREE in
ACCOUNTING DEPARTMENT
FACULTY OF BUSINESS AND COMMUNICATION
SWISS GERMAN UNIVERSITY The Prominence Tower
Jalan Jalur Sutera Barat No. 15, Alam Sutera Tangerang, Banten 15143 – Indonesia
June 2019
Revision after the Thesis Defense on 9th July 2019
STATEMENT BY THE AUTHOR
I hereby declare that this submission is my own work and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made in the thesis.
Nadella Maharani S
____________________________________________
Student Date
Approved by:
Dr. Ir. Yosman Bustaman, M.Buss
____________________________________________
Thesis Advisor Date
Dr. Nila K. Hidayat, SE., MM
____________________________________________
Dean Date
ABSTRACT
ANALYSIS OF DIVERSIFICATION ON BANK RISK:
EVIDENCE FROM INDONESIA COMMERCIAL BANKS 2010-2018
By
Nadella Maharani Sembalangi Dr. Ir. Yosman Bustaman, M.Buss, Advisor
SWISS GERMAN UNIVERSITY
The purposes of this study are to investigate the relationship of each component diversification; revenue, asset, liability, and geographic diversification toward bank risk in Indonesia commercial banks. The relationship between diversification components and bank risk are analyzed individually using panel data. Observation of 50 Indonesian commercial banks are included for the period of 2010-2018. The Herfindahl-Hirschman index (HHI) and natural logarithm (Ln.) are used as the diversification determinants while bank risk is proxied by Z score. In the analysis control variables also considered using macroeconomic factors and banks specific factors. GDP and inflation used as proxies for macroeconomic factors while bank size, capital adequacy, and liquidity are the proxies for banks specific factors. This study provides several findings for bank diversification. Revenue diversification found to be an opportunity for commercial banks to increase stability and avoid insolvency risk as current commercial banks still focus on traditional activities. The same result found in asset diversification. On the contrary, diversification within non-interest income, liability and geographic diversification found to increase bank risk.
Keywords: Revenue Diversification, Assets Diversification, Liability Diversification, Geographic Diversification, Non-interest income
© Copyright 2019
by Nadella Maharani Sembalangi
All rights reserved
DEDICATION
I dedicate this work for my parents, family and my advisor Dr. Ir. Yosman Bustaman,
M.Buss
ACKNOWLEDGEMENTS
Special thanks dedicated to my family, especially for my parents and grandmother who always support and encourage me in my whole life. Thank you for all the wishes, trust, and prayers. I could never belong in this stage without them.
Sincere gratitude addressed to Dr. Ir. Yosman Bustaman, M.Buss as my thesis advisor. I am really grateful and pleased to become in your guidance. Thank you for all the advices, patients, and kindness during the lecturing time. It has been a great chance for me to have your immense and broad knowledge shared with me. I wish you the best of luck.
To my English advisor, James Hunt and Michael thank you for the help in revising my grammatical for this study. Without you, I cannot finish it up to this level.
To all the Accounting lectures, Ir. Nurdayadi, Msc., Indra Pratama, MM, Ak, Imelda Suardi, SE., M.Acc, Alfiandri, MAcc, CA, and Neneng Djuaeriah, M.Comm, thank you for the knowledge you shared from the beginning of the lecture. I wish you the best of luck in carry out the honorable mission for educating Indonesian students.
For all my classmates, Farah, Fitri, Andrew, Fadil, and Rexy, thank you for your companion for these 4 years. I learn much from you all. The teamwork, happiness, friendship, kindness that help me to grow up to this point.
I also would like to thank other people who cannot be mentioned one by one, your support is very precious and priceless to me.
Above all, my deepest gratitude goes to Allah SWT. for the blessing since I was born.
TABLE OF CONTENTS
STATEMENT BY THE AUTHOR ... 2
ABSTRACT ... 3
DEDICATION ... 5
ACKNOWLEDGEMENTS ... 6
CHAPTER 1 – INTRODUCTION ... 12
1.1. Background ... 12
1.2. Problem Statement ... 15
1.3. Objectives ... 16
1.4. Reseach Questions ... 16
1.5. Significant of Study ... 16
1.6. Thesis Structure ... 17
CHAPTER 2 – LITERATURE REVIEW ... 18
2.1. Financial System ... 18
2.2. Development in Banking Industry ... 19
2.3. Revenue Diversification ... 22
2.4. Revenue Diversification and Bank Risk ... 23
2.5. Assets Diversification ... 29
2.6. Assets Diversification and Bank Risk ... 30
2.7. Liabilities Diversification ... 34
2.8. Liabilities Diversification and Bank Risk ... 36
2.9. Bank Geographic Diversification ... 39
2.10. Geographic Diversification and Bank Risk... 39
Hypothesis: ... 43
CHAPTER 3 – RESEARCH METHODS ... 44
3.1. Research Process ... 44
3.2. Theoretical Framework ... 45
3.3. Research Design ... 46
3.3.1. Type of Study ... 46
3.3.2. Research Strategy ... 47
3.3.3. Unit of Analysis ... 48
3.3.4. Study Setting ... 48
3.3.5. Time Horizon ... 48
3.3.6. Data Source and Collection Method ... 48
3.3.6.2. Data Collection Method ... 49
3.3.7. Data Analysis ... 49
3.3.7.1. Panel Data ... 49
3.3.7.2. Model Testing ... 51
3.3.7.2.1. Outliers ... 51
3.3.7.2.2. Multicollinearity... 51
3.3.7.2.3. Goodness Fit of Statistics ... 52
3.4. Sample Data (List of Banks) ... 52
3.5. Variable Measurements... 52
3.5.1. Independent Variables ... 52
3.5.1.1. Revenue Diversification ... 53
3.5.1.2. Asset Diversification ... 53
3.5.1.3. Liability Diversification ... 54
3.5.1.4. Geographic Diversification ... 54
3.5.2. Dependent Variable... 55
3.5.2.1. Bank Risk ... 55
3.5.3. Control Variables ... 55
3.5.3.1. Bank Specific Factors ... 56
3.5.3.1.1. Bank Size ... 56
3.5.3.1.2. Capital Adequacy ... 56
3.5.3.1.3. Liquidity ... 56
3.5.3.2. Macroeconomic Factors ... 57
3.5.3.2.2. Inflation ... 57
3.6. The Model ... 57
3.7. Scope and Limitations ... 57
CHAPTER 4- DATA ANALYSIS ... 59
4.1. Data Processing ... 59
4.1.1. Model Estimation ... 59
4.1.2. Multicollinearity Test ... 60
4.1.3. Goodness fit of Statistic ... 61
4.1.4. Descriptive Statistic Analysis ... 61
4.2. Result Analysis ... 65
Hypotheses 1 ... 65
4.2.1. Regression Result ... 66
4.2.1.1. Revenue Diversification ... 67
4.2.1.2. Asset Diversification ... 68
4.2.1.4. Geographic Diversification ... 69
4.2.1.5. Control Variables ... 69
4.2.1.5.1. Macroeconomic Factors ... 69
4.2.1.5.2. Bank Specific Factors ... 70
CHAPTER 5- CONCLUSION AND RECOMMENDATION ... 72
5.1. Conclusion ... 72
5.2. Recommendations ... 75
GLOSSARY ... 76
REFERENCES ... 77
APPENDIX A-CHOW TEST ... 80
APPENDIX B- HAUSMAN TEST ... 81
APPENDIX C-REGRESSION (FIXED EFFECT) ... 83
APPENDIX D- DESCRIPTIVE STATISTICS ... 84
APPENDIX E- MULTICOLLINEARITY TEST ... 85
APPENDIX F- BANKS LIST ... 86
APPENDIX G- DATA FOR RISK MEASUREMENT ... 87
CURRICULUM VITAE ... 95
