Sectoral Loan Portfolio Concentration and Returns of
Indonesian Banks
Apriani D.R Atahau
1*
Tom Cronje**
The objective of this paper isto determine the impact of loan portfolio concentration on the returns of Indonesian banks. This paper uses a broad set of heuristic approaches to
measure diversification and capture the deviation of a
bank’s portfolio from a benchmark since conceivable
benchmarks are naive diversification across all sectors. Thus, The Hirschman Herfindahl Index, Distance Measures and Deviation from average are applied as measures of concentration.The data covers the pre and post GFC periods from 2003-2011 for 109 commercial banks in
Indonesia (981 bank year observations). The findings show
that thesectoral loan portfolio concentration in Indonesia tend to decrease overall overtime with an increased focus on unspecified other sectors, which primarily refers to consumption. In addition, the impact of loan portfolio concentration on the returns varies with the concentration measures. These differences could serve as prominent information for Central Bank in the application of a set of heuristic approaches to measure concentration.
Keywords: Concentration Risk, Loan Portfolio, HHI, Distance Measures, Indonesia
JEL classification: G21
* The author would like to thank Indonesian government for providing DIKTI scholarship.
Apriani D.R Atahau, a Senior lecturer in Satya Wacana Christian University and completed her PhD from School of Economics and Finance, Curtin University, Kent Street, Bentley, Perth, WA 6102, Fax: +61 8 9266 7694, Email: [email protected]
Corresponding Author: **Tom Cronje, GPO Box U1987 Perth, Western Australia, Tel: +61 8 9266 3416, Fax: +61 8
