Bank-Specific Characteristics and Loan Portfolio Returns of
Foreign-owned Banks in Indonesia
Apriani D.R Atahau
1*
After the 1997 Asian Financial Crisis, the number of Foreign-owned Banks (FBs) in Indonesia increased becauseIndonesia had to raise the maximum allowed foreign ownership of domestic banks from 51% to 99%,through the enactment of government regulation (PeraturanPemerintah) number 29/1999. Notwithstanding their growing numbers,FBs experienced a decline in their market share as a percentage of total bank assets.The deteriorating performance of FBs in terms of market share might relate to their internal factors known as bank-specific characteristics.This paper aims to analyse the impact of bank-specific characteristics (size, equity, liquidity and risks) on the loan portfolio returns of foreign-owned banks (FBs) in Indonesia. The data covers the pre and post GFC periods from 2003-2011 of 294 bank year observations. Using feasible generalized least square regression, the results show that size and equity affect the loan portfolio returns of FBs in Indonesia. This suggests that bank specific characteristics may result in different lending policies and loan pricing. It implies the need of
Central Bank to consider FB’s characteristics in constructing lending policies.
Keywords:
Foreign-owned Banks, Bank-specific characteristics, Loan Portfolio Return,
Indonesia
JEL classification:
G21
* The author would like to thank Indonesian government for providing DIKTI scholarship.
