The Effects of Bank-Level and Macroeconomic Variables on Commercial Bank Lending Based on Type of Use

Abstract

This research was motivated by the inconsistency of findings and weaknesses in the analysis of bank lending behavior which have been generally measured in previous studies so far. The purpose of this study was to analyze the effect of interest rates, capital adequacy ratio (CAR), loan to deposit ratio (LDR), inflation, and GDP on bank lending based on the type of use. The data were analyazed using an autoregressive distributed lag (ARDL) model with quarterly data for the period of 2011Q1 - 2020Q1. The results show that investment lending behavior can be explained well by all bank-level and macroeconomic variables for the long run. Consumer lending behavior is better explained by interest rates, CAR, and macroeconomic variables. Meanwhile, GDP is the only variable that has a significant and positive effect on working capital loans, which means that the behavior of working capital loans is much more influenced by the economic fluctuation as indicated by changes in real GDP. The increase in GDP onsistently encourages the provision of bank lending of all types. Commercial banks in their lending operations need to remain focused on maintaining good CAR and controlled LDR in maintaining liquidity following applicable regulations in line with current macroeconomic conditions.

Keywords

• ardl model
• investment lending
• consumer lending
• working capital lending
• economic fluctuation