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Performance of bank in Indonesia: A comparison between community development banks, government bank and private banks

Md Rus, Rohani and Taufil Mohd, Kamarun Nisham and Agustin, Hamdi (2011) Performance of bank in Indonesia: A comparison between community development banks, government bank and private banks. In: 13th Malaysian Finance Association Conference 2011, 10th-12th June 2011, Holiday Villa Beach Resort & Spa Langkawi, Kedah.

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A unique characteristic of Indonesian banking system is the existence of community development banks, which is owned by local governments. This study examines the performance of this type of banks compared to private and federal government banks. The sample of this study consists of 15 community development banks, 56 private banks, and 3 federal government banks from 1995 to 2006. Using panel data methodologies, we find that community development banks perform at least as good as the other types of banks. There are two possible explanations for this finding. First, the survival of local government depends on the performance of local banks. Mismanagement of banks might indicate the incompetence of local elected officials. Thus the officials have more incentives to monitor local banks. Second, since community development banks only serve one province, they have specialized knowledge about that province. Third, loans are given out only to civil servants. Since it is very difficult to terminate the employment contracts of civil servants, these loans represent low risk investments to the banks. To our knowledge, this is the first study that looks at the performance of community development bank in comparison with other types of banks in Indonesia.

Item Type: Conference or Workshop Item (Paper)
Additional Information: Jointly organised by Asian Institute of Finance, Malaysian Finance Association & Universiti Kebangsaan Malaysia-GSB (ISBN) 978-967-10524-0-2
Uncontrolled Keywords: Corporate Finance; Banking
Subjects: H Social Sciences > HG Finance
Divisions: School of Business Management
Depositing User: Mrs. Norazmilah Yaakub
Date Deposited: 30 Nov 2011 04:02
Last Modified: 24 Apr 2016 04:34
URI: http://repo.uum.edu.my/id/eprint/3529

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