Mode of entry, loan portfolio structure, and returns of foreign-owned banks in Indonesia

Title: Mode of entry, loan portfolio structure, and returns of foreign-owned banks in Indonesia
Issue: Vol. 12, No 2, 2019
Published date: 05-2019 (print) / 05-2019 (online)
Journal: Journal of International Studies
ISSN: 2071-8330, eISSN: 2306-3483
Authors: Apriani D.R Atahau
Universitas Kristen Satya Wacana, Salatiga-Indonesia

Tom Cronje
School of Economics and Finance, Curtin University-Australia, GPO Box U1987 Perth, Western Australia

M. ShabriAbd. Majid
Syiah Kuala University, Banda Aceh, Indonesia
Keywords: portfolio theory, acquired foreign banks, greenfield foreign banks, concentration
DOI: 10.14254/2071-8330.2019/12-2/6
Language: English
Pages: 99-116 (18)
JEL classification: G21, G28, G34, L11
This article has been thoroughly enhanced and improved during the mentoring program sponsored by the Alumni Professional Development Program (APDP) in 2017. The APDP has initiated the mentoring program to build research capability of Australian Alumni, led by Griffith University within a consortium and in partnership with Indonesian universities: Universitas Indonesia, Universitas Negeri Jakarta, and Universitas Hasanuddin.

This study empirically examines whether the mode of entry into the Indonesian banking sector affects loan portfolio structures and loan interest rates of foreign-owned banks (FBs). It also attempts to explore whether the mode of entry affects loan portfolio returns of tFBs in Indonesia. The data of all 295 FBs were analyzed over the period from 2003 to 2011 using the univariate statistics and pooled regression analyses. The study found significant differences in loan portfolio structures and loan interest rates of the FBs applying different modes of entry into Indonesian banking sector. In addition, FBs’ mode of entry significantly affected loan portfolio returns. The findings provide evidence that the loan interest rates charged by acquired FBs were higher than the interest rates charged by greenfield FBs, although they had lower returns on assets and equity. The study also documents that loan portfolio structures of the FBs that acquired domestic banks as a mode of entry were more diversified than that of greenfield FBs. From the overall perspective, these findings imply that the FBs that acquired domestic banks were more beneficial to different sectors of the economy, whilst greenfield FBs were more financially efficient.


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