Capital flow and banking credit in Indonesia

This study examines the effect of capital inflows on bank credit in Indonesia. Using aggregate and bank-level data (consist of all 115 commercial banks in Indonesia) from 2004Q1 to 2017Q4) and three approaches, namely structural vector autoregression (SVAR), logistic regressions, and panel regressions, it finds that capital inflows initially has a negative impact on bank credit (measured as credit per gross domestic product (GDP)), but the impact becomes positive after a year. Other investment has the largest impact on bank credit, when compared with other capital inflows, including trade credit and foreign loans. These inflows significantly influence growth in nominal bank credit.