Apriani D.R Atahau

Universitas Kristen Satya Wacana, Salatiga-Indonesia

apriani@staff.uksw.edu

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

Tom Cronje

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

Tom.Cronje@cbs.curtin.edu.au

M. ShabriAbd. Majid

Syiah Kuala University, Banda Aceh, Indonesia

mshabri@unsyiah.ac.id

Abstract. 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. 

Received: October, 2018

1st Revision: April, 2019

Accepted: June, 2019

DOI: 10.14254/2071-8330.2019/12-2/6

JEL Classification: G21, G28, G34, L11

Keywords: portfolio theory, acquired foreign banks, greenfield foreign banks, concentration