© Risk Management and Insurance Review, 2011, Vol. 14, No. 2,
PERSPECTIVES ARTICLES
CONTINGENT CREDIT RISK MANAGEMENT SYSTEM ON
BANKS PERFORMANCE IN INDONESIA
Teddy Oswari
Dharma T. Ediraras1
ABTRACT
We present in this article the findings froam a study on Contingent of credit risk
management system in moderating of the organization's performance, using
contextual approach, which consists of four main variables, namely the business
strategy, company culture, external environment and organizational structure.
Here, this article provides an essentiay different. It relies on modeling through
contextual variabilities which are surrounded and interacted within credit division
and these moderating on organization performance. In addition, and unlike the
contingenty theory and accounting management perspective the study ointeraction
process between contingent variables with credit risk management systems in
moderating banks performance in Indonesia. The development of qualitative
description and verificative analyses of model, our study included insights from (1)
structured close interviews with credit managers of 79 commercial banks which was
selected within simple random sampling method by a set of questionare instrument,
and (2) a statistical analysis of data from the 2004 through 2008 annual report of
Indonesia Central Bank (BI). Our focused here is centered on the practical insight
that came out of the study, rather than on the technical details such credit scoring
that led us to those insights.
INTRODUCTION
The phenomenon of Disintermediation happens in America is the beginning of the
emergence of credit crunch issue, inhibition of banking credit as a result of very tight
monetary policy to tackle inflation by the Federal Reserve. Results summary of several
1
Teddy Oswary is an Assistant Professor of Finance, Banking and Risk Management at Economic Faculty,
Gunadarma University, Jl. Margonda Raya No. 100 Pondok Cina, Depok 16424, West Java, Indonsia; phone:
62-21-78881112; Fax: 62-21-7872829; e-mail: toswary@staff.gunadarma.ac.id. Dharma T. Ediraras is associate
Professor in Accounting, Auditing and Accounting Information System at Economic faculty,Gunadarma
Univrsity, Jl. Margonda Raya No. 100 Pondok Cina, Depok 16424, West Java, Indonsia; phone: 62-2178881112 Ext. 476; Fax: 62-21-7872829; e-mail: dharmate@staff.gunadarma.ac.id. The Authors thank Prof.
Nopirin,Business and Economic Faculty, Gadjah Mada University, Yogyakarta and Prof. Tov Assogbavi,
Laurentia University, Canada their interest, helpful, advise and comments in this research. And also thank all
opponents at Doctoral Program in Economic, Gunadarma University, all Respondents and anonymous referees
who commented on previous versions of the article. This article was subject to double-blind peer review.
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
studies, such as Stiglitz and Weiss (1981); Bernanke and Lown (1991); Great et., Al.
(2001); Lesmana (2006) revealed a reduction in bank credit as a result of the sharp
decline in banking activities in credit to the business world and encourage the banks to
handle credit risk is more cautious with more adequate facilities.
Government efforts to encourage increased bank credit made through a credit guarantee
and banking business plan evaluation as a form of evaluation to determine how much
banks make internal preparations and handling of externally for credit risk that may
occur. Kunreuther and Heal (2002); Lesmana (2006) suggested need for independent
security as a form of security for the credit risk of banks disbursed credit risk
management model as a specific form of2 credit risk management anticipated that
accurate. Giesecke (2002) suggests the study of the failure of the fulfillment of
obligations by the debtor to see one of the factors is imperfect information or investors
owned banks. Failure may result in transmission of financial harm to investors or banks
in approving credit.
Credit risk management is a joint activity of the identification, measurement, remedy
selection and control and supervision of credit risk. Modeling credit risk management
activities and facilities needed to run the application causing the creation of a simple
model of anticipation, but it may reflect the credit risk monitoring are contained in each
of the debtors through the quality management of banking operations. The model is
expected to be implemented by banks in assessing the level of monitoring and
understanding the factors that cause high levels of credit risk of each debtor.
Bank for International Settlements suggest the existence of the development of credit
risk portfolio model of banking. The agreement which was implemented in 1988 and
became the standard in the World Bank as the bank's capital requirement is the
standard approach of using an assessment model / internal maximum load for the
assessment of credit risk portfolio and the necessary calculations. (Basel Committee on
Banking Supervision, 2000). Motivation in this study is to analyze the interaction effects
of variables kontijensi with credit risk management systems, studies on credit risk
management divisions of commercial banks in Indonesia through validity and reliability
testing Burns 2002; Vickery 2004; Dietsch dan Petey 2002; Ieda et., al. 2000).3
Changes in banking structure has been experienced by Indonesia before the crisis, such
as the Annual Report of the BI in 2004 declared the period 2000 to 2003, seen some
indicators of banking performance continued to improve as reflected by the increase in
total assets, fund raising, asset quality, capital and bank profitability . Although the
amount of bank credit continued to increase, but credit management is still far from
expected. This is because the bank lending is still hampered by the procedures and
credit management system in addition to the high risk world of business.2
Changes in banking structure has been experienced by Indonesia before the crisis, such as the
1988 enactment of the policy package in October 1998 (Pakto 1988) which provide a wider space
for
the
bank
to
increase
the
potential
intermediary.
3 Methodology portfolio credit risk models require an assessment of the possibility of negligence
or possible loan losses of a portfolio at any given time. This methodology was originally developed
in the 1990s for industrial applications. There are some commercial models have been developed,
such as portfolio managers, credit metrics, credit risk and credit portfolio. This model is designed
for corporate loan portfolio, required adjustment loan models from major corporations to retail
loans, because of the additional costs and restrictions on data.
2
RISK MANAGEMENT AND INSURANCE REVIEW
The impact of banking crisis in 1997 as a result of the lack of guidelines and standards
for credit risk management that are used in Indonesian banking. Bank of International
Settlements has made regulations that have got a global banking deal to be
implemented in a secure banking transactions, one of which includes provisions to
manage credit risk. Credit risk management is a serious problem for Indonesia's
banking if you want to be recognized globally. Efforts should be made to answer to these
problems is the need for research that can create models of credit risk management
through the interaction of contingency variables that are expected to be used as a
standard to be applied in banking in Indonesia. Research model should have reasonable
accuracy, so it can be developed and applied with the support of historical data, concepts
and conditions of banking credit management system.
BI data shows, the value of bank credit during the first quarter of 2009 fell
IDR 11.5 trillion from the position in December 2008 amounted to USD 1342.1 billion.
The problem of bad debts that appear on the banking in Indonesia within the last 15
years are fairly common. Therefore, the attention of researchers to identify and study
the internal mechanisms, management systems, resources and standards of banking
operations in the process of loan approval is appropriate and correct. This attention
appears related to the need to identify in the application of credit risk management in a
transparent and consistent, so that leakage of credit that still occur can be minimized.
The motivation of this research is to make a contingency variable interaction model with
credit risk management system on organizational performance, empirical studies on
credit risk management divisions of commercial banks in Indonesia.
This article reviews the strengthening credit risk management system of changes in
competitive strategy, corporate culture, external environment and organizational
structure of banking and can contribute to the success of the overall credit disbursement
in order to improve the performance of the banking and economic growth in Indonesia.
CURRENT METHODS
Contingency theory is used to analyze the design, management and research systems on
management accounting systems to provide information that can be used by companies
for various purposes (Otley 1980) and to face competition (Mia and Clarke 1999).
Contingency approach is based on the premise that there is no system in the field of
management research that can be used universally within the organization
various environments (Otley 1980; Muslichah 2003; Faisal 2006). Contingency approach
in
this research, is used to evaluate environmental factors, culture and strategies that
allegedly can cause the system to the management of a company becomes more effective.
Several previous studies using the contingency approach to examine the relationship
between contextual variables (information technology, competitive strategy and
environment) on information systems and performance, such as Chong and Chong
(1997), Chenhall and Morris (1986); Abernethy and Bouwens (2000 .) Sawitri (2006),
Faisal (2006) states that organizations need to consider these contextual variables of a
system for information generated becomes more effective. Traditionally dominated by
management accounting information financial information, but in its development also
provides
non-financial
information.
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
The results Mia and Clarke (1999) states that the use of information on an
organization's systems can help managers and organizations to adopt and implement
their plans in response to the competitive environment. Mia and Clarke (1999) also
concluded that the increasingly intensive market competition, the performance of the
organization for the better. Chenhall and Morris (1986) stated that perceived
environmental uncertainty is an important contingency factor, because it can make the
process of planning and control more difficult. Gordon and Narayanan (1984), Faisal
(2006); Yurniwati (2003) stated that environmental uncertainty associated with
organizational performance.
Research Porter (1985), Govindarajan and Fisher (1990); Yasukata and Kobayashi
(2001) reveals there are two types of strategy in business research, namely corporate
and competitive strategy. Business corporate strategy focuses on what and how to
manage competition. While the competitive strategy focus on creating competitive
advantage in the face of competition (cost leadership and differentiation).
Many phenomena that explains the research on risk and risk management in various
banking industry in many countries, including Indonesia. Therefore, researchers try to
use the contingency approach to explain the link between credit risk management
systems on organizational performance in this case is a commercial bank.
Research and Hrycay Carey (2001) tried to compare the data on credit risk model
parameters between the rating agency (rating agency) with the internal ratings made by
financial institutions (internal rating). The result is the character of time series data,
internal rating is better than agency ratings. The problems that can interfere in the
internal ratings-determination is the interference of internal / management, thus
allowing less runs with optimal management and may reduce the quality of the both
rating.
Our approach here is essentially different. It relies on modeling through contextual
variabilities which are surrounded and interacted within credit division and these
moderating on organization performance. In addition, and unlike the contingenty theory
and accounting management perspective, we adopt Yasukata dan Kobayashi (2001)
model.
Thus the control of a system of research work unit management, contingency theory
holds that the most appropriate control system, which the organization depends on the
circumstances surrounding or within the organization and Fisher (1995). The flow of
thought this research was made on the basic needs framework of contingency research
Otley (1980) as follows.
Figure 1.
Structure of Moderating and Causal Analysis Model
Contengent Variables
(competitive strategy,
corporate
culture,external
environment,
organizational
structure)
Credit Risk
Management
Systemm
(attribute &
Mechanism)
Performance
RISK MANAGEMENT AND INSURANCE REVIEW
Methods of data processing is done in 2 (two) step process, first, using descriptive
statistics and analysis of variance (ANOVA) in explaining the competition strategy,
corporate culture, external environment conditions, forms of credit risk management
system is in a group different banking industry. Second, bivariate analysis / interaction
approach with multiple regression model with the following equation ekonomtrisebagai.
Y = α + β1 X1 + β2 X2 + β3 + β4 X3 X5 + X4 + β5 β6 β7 X1.X3 X1.X2 + + + β8 X1.X4
β9X1.X5 + e
Where:
Y = organizational performance
α, β1, β2, β3, β4, β5, β6, β7, β8, β9 = unstandardized regression coefficient
X1 = credit risk management system
X2 = competitive strategy
X3 = corporate culture
X4 = the external environment
X5 = organizational structure
X1.X2 = interaction of credit risk management systems with competitive strategy
X1.X3 = interaction of credit risk management system with corporate culture
X1.X4 = interaction of credit risk management system with the external environment
X1.X5 = interaction of credit risk management systems with organizational structures
Simultaneously, this model analyzes the interaction effect caused by the competitive
strategy, corporate culture, external environment and organizational structure of credit
risk management systems to organizational performance. How big is the contribution
caused by the influence of contingency variables on organizational performance
improvement in this regard is a commercial bank. After testing hipetesis, conducted a
comparative analysis of the results of studies of secondary data. Secondary data in the
form of a description of how far the financial ratios of the financial statements of banks
that have been made uniform in a certain format to provide information on improving
the overall banking performance. Is in line with the results of the analysis of primary
data on improving organizational performance of commercial banks.
Object of observation in this study is the business unit strategy, corporate culture,
external environment, organizational structure, credit risk management systems and
organizational performance. This research was conducted on commercial banks that
have run the credit risk management process for 4 (four) years, the period from January
2005 until December 2008. Subject of research is the director/manager/head of credit
risk management of commercial banks in Indonesia. A total of 97 banks involved in the
determination of the number of samples proportional to the number of samples in each
group of commercial banks as follows. (1) Commercial Banks Government (Persero)
amounting to 5 banks with the number of samples taken only 4 banks; (2) National
Private Banks Foreign Exchange amounted to 32 banks with a number of samples taken
only 24 banks; (3) National Private Banks Non-Foreign Exchange amounted to 36 banks
with a number of samples taken only 27 banks; (4) Regional Development Bank
amounting to 24 banks with a number of samples taken only 19 banks; (5) Mixed Banks
amounted to 20 banks with a number of samples taken only 15 banks and (6 ) foreign
banks amounted to 11 banks with the number of samples taken only 8 banks.
To obtain primary data, the data collected through the survey using a set of
questionnaires or a list of questions sent in three ways: (1) the researcher personally
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
contacted via phone and went straight to the object of research (2) through Internet
technology by sending an email containing a questionnaire to the commercial banks that
have a website or email address and (3) attended a seminar or a meeting of association /
banking associations to distribute the questionnaire on that occasion. Processing data
collected from the questionnaires and data collection conducted skunder in 4 (four)
steps, namely: editing, entry, tabulation and analysis of data using Microsoft Excel and
assistance applications SPSS v.16. Given the model in this study is a model of causality
(relationship/causal effect), then to test the hypothesis statistical testing instruments
used in research models.
BANKING CREDIT RISK MANAGEMENT SYSTEM IN INDONESIA
Referring to the results of the research analysis Kunreuther and Heal (2002); Martin
(2003); Lesmana (2006) comes the need to re-examine the role of the private and public
sectors in building an efficient strategy of prevention and protection of the fatal
problems in order to reduce the frequency of occurrence and the potential effect
generated. All parties associated with the loan are expected to contribute in the
formation of anticipatory model of credit risk management through contextual variables
pengidentifikasin / kontijensi in accordance with existing regulations in order security of
credit risk management application can be enhanced.
Aguais and Rosen (2001a) suggested the main advantage in running a credit risk
management, among others: Improving credit risk transfer pricing between new loans
and portfolio management functions, reduce bad debts and credit volatility, develop
credit risk of liquidity instruments that lead to decision-trading and hedging (hedging)
the better, more effective management of regulatory and economic capital, allocation of
credit risk capital more efficiently through a clear distinction of the various business
opportunities, transparency of credit risk better, mproving the adequacy of human
resources, systems, methodologies and internal data.
Basel Committee on Banking Supervision (2000) explained as a process, framework for
credit risk management is basically divided into three phases of work. (1) Identification
of credit risk. Credit risk identification process is a series of careful introduction of
credit risk and credit risk components inherent in an activity or transaction is directed
to the process of measuring and managing credit risk is appropriate. Identification of
credit risk is the foundation where the other stages in the credit risk management
process is built. As a series of processes, risk identification begins with an
understanding of what is called credit risk. As already defined above, risk is uncertainty
about the level of something/is not the realization of something objective, in a period/a
particular period (time horizon). (2) Measurement of credit risk. Credit risk
measurement is a series of processes carried out in order to understand the significance
of which will be incurred due to a risk, both individually and portfolio of health levels
and business continuity. An accurate understanding of the significance of these will be
the basis for risk management and effective directional. (3) Credit risk management.
Credit risk management is basically a series of processes to minimize the level of credit
risk faced up to the acceptable limits. Quantitatively attempt to minimize these risks is
to implement measures aimed at decrease (number) measure the results obtained from
the credit risk measurement process. Schonbucher (2000); Derviz (2001) expressed if the
risks faced by the company have been identified and measured the next question is the
profile / structure of how the risk is best for the company?. That question led to efforts to
(1) improve quality and predictability of corporate earnings (earnings) to optimize value
RISK MANAGEMENT AND INSURANCE REVIEW
for shareholders (shareholder value) (2) reduce the likelihood of pressure on financial
capability (financial distress). (3) to maintain operating margin (operating margin).
Application of credit risk management by commercial banks in Indonesia have been
carried out basically against all debtors. However, there are still many problems in
determining the lending policies in accordance with principles and rules of the BI. This
leads to the preliminary research that aims to obtain a reinforcement model of credit
risk management system in accordance with the conditions and empirical data for
commercial banks to assess the application of competition strategy, the bank in lending
culture,
external
environment
and
organizational
structure.
Credit risk is the risk that occurs due to failure pihal opponent (counterparty) in
fulfilling its obligations. Approach model and estimation of individual credit risk has
become a very important consideration for practitioners and researchers in the banking
sector after the monetary crisis in 1997/1998 ago. Lesmana (2006) describes the main
problems of data modeling is the lack of non-performing loans (bad) with a proper time
sequence. But according to researchers, research has not been found in various countries
that observe, measure and analyze the role of competitive strategy, corporate culture in
this bank, the external environment and organizational structure of the establishment
of a credit risk management system optimum, in order to create a compliance risk
pengidentifikasin, risk measurement and risk management to run appropriate
mechanisms and policies to minimize errors in the provision of credit to debtors.
Research Hamerle and Rosch (2004) which uses data on German banking credit
management, obtain the correlation between economic sector credit / business being
poured, but not a serious problem, this study does not emphasize the role of credit risk
management as a matter that needs special attention . In addition to internal credit
rating, compliance management system creates a strong credit risk is one business that
has an important role in determining the feasibility of lending to each debtor.
BI has the right to issue regulations related to banking management in Indoneisa. BI
requires banks to have a system of management (management), credit risk is accurate
and comprehensive, because of the increasing complexity of credit risk will increase the
need for sound corporate governance practices (good governance) through the functions
of identification, measurement, monitoring and controlling credit risk. Obligations
stated in the letter referred to the BI Regulation 5/8/PBI/2003 number dated 19 May
2003 and Circular Letter number 5/21/DPNP September 29, 2003 in force starting
January 1, 2004 and has been implemented as of December 31, 2004.
Bank credit risk management policy must contain a minimum of determination using
the method of measurement and rating of risks and internal control system based on
risk appetite apply the relevant bank. Different categories of credit risk level is
determined by using a combination of aspects of the quality and quantity of data with a
particular election and hold on to the standards of a comprehensive system of internal
control and comprehensive. Anticipation model of credit risk management resulting
from field data and historical data for five years should be in the evaluation of the
accuracy and validity of data used in the Determination of risk management policies.
The review is necessary to ensure the accuracy of risk assessment methodology, the
adequacy of management information systems implementation and ketepatam policies,
procedures and risk limits (risk appetive).
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
BI previously only requires that banks make credit risk rating based on the assessment
of asset quality, as stated in Decree number 31/147/KEP/DIR BI November 12, 1998.
The quality of productive assets determined based on business prospects, financial
condition and repayment ability of debtors in five classes / categories, namely current,
special mention, substandard, doubtful and loss. Assessment with conventional
approaches produce less accurate ratings, because its methods only perform qualitative
approach, where the risk of moral hazard that exist on a credit analyst (subjective)
contribute to the necessity to approach the quantitative (objective), that is by making
and strengthening internal risk rating risk control system involving contingency
variables
can
be
accounted
for
based
on
historical
data
bank.
The provisions concerning the obligation to apply risk management of credit issued in
2003 above, making the Indonesian banking system should improve itself, especially in
the search for models in anticipation of a comprehensive credit risk management and
sustainable for the banks in Indonesia. Discussion of this section is limited to a
description of the creation of interaction models of contingency variables on credit risk
management system that is able to contribute to the improved performance of
commercial banks according to the rules of BI, because the need for further evidence on
the effectiveness of BI regulation in question.
Commercial banks generally do not have a model of anticipation of credit risk
management. The condition was reflected by soaring non-performing loans at the time of
monetary crisis and the emergence of post-credit crunch crisis (late 1997) until early
2001 as found by the Great and his colleagues (2001). Credit crunch causing delays
intermediation function of banks, because banks are still traumatized by the credit
crunch happened. The observation further concluded that one cause of the problem loans
are not yet implemented the model in anticipation of adequate credit risk management
&comprehensive.
According to banking analyst Tony A. Prasetiantono, the government's desire to project
the growth of bank lending at 25% level for sustaining economic growth in 2009 of 6% is
considered difficult to achieve. For credit growth will be lower because of liquidity
problems that have not been safe. Based on the experience of recent years, if bank
lending grew 4 then economic growth will grow 1 (4 vs. 1). So the Indonesian economy
for 2009 could grow by 6% in 2009, the bank credit growth must be at least 24%. The
problem is whether this can be achieved when the economy such as now, the bank credit
in 2009 will only grow a maximum of 20% and is expected to sustain economic growth of
5%. The cause is not going to credit the rapid growth in 2009 is the banks will put the
brakes on credit expansion to avoid NPL (non performing loans / NPL), which is
expected to rise. In October 2008 the NPL ratio of banks amounted to 3.34%. Along with
the increasing number of corporate performance is disrupted by the global crisis, the
NPL problem will be more severe in 2009. Because the business does not have enough
confidence from the global crisis. Meanwhile, although the benchmark interest rate or
BI rate began to fall. The decline in lending rates significantly new can be felt in the
second half of 2009. "In the first semester of 2008, the BI rate would indeed continue to
fall but not to lower auto loan interest rates, because banks still face liquidity that is not
safe.
(2009
Hard
Target
Achieved
Credits,
Media
Indonesia,
2009).
Call BI meant to encourage banks back on their intermediation function by passing on
commercial / business in order to improve Indonesia's economic growth, but this time
credit must be accounted for by considering various contextual factors in improving the
performance of credit risk management system. The above conditions provide motivation
RISK MANAGEMENT AND INSURANCE REVIEW
in this research can contribute to a model that is quite simple and easily applied by
national banks in implementing credit risk management function in accordance with the
provisions of the BI.
MODERATING EFFECT
ON BANKS PERFORMANCE
Tabel 1.
Overall Interaction of Mutiple Regression
Variabll
Const
T_Strategy
T_Culture
T_Environment
T_Structure
T_SMRK
T_SMRK.T_Strategy
T_SMRK.T_Culture
T_SMRK.T_Environment
T_SMRK.T_Structure
R2 = 0.394, F = 1.823, p = 0.006
Coef
Α
β2
β3
β4
β5
β1
β6
β7
β8
β9
Value
5.484
-1.724
.619
.583
-1.180
.107
.027
-.009
-.011
.019
t-test
2.036
-.980
.705
2.545
-.614
.046
1.029
-.655
-1.543
.658
p-value
.027
.033
.483
.046
.541
.964
.306
.035
.588
.512
VIF
8.016
64.433
5.048
12.212
9.167
10.016
7.125
41.726
91.967
Source: Processed Primary data, End 2009.
Table 1. visible results of the analysis that reflect indications of multicollinearity.
Opinions Supriyono (2003) stated researchers can perform the next stage by removing
the identified variables led to multicollinearity. The next step is to find a model that
research has not indicated the emergence of multicollinearity problems.
Tabel 2.
Simplify Multiple Regression Model
Variabel
const
T_Culture
T_SMRK
T_SMRK.T_Strategy
T_SMRK.T_Culture
T_SMRK.T_Environment
R2 = 0.534, F = 10.025, p = 0.041
Coef
Α
β3
β1
β6
β7
β8
Value
8.235
1.644
2.083
2.001
6.286
-2.577
t-test
2.146
1.165
1.332
1.068
1.103
-1.312
p-value
.012
.018
.098
.288
.027
.076
VIF
11.149
12.368
11.391
7.382
6.807
Source: Processed Primary data, End 2009.
Seeing the results of interaction models in Table 2. only the interaction of credit risk
management system with which corporate culture affects organizational performance
with significant results by 0018. Interaction of credit risk management systems with
competitive strategy and credit risk management system interaction with the external
environment also positively affect organizational performance, but not significant. These
results reinforce the results of testing hypotheses that explain the use of credit risk
management systems affect organizational performance that involve interaction with
contingency variables, it is also evident from the increasing value of the coefficient R2.
The resulting equation is as follows.
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
Y = 8.235 + 2.083 SMRK + 1.644 Culture + 2.001 SMRK.Strategy + 6.286
SMRK.Environment – 2.577 SMRK.Credit Risk + e.
Strengthen the corporate culture in moderating the relationship of contingency between
credit risk management systems with organizational performance, in addition to
competitive strategy and organizational structure. These results are consistent with PT
Bank Mandiri (Persero) Tbk, which states that one of the problems in managing the
banking system in order to report on its development is cultural diversity of employees
In
the
management
of
credit
risk.
PT Bank Central Asia, Tbk has implemented a risk management structure throughout
the organization, in the form of general policy and control tools to ensure consistency of
credit risk management practices as a whole as well as other risks. In 2008, PT Bank
Central Asia, Tbk recorded the value of Capital Adequacy Ratio (CAR) of 15.79%. Non
Performing Loan (NPL) is quite low at 0.60%. Loan to Deposit Ratio (LDR) of 54.65%.
This shows the credit division is supported by a group of credit risk managers who
beranggung responsible for assessing and managing risks associated with the proposed
business. Application of a work culture that is professional, open system and strict
control on the overall credit risk manager is responsible for developing and
implementing policies, procedures and oversight. Assessment and monitoring of this
process is done by credit risk management unit, while the consistency of their
implementation
is
monitored
by
internal
audit
unit.
Another important function of credit risk management unit is to monitor and
systematically assess the bank's risk profile, assess the impact of the risk of a new
product or service, setting out the procedures and methods of portfolio management, as
well as helping the credit division in developing awareness and adherence to the
principles
of
management
credit
risk
in
question.
Carelessness in managing corporate cultural differences, of course lead to low employee
psychological contract fulfillment, and ultimately less beneficial impact on employee
attitudes and performance in providing quality service to customers, then there are
differences in the perception of corporate culture that can disrupt organizational
performance
improvement
overall.
Credit risk can not be avoided by the banks, because without risk there would be no
increase in revenue. By the end of 2006, PT Bank Mega, Tbk recorded value of the
Capital Adequacy Ratio (CAR) of 15.92%. Non Performing Loan (NPL) is quite low at
1.68%. Loan to Deposit Ratio (LDR) of 42.70%. This shows PT Bank Mega, Tbk is a
prudent bank (orderly) in business. Analysis of problem loans (NPLs) in PT Bank Mega,
Tbk increased to 2.0% in mid-June 2009 from 1.2% at the end of 2008, primarily due to
increase in substandard loans in the segment of corporate credit (up to 92% of the
increase in NPLs), this makes management of PT Bank Mega, Tbk evaluate the
standards of credit risk management policies through an emphasis on cultural
orientation in a process, not the attitude of avoiding risks. Other efforts by the
management of PT Bank Mega, Tbk is actively restructuring because of the greater
challenges in managing credit risk in order to reduce the impact of the approved loan
impairment. Credit quality is very influential in growing climate and regulate the
granting of loans that have a high risk, must be balanced with the performance or
higher
revenue
as
well.
RISK MANAGEMENT AND INSURANCE REVIEW
However, the decision granting the credit to be guaranteed, whether to give more credit
to income levels and high returns, or too risky, because it can lead to potential risks in
the business. Credit risk management will assist in determining the level of acceptable
risk through the evaluation of the credit management system to analyze all the
contextual factors that may affect it, in order to know the quality and feasibility of all
credit requests will be accepted or rejected. Once credit is granted, the conditions of the
customer must be monitored and if there is signs of deterioration of the customer's
position will be known, then the risk of possible late payment can be anticipated at an
early
stage.
Application of differentiation in competitive strategy gives considerable influence on the
management of credit risk. Seeing the results of the range of values besaing
sistemmanajemen credit risk strategy that gives meaning respondents indicated that
the higher the competition strategy, the higher the contribution given to the risk
management system to reduce the credit risk that occurs and has had a great need for
improving the performance of commercial banks. Another meaning of this empirical
testing is the increase in credit risk management strategy is a significant result from
the influence of competitive strategy as a contingency variable. The results of this study
support the research of Miller and Friesen (1982), Govindarajan and Fisher (1990);
Sawitri (2006) which prove the implementation of competitive strategy have an impact
big enough to pengandalian systems in manufacturing companies and service
companies.
Respondents in the group of West Sumatra BPD, BPD West Java (Banten, West Java),
West Kalimantan BPD, BPD Lampung, Bengkulu BPD, BPD DKI Jakarta, East Java
BPD, BPD BPD Bali and South Sumatra overall competitive strategy of differentiation,
it is described by socialization of excellence in the areas of banking products in
development efforts through research, marketing and long-term usefulness, so that local
banks can apply preventive measures in the face of competition from other banks and
give confidence to investors about the credit products offered by many of the benefits of
ease. Competitive strategy variables can terggambarkan contribution to the credit risk
management system through sexual interaction.
Impact of interactions that occur can be explained from the application of a process
orientation, orientation on the job, are professional, open system, strict control and
pragmatic in the corporate culture provides the greatest value and positive influence on
credit risk management systems to increase organizational performance. Seeing the
results of the range values the company culture shown through a score of answers
respondents give meaning that the higher the orientation in the process, orientation on
the job, be professional, open system, strict control and pragmatic applied to the
company, the higher the contribution given to the management system risk to reduce
credit risk occurring and impact large enough to increase the performance of commercial
banks. This proves empirically testing provides substantial value in the management of
credit risk when compared with the influence of other contingency variables. The results
of this study support the research of Hofstede et., Al. (1990), Lin and Germain (2003)
which revealed that the implementation of the corporate culture affect the system
pengandalian systems and improve organizational performance.
Respondents in the State Commercial Bank group (s) such as PT Bank Mandiri
(Persero) Tbk, PT Bank Negara Indonesia (Persero) Tbk, PT Bank Rakyat Indonesia
(Persero) Tbk and PT Bank Tabungan Negara (Persero) dominant assess existing
corporate culture tends to apply dimension to the process, shows that there are less than
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
the maximum effort in achieving corporate objectives in the face many risks and
problem solving process. Dimensions on the job tend oriented completion of the work
and run the charge of the boss. Dimensions is a professional culture at the company led
to the work plans the future and focus on the job. Culture is an open system which is
already open for interacting with all parties, internally and externally. Culture
emphasizes strict controls on services to customers on time for the mechanism to
operate effectively and efficiently. Cultural dimensions pragmatic attempt to provide
better service to customers, with the hope of a result of services provided. Corporate
culture can strengthen relationships and major contribution to the credit risk
management system through sexual interaction.
The higher the value of organizational structure through the implementation of job
descriptions, standard procedures and regulations made by the company through the
interactions that occur more and give a positive influence on credit risk management
systems to increase organizational performance. This is evident from the range of values
organizational structure through which organizational structure is shown through a
score of respondents' answers. Empirical testing shows that the increase in credit risk
management standards provide a large enough effect on improving credit risk
management system from the influence of organizational structure. The results of this
study support the research of Bassett and Carr (1986), Murray (1990) which revealed
that the structure of the organization have an impact on a division in rangkan
pengandalian
improve
company
performance.
Respondents in the group of foreign commercial banks, like ABN Amro Bank, American
Express Bank Ltd, Citibank NA, Standard Chartered Bank and The Bank of Tokyo
Mitsubishi UFJ Ltd. put forward the process of formalization of the implementation of
employee job descriptions, work procedures and regulations have been implemented
with good and lead to the service of excellence and commitment to strict procedural and
rule on the employees in serving customers. While the delegation of authority within the
company is very rare considering the amount of risk that may occur in lending decisions
for customers. Departementalisasi and employee specialization run integrated with
other parts, so that the focus of work in providing credit rating submitted by customers
in accordance with the measures and mechanisms that have been determined.
Contribution to organizational structure reflected in credit risk management system
through sexual interaction.
COMPARATIVE ANALYSIS OF BANKS PERFORMANCE
According to Bank Indonesia's regulations, a commercial bank shall at least have a CAR
of 8%. Best standards of NPLs by Bank Indonesia is if the NPL is below 5%. LDR best
standard by Bank Indonesia is 85% -110% and the best standards according to Bank
Indonesia's ROA is 1.5%. (Annual Report of Bank Indonesia, 2008)
After obtaining the results of CAR, NPL, LDR and ROA in 97 commercial banks in
Indonesia (Annex J), we then analyzed the overall bank performance by comparing the
performance of commercial banks using secondary data, the period from 2004 to 2008
with the performance of commercial banks through the analysis primary data.
Appendix J explains that the results of performance analysis of the state commercial
banks (Persero) in the period 2004 to 2008 had an average value of the ratio of 22:48%
RISK MANAGEMENT AND INSURANCE REVIEW
CAR, NPL 4.78%, 87.67% and ROA LDR 1.95% to PT Bank Mandiri (Persero) Tbk. PT
Bank Negara Indonesia (Persero) Tbk has an average value of the ratio of 16:51% CAR,
NPL 4.90%, 88.72% and ROA LDR 1:59%, PT Bank Rakyat Indonesia (Persero) Tbk has
an average rating of 16.93% CAR, NPL 4:00 %, LDR of 86.15% and 4.91% ROA and PT
Bank Tabungan Negara (Persero) have an average value of the ratio of 18:04% CAR,
NPL 3.85%, 86.08% and ROA LDR 1.80%, this ratio is very good overall and in line
when compared with analysis of data that is processed through a questionnaire study,
with an average rating of 20.00 above the middle value, meaning that the performance
of state commercial banks (Persero) is much better than any other commercial bank
competitors. On average the bank's capital adequacy ratio (CAR) for each bank has
exceeded the standards set by Bank Indonesia, the calculation of the ratio means the
ratio
of
bank
capital
with
the
capital
adequacy
above
100%.
The ratio of earning assets (NPL) for each bank is earning assets classified as current,
while the ratio of total bank loans with the amount of funds received by the bank (LDR)
is very good and in accordance with the standard provisions of Bank Indonesia, mean
height bank's ability to pay back obligations to our customers who have invested their
funds with the number of credit extended to the debtor, the higher the ratio the higher
the LDR liquidity levels. Ratio to measure the ability of bank management in a profit /
earnings as a whole (ROA) in each bank within a period of 5 years is very good and
above the standard provisions of the Bank Indonesia rate, this suggests that the higher
the ROA of a bank the greater the profit rate achieved and the better position the bank
in terms of asset usage.
The results of performance analysis of the National Private Bank Foreign Exchange
period 2004 - 2008 has an average rating of the bank's capital adequacy ratio (CAR) is
very good for all banks, because it exceeds the standards set by Bank Indonesia,
meaning no capital adequacy ratio which is owned by all National Private Bank Foreign
Exchange below 8%, the bank capital ratios exceed minimum capital adequacy owned by
each bank. The ratio of earning assets (NPL) for most of the banks have with the quality
of current assets, only PT Bank Bumiputera Indonesia, PT Bank Kesawan and PT Bank
NPL ratio above which has a Bank Indonesia regulation, meaning that the management
of productive assets for the three banks substandard , because the average loan amount
is very big problem.
While the ratio to determine the total amount of loans the bank with the amount of
funds received by the bank (LDR) only Mayapada PT Bank International, PT Bank
Mestika Dharma and Bank CIMB Niaga Tbk, which has a very good LDR and in
accordance with the standard provisions of Bank Indonesia, mean low capacity of most
of the National Private Bank foreign exchange for repayment of obligations to our
customers who have invested their funds with the amount of credit extended to the
debtor, the lower the ratio of the LDR it will affect the level of bank liquidity is lower.
Ratio to measure the ability of bank management in a profit / earnings as a whole (ROA)
in each bank within a period of 5 years are mostly very good and above the standard
requirements of Bank Indonesia, this suggests that PT Bank Artha Graha International
Tbk , PT Bank Bumiputera Indonesia, PT Bank Ganesha, PT Bank Kesawan Indonesia
and PT Bank Maspion have ROA below 1.5%, meaning that five banks management
capabilities within the overall gain is low. The smaller the ROA of a bank then the level
of benefits to be gained by the smaller bank and the bank's worsening position in terms
of asset usage. This proves the overall performance of the National Private Bank
Foreign Exchange not good and in line when compared with the analysis of data that is
processed through a questionnaire study, with an average value of 19.29 under the
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
middle value, meaning that overall performance is worse than the other competitors of
commercialbanks
.
The results of performance analysis of Non National Private Bank Foreign Exchange
period 2004 - 2008 had an average value of bank capital adequacy (CAR) is good for all
banks, because it exceeds the standards set by Bank Indonesia, meaning no capital
adequacy ratio which is owned by all National Private Banks Non Open to below 8%, the
bank capital ratios exceed the minimum capital adequacy owned by each bank. The
ratio of earning assets (NPL) for most of the bank is earning assets classified as current,
only PT Anglomas International Bank, PT Bank International Executive and PT Bank
Swaguna having NPL ratio above the prevailing Bank Indonesia, 5%, meaning that the
management of productive assets to third The bank's substandard, because the average
loan amount is very big problem.
There are nine banks, PT Bank Akita, PT Bank Harfa, PT Bank International Business,
PT Bank Fama International, PT Bank Ina Perdana, PT Bank Economic Welfare, PT
Prima Master Bank, PT Bank Sinar Harapan Bali and PT Bank National Savings
Pensioners who have the ratio of total bank loans with the amount of funds received by
the bank (LDR) is very good and in accordance with the standard provisions of the Bank
of Indonesia, means the average low capacity of National Private Banks Non Open in
back pay liability to its customers who have invest their funds, the lower the ratio of
LDR will get low liquidity levels. Ratio to measure the ability of bank management in
the overall profits (ROA) in each bank within a period of 5 years are mostly very good
and above the standard provisions of the Bank Indonesia rate which is 1.5%, only PT
Bank Harfa, PT Bank The International Executive, PT Bank Harda International, PT
Prima Master Bank, PT Bank Mayora and PT Bank Royal Indonesia, which has a ratio
below 1.5% ROA, the smaller the mean ROA of a bank the smaller the profit level
achieved and the worse the position of these banks in terms of use of the asset. This
proves the overall performance of National Private Banks Non Open less good and in
line when compared with the analysis of data that is processed through a questionnaire
study, with an average value of 18.96 under the middle value, meaning that overall
performance is worse than commercial bank competitors Other or approximately equal
to the National Private Bank Foreign Exchange.
Results of Regional Development Banks performance analysis period 2004 - 2008 has an
average rating of the bank's capital adequacy ratio (CAR) is very good for all banks,
because it exceeds the standards set by Bank Indonesia, meaning no capital adequacy
ratio which is owned by all Banks National Private Exchange under 8%, the bank's
capital ratios exceed the minimum capital adequacy owned by each bank. The ratio of
earning assets (NPLs) to all banks have with the quality of current productive assets,
under the terms of Bank Indonesia which is 5%, meaning that the management of
productive assets for all banks are smooth, because the average number of troubled
loans is small.
While the ratio to determine the total amount of loans the bank with the amount of
funds received by the bank (LDR) only LDR BPD Bali which has a very good and in
accordance with the standards of the Bank Indonesia is between 85% -110%, mean low
capacity of almost all the Bank's Development area in back pay liability to its customers
who have invested their funds, the lower the ratio of the LDR it will affect the level of
bank liquidity is lower. Ratio to measure the ability of bank management in the overall
RISK MANAGEMENT AND INSURANCE REVIEW
gain (ROA) in each bank within a period of 5 years for all banks is very good and above
the standard requirements of Bank Indonesia that is above 1.5%, this proves that the
ability of management all Regional Development Banks in the gain is high. The greater
the ROA of a bank then the level of profit achieved by the banks are getting bigger and
better position the bank in terms of asset usage. This proves the overall performance of
the Regional Development Banks are less good and in line when compared with the
analysis of data that is processed through a questionnaire study, with an average value
of 20.79 under the middle value, meaning that overall performance is worse than
commercial banks or other competitors is approximately equal to the National Private
Bank Private Bank Foreign Exchange and National Non-Foreign Exchange.
Results Mixed Commercial Bank performance analysis period 2004 - 2008 has an
average rating of the bank's capital adequacy ratio (CAR) is good for all banks, because
it exceeds the standards set by Bank Indonesia, meaning no capital adequacy ratio
which is owned by all Commercial Banks mixture below 8%, the bank capital ratio
exceeds the minimum capital adequacy of each bank owned. The ratio of earning assets
(NPL) for most of the bank is earning assets classified as current, only PT Bank BNP
Paribas Indonesia, PT Bank Commonwealth, PT Bank Maybank Indocorp, PT Bank
Capital Indonesia, PT Bank OCBC Indonesia PT China Trust Indonesia and PT Bank
Resona who have NPL ratios above the prevailing Bank Indonesia, 5%, meaning that
the management of productive assets to the seven bank's substandard, because the
average amount of credit is a very big problem.
Mixture of Commercial Banks, there are only two banks, PT Bank DBS Indonesia and
PT Bank Resona Pedania which has a ratio of total bank loans with the amount of funds
received by the bank (LDR) is very good and in accordance with the standard provisions
of Bank Indonesia, mean on average, low capacity of Mixed Commercial Bank in paying
back its obligation to our customers who have invested their funds, the lower the ratio of
LDR, the lower the level of liquidity is owned by the bank. While the ratio to measure
the ability of bank management in the overall profits (ROA) in each bank within a
period of 5 years for all banks is very good and above the standard provisions of the
Bank Indonesia rate is 1.5%, meaning a greater ROA bank the greater the level of
benefits to be gained and the better position the bank in terms of asset usage. This
proves the overall performance of commercial banks is less good mixture and not in line
when compared with the analysis of data that is processed through a questionnaire
study that states the performance of commercial banks is a good mix, with an average
rating of 21.60 above the middle value, meaning that performance overall worse than
the other competitors of commercial banks or near the same with National Private Bank
Foreign Exchange, National Private Bank Non-Bank Foreign Exchange and Regional
Development.
Results of analysis of performance of Public Bank Foreign period 2004 - 2008 has an
average rating of the bank's capital adequacy ratio (CAR) is very good for all banks,
because it exceeds the standards set by Bank Indonesia, meaning no capital adequacy
ratio which is owned by all Banks General Foreign below 8%, the bank capital ratios
exceed minimum capital adequacy owned by each bank. The ratio of earning assets
(NPL) for most banks have a productive asset with current quality, under the terms of
Bank Indonesia which is 5%, there are only four banks are Citi Bank NA, Deutsche
Bank AG, Standard Chartered Bank and The Bangkok Bank Comp. LTD which has the
NPL ratio above 5%, meaning that the management of productive assets for most banks
is not smooth, because the average amount of credit is a big problem.
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
While the ratio to determine the total amount of loans the bank with the amount of
funds received by the bank (LDR), only Bank of America, NA which has a very good
LDR and in accordance with the standards of the Bank Indonesia is between 85% 110%, mean low capacity of nearly all in Foreign Banks to pay back obligations to our
customers who have invested their funds, the lower the ratio of the LDR it will have an
impact on bank liquidity levels get low. Ratio to measure the ability of bank
management in the overall gain (ROA) in each bank within a period of 5 years almost all
banks are very good and above the standard requirements of Bank Indonesia that is
above 1.5%, only American Express Bank LTD which has a value below 1.5% ROA, this
proves that the entire management capabilities within the Foreign Commercial Banks
gain is high. The greater the ROA of a bank then the level of profit achieved by the
banks are getting bigger and better position the bank in terms of asset usage. Overall
prove that the performance of the Foreign Commercial Banks is not good and not in line
when compared with the analysis of data that is processed through a questionnaire
study, which shows the average score of 20.50 over the middle value, meaning that
overall performance is worse than the other competitors of commercial banks or
approximately equal to the National Private Bank Foreign Exchange, National Private
Bank Non-Bank Foreign Exchange and Regional Development and Commercial Bank
Mixture.
IMPLICASION AND CONCLUSION
This article characterizes informed respondents’ strengthness in conducting credit risk
management system. The main implication of this study is to give impetus to the
banking sector, especially the BI to issue a policy in dealing with credit risk more
carefully. Mainly focuses on contextual factors such as attention to strategy, culture and
the accuracy of personal determination in strengthening the quality of lending to all
customers (without exception), making decisions that are not only concentrated on the
boss, the emphasis on process and mechanism in a feasibility lending standards,
compliance in performing the procedure and reduces the delegation of authority in the
selection process the credit. Thus setting the limits of credit risk, the determination of
eligibility period of time to measure the level of credit risk measurement and
management mechanism of credit and reduce the possibility of financial management
pressures and maintain operating margins can run well and according to banking
purposes.
The results of this study can then be used as a basis for strengthening the banking
credit risk management system as a whole. The success of credit leakage
pengantisipasian sizable impact on improving banking performance. This can be
targeted by the Bank to encourage more banks that go public, in other words more and
more people are involved in monitoring the performance of commercial banks. Another
impact of this policy is to BI to create new regulations to reduce the share composition of
bank owners, so the bank will not be used as a tool to facilitate private business, to more
transparency and accountability in line with management responsibilities of public
funds.
It is the show That there are the Restoration of banking intermediation can eventually
be achieved through increased lending to maximize the selection process and mechanism
in accordance with the best policy. Problems can dielimisi credit crunch with the
recovery of banking intermediation, so that will have an impact on Indonesian economic
RISK MANAGEMENT AND INSURANCE REVIEW
growth, due to high investment and working capital invested to all productive sectors
and
potential.
Strengthening credit risk management system, estimate the quality and predictability
of credit risk management in accordance with the provisions of BI applied consistently
by commercial banks in Indonesia, thus providing a new focus on banking in
anticipation of the credit risk management and the need to pay special attention to
analyzing competitive strategy, corporate culture and organizational structure as
strengthening the internal banking system. Furthermore, this study gives an idea of the
banking regulator of BI in improving the function of monitoring and anticipation of
credit risk management that must be run by commercial banks in Indonesia
The results of this study can be summarized as follows.
1. Competitive strategy, corporate culture and organizational structure influence on
credit risk management system of commercial banks in Indonesia, except the external
environment. This is consistent with the results of the study Miller and Friesen (1982),
Govindarajan (1988), Govindarajan and Fisher (1990) and Syafruddin (2001)
contingency variables have a positive relationship and influence on management control
system. This is perfecting the supervision system of compliance-based regulation
(compliant based) into bebasis risk. Supervision should be more active, such as through
the implementation of early warning systems (early warning system) terahadap
emergence of risk. The better the job description, procedures and regulations, the small
level of delegation of authority, the high level of complexity departementalisasi and
specializes in work that is applied by the company, the greater the opportunity to reduce
credit risks that occur.
2. Credit risk management system has a relatively large effect on the performance of
commercial banks in Indonesia. This is consistent with the results of research
Govindarajan and Fisher (1990), Koach and Scott (2000), which states that the more
effective control system, the company increased the company's performance. If the credit
risk management systems are applied consistently and compliance, as the basis for
strengthening policies for commercial banks to anticipate the credit leakage occurred
during the performance of banks is increasing. The more often the bank to identify and
use the tools of risk control in the selection process of granting credit, the more
significant levels of risk measurement mechanisms in conducting credit analysis, tighter
supervision and control risk in credit approval, the greater the opportunity to reduce
credit risk occurring and increasing the performance of commercial banks in Indonesia.
3. The external environment weakens the causality of credit risk management system
on the performance of commercial banks in Indonesia. Meanwhile, competitive strategy,
corporate culture and organizational structure moderates the effect of credit risk
management system on the performance of commercial banks in Indonesia, the most
dominant and strengthen the corporate culture. This study supports research to
Hofstede et., Al. (1990), Ghoshal (1994), Lin and Germain (2003) which states that the
corporate culture moderate the influence of the effectiveness of management control
system to increase the company's performance. This proved relatively large effect of
credit risk management system on the performance of commercial banks, particularly
commercial banks business culture that is work ethic and commitment in service backed
banking call center 24 hours, a professional work team and workaholic, and the banker
who is very animated risk takers in the bank to prudently manage so that the
performance
of
commercial
banks
in
Indonesia,
the
better.
CONTINGENT OF CREDIT RISK MANAGEMENT SYSTEM ON BANKS PERFORMANCE
4. The performance of commercial banks in Indonesia as a whole is very good and the
line between primary and secondary data. Performance of State Commercial Banks
(Persero) is the best, in other words the performance of state commercial banks
(Persero) is relatively better than the performance of five commercial banks group of
other competitors.
Finally our study has some suggestions for future studies, and concerns with limitations
of this study, such as follow.
1. Menggunakan data credit scoring dan value at risk (VAR) yang lebih determinastik,
2. To extract and increase the number of research unit /respondents and diversify into
marketing, operational, finance and other management functions at commercial
banks.
3. To conduct Risk based audit regulary, and
4. To cover other contingenty variables, such as banking information system technology,
bank size, decentralizationi, and
5. Long period of Bank operationalization, more than 10 years (time series) and
crossectional seconder data.
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