Granger Causality Analysis Between The Economic Cycle And Bank Asset And Liabilities Management

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Granger Causality Analysis between the Economic Cycle and Bank Asset and Liabilities Management

Understanding the Complex Relationship between Economic Fluctuations and Bank Financial Management

The economic cycle, reflected in the Gross Domestic Product (GDP), plays a crucial role in shaping the financial management of banks. The management of assets and bank liabilities, including total credit, total deposits, leverage, and number of securities owned by banks, is a critical aspect of a bank's financial strategy. In this study, we aim to explore the causality relationship between the economic cycle and the management of assets and bank liabilities, with a focus on the Indonesian banking sector.

Research Methodology

The type of research used in this study is quantitative descriptive, which combines descriptive methods with a quantitative approach. The population consisted of 43 go public banks listed on the Indonesia Stock Exchange (IDX). A sample of 23 banks was selected using the purposive sampling method, ensuring that all selected banks consistently issued quarterly financial statements during the period 2006 to 2016. The data used in this study were obtained from the annual report of the bank and the financial statements published during that period.

Data Analysis

The analysis method used in this study is the Granger causality test. Before conducting causality analysis, the first stage is to test data stationary. The analysis results show that all the variables tested are stationary at the first difference level. Furthermore, a cointegration analysis is performed that shows a long-term relationship between the variables analyzed.

Results and Findings

The Granger causality test results reveal some interesting findings:

Total Credit and GDP

There is a one-way causality relationship between the total credit given by the bank and gross domestic product. This indicates that an increase in total credit can affect economic growth, but not vice versa. This finding suggests that banks play a crucial role in supporting economic growth through the provision of credit.

Total Savings and GDP

For total deposits, no causality relationship with GDP. This shows that changes in total deposits do not directly affect economic fluctuations. This finding may indicate that banks' deposit management strategies do not have a significant impact on economic growth.

Leverage and GDP

The results indicate a one-way causality relationship between leverage and GDP. Increased leverage can be a signal for economic growth, indicating that banks are better prepared to provide credit in the midst of economic growth. This finding suggests that banks' leverage management strategies can have a positive impact on economic growth.

Bank Investment in Securities and GDP

This study found that bank investment in securities does not contribute directly to economic growth. This finding may indicate that banks' investment strategies in securities do not have a significant impact on economic growth.

Conclusion

This study provides important insights on how the economic cycle and asset management and bank liabilities interact with each other. The results of the study showed that total credit and leverage had a significant influence on GDP, while the total deposit and number of securities did not indicate a significant causality relationship. This finding is important for policy makers and banks in formulating the right strategy to support economic growth through effective financial management.

Through this analysis, it is expected to provide guidance for banks in Indonesia to understand the best way to respond to the economic cycle and manage their assets and liabilities in order to achieve sustainable stability and growth. By understanding the complex relationship between economic fluctuations and bank financial management, banks can develop strategies to mitigate the risks associated with economic downturns and capitalize on opportunities during economic growth.

Implications for Policy Makers and Banks

The findings of this study have significant implications for policy makers and banks in Indonesia. Policy makers can use this study to develop policies that support economic growth through effective financial management. Banks can use this study to develop strategies that respond to the economic cycle and manage their assets and liabilities effectively.

Limitations of the Study

This study has some limitations. The sample size is relatively small, and the study only focuses on the Indonesian banking sector. Future studies can expand the sample size and focus on other countries to provide a more comprehensive understanding of the relationship between economic fluctuations and bank financial management.

Future Research Directions

Future research can build on this study by exploring the following research directions:

  • Exploring the impact of monetary policy on bank financial management: This study can explore the impact of monetary policy on bank financial management and how banks respond to changes in monetary policy.
  • Analyzing the relationship between bank financial management and economic growth: This study can analyze the relationship between bank financial management and economic growth in other countries to provide a more comprehensive understanding of the relationship.
  • Developing a framework for bank financial management: This study can develop a framework for bank financial management that takes into account the economic cycle and asset management and bank liabilities.

By exploring these research directions, future studies can provide a more comprehensive understanding of the relationship between economic fluctuations and bank financial management, and develop strategies that support economic growth through effective financial management.
Frequently Asked Questions (FAQs) about Granger Causality Analysis between the Economic Cycle and Bank Asset and Liabilities Management

Q: What is Granger Causality Analysis?

A: Granger Causality Analysis is a statistical method used to determine whether one time series is useful in forecasting another time series. In the context of this study, we used Granger Causality Analysis to examine the relationship between the economic cycle (GDP) and bank asset and liabilities management.

Q: What is the economic cycle?

A: The economic cycle refers to the fluctuations in economic activity, typically measured by Gross Domestic Product (GDP). The economic cycle can be divided into four phases: expansion, peak, contraction, and trough.

Q: What is bank asset and liabilities management?

A: Bank asset and liabilities management refers to the management of a bank's assets and liabilities, including total credit, total deposits, leverage, and number of securities owned by banks.

Q: What are the key findings of this study?

A: The key findings of this study are:

  • Total credit and GDP have a one-way causality relationship, indicating that an increase in total credit can affect economic growth.
  • Total deposits and GDP have no causality relationship, indicating that changes in total deposits do not directly affect economic fluctuations.
  • Leverage and GDP have a one-way causality relationship, indicating that increased leverage can be a signal for economic growth.
  • Bank investment in securities does not contribute directly to economic growth.

Q: What are the implications of this study for policy makers and banks?

A: The findings of this study have significant implications for policy makers and banks in Indonesia. Policy makers can use this study to develop policies that support economic growth through effective financial management. Banks can use this study to develop strategies that respond to the economic cycle and manage their assets and liabilities effectively.

Q: What are the limitations of this study?

A: The limitations of this study include:

  • The sample size is relatively small.
  • The study only focuses on the Indonesian banking sector.
  • The study only examines the relationship between the economic cycle and bank asset and liabilities management, and does not consider other factors that may influence economic growth.

Q: What are the future research directions for this study?

A: Future research directions for this study include:

  • Exploring the impact of monetary policy on bank financial management.
  • Analyzing the relationship between bank financial management and economic growth in other countries.
  • Developing a framework for bank financial management that takes into account the economic cycle and asset management and bank liabilities.

Q: What are the practical applications of this study?

A: The practical applications of this study include:

  • Developing policies that support economic growth through effective financial management.
  • Developing strategies that respond to the economic cycle and manage assets and liabilities effectively.
  • Improving the management of bank assets and liabilities to support economic growth.

Q: What are the potential risks and challenges associated with this study?

A: The potential risks and challenges associated with this study include:

  • The study may not be generalizable to other countries or banking sectors.
  • The study may not capture all the factors that influence economic growth.
  • The study may not provide a complete picture of the relationship between the economic cycle and bank asset and liabilities management.

Q: What are the potential benefits of this study?

A: The potential benefits of this study include:

  • Improving the understanding of the relationship between the economic cycle and bank asset and liabilities management.
  • Developing policies and strategies that support economic growth through effective financial management.
  • Improving the management of bank assets and liabilities to support economic growth.