The Effect Of Inflation And Exchange Rate On Loans Channeled Conventional Banking In Medan City
The Effect of Inflation and Exchange Rate on Loans Channeled by Conventional Banking in Medan City
Introduction
The banking industry plays a crucial role in the economic growth of a country, and Medan City is no exception. Conventional banking in Medan City has been growing steadily over the years, with a significant increase in the total loans channeled by banks. However, the banking industry is not immune to the effects of inflation and exchange rates, which can have a significant impact on the total loans distributed by banks. This study aims to analyze the effect of inflation and exchange rates on total loans channeled by conventional banks in Medan City during the period 2010 to 2014.
Methodology
This study used a multiple linear regression method to analyze the effect of inflation and exchange rates on total loans channeled by conventional banks in Medan City. The data used in this study was obtained from the Bank Indonesia Representative Office in Medan, and it consisted of 80 observational data from 16 samples of banks. The population of this study consisted of 52 banks in Medan City.
Inflation Analysis
Inflation is the level where the price of goods and services increases within a certain period of time. In the context of bank loans, high inflation can reduce people's purchasing power and reduce their ability to pay loan installments. This can have a negative impact on the total loans distributed by banks. However, in this study, it was found that inflation has a negative and insignificant influence on the total loan distributed. This suggests that banks in Medan may have a strategy to manage inflation risk. For example, they might adjust the loan interest rate to reflect the condition of inflation, so that it can still attract customers even though the economic situation is unstable.
Inflation can also have a negative impact on the economy, as it can reduce the purchasing power of consumers and reduce their ability to pay loan installments. This can lead to a decrease in the total loans distributed by banks. However, in this study, it was found that inflation has a negative and insignificant influence on the total loan distributed. This suggests that banks in Medan may have a strategy to manage inflation risk.
Exchange Rate Impact
While inflation shows negative effects, the exchange rate actually shows a positive and significant effect on total loans. This could be caused by increasing customer confidence in the stability of the exchange rate, which can attract more investors and business actors to use loans in local and foreign currencies. When the exchange rate is stable or strengthening, customers tend to be more confident to take loans, thereby increasing the total outstanding loans. This is an important signal for banks to be more proactive in offering loan products when the exchange rate conditions are profitable.
The exchange rate can also have a positive impact on the economy, as it can attract more investors and business actors to use loans in local and foreign currencies. This can lead to an increase in the total loans distributed by banks. In this study, it was found that the exchange rate has a positive and significant effect on the total loan distributed. This suggests that banks in Medan may have a strategy to take advantage of the exchange rate conditions to increase the total loans distributed.
Conclusion
From the results of the study, it can be concluded that both inflation and exchange rates have a significant impact on the dynamics of conventional banking credit in Medan City. Although inflation has an insignificant negative influence, the presence of a stable and positive exchange rate provides hope for sustainable credit growth. This confirms the need for banks to remain sensitive to macroeconomic conditions and respond with the right strategy in order to maintain loan growth in the future.
Banks are also expected to continue to increase public financial literacy so that they can understand and use loan products better, especially in the context of inflation fluctuations and exchange rates. This can help to increase the total loans distributed by banks and contribute to the economic growth of Medan City.
Recommendations
Based on the results of this study, the following recommendations are made:
- Banks should remain sensitive to macroeconomic conditions: Banks should continue to monitor the inflation and exchange rate conditions and respond with the right strategy to maintain loan growth in the future.
- Increase public financial literacy: Banks should continue to increase public financial literacy so that they can understand and use loan products better, especially in the context of inflation fluctuations and exchange rates.
- Offer loan products that take advantage of exchange rate conditions: Banks should be more proactive in offering loan products that take advantage of exchange rate conditions to increase the total loans distributed.
- Adjust loan interest rates to reflect inflation conditions: Banks should adjust the loan interest rates to reflect the condition of inflation, so that it can still attract customers even though the economic situation is unstable.
By following these recommendations, banks in Medan City can continue to grow and contribute to the economic growth of the city.
Limitations of the Study
This study has several limitations, including:
- Limited data: The data used in this study was limited to 80 observational data from 16 samples of banks.
- Limited time period: The study was conducted over a limited time period of 2010 to 2014.
- Limited scope: The study only focused on conventional banks in Medan City and did not include other types of banks or financial institutions.
Future studies should aim to overcome these limitations by using a larger sample size, a longer time period, and a broader scope to include other types of banks and financial institutions.
Conclusion
In conclusion, this study found that both inflation and exchange rates have a significant impact on the dynamics of conventional banking credit in Medan City. Although inflation has an insignificant negative influence, the presence of a stable and positive exchange rate provides hope for sustainable credit growth. This confirms the need for banks to remain sensitive to macroeconomic conditions and respond with the right strategy in order to maintain loan growth in the future.
Frequently Asked Questions (FAQs) about the Effect of Inflation and Exchange Rate on Loans Channeled by Conventional Banking in Medan City
Q: What is the main objective of this study?
A: The main objective of this study is to analyze the effect of inflation and exchange rates on total loans channeled by conventional banks in Medan City during the period 2010 to 2014.
Q: What is the methodology used in this study?
A: The methodology used in this study is multiple linear regression, with data obtained from the Bank Indonesia Representative Office in Medan.
Q: What is the population of this study?
A: The population of this study consists of 52 banks in Medan City.
Q: What is the sample size of this study?
A: The sample size of this study is 16 banks, resulting in a total of 80 observational data.
Q: What is the finding of this study regarding the effect of inflation on total loans?
A: The finding of this study is that inflation has a negative and insignificant influence on the total loan distributed.
Q: What is the finding of this study regarding the effect of exchange rate on total loans?
A: The finding of this study is that the exchange rate has a positive and significant effect on the total loan distributed.
Q: What is the implication of this study for banks in Medan City?
A: The implication of this study is that banks in Medan City should remain sensitive to macroeconomic conditions and respond with the right strategy to maintain loan growth in the future.
Q: What is the recommendation of this study for banks in Medan City?
A: The recommendation of this study is that banks in Medan City should continue to increase public financial literacy, offer loan products that take advantage of exchange rate conditions, and adjust loan interest rates to reflect inflation conditions.
Q: What are the limitations of this study?
A: The limitations of this study are limited data, limited time period, and limited scope.
Q: What are the future research directions based on this study?
A: The future research directions based on this study are to use a larger sample size, a longer time period, and a broader scope to include other types of banks and financial institutions.
Q: What is the significance of this study?
A: The significance of this study is that it provides insights into the effect of inflation and exchange rates on total loans channeled by conventional banks in Medan City, which can help banks and policymakers make informed decisions.
Q: What are the practical implications of this study?
A: The practical implications of this study are that banks in Medan City can use the findings of this study to adjust their loan products and strategies to take advantage of exchange rate conditions and manage inflation risk.
Q: What are the theoretical implications of this study?
A: The theoretical implications of this study are that it contributes to the existing literature on the effect of inflation and exchange rates on banking credit, and provides insights into the dynamics of conventional banking credit in Medan City.
Q: What are the policy implications of this study?
A: The policy implications of this study are that policymakers can use the findings of this study to develop policies that support the growth of banking credit in Medan City, and to manage inflation risk and exchange rate volatility.