Domestic and foreign influence on banks' lending activities

An analysis of the bank-centric views in Malaysia, Indonesia, and Thailand

Research output: Contribution to journalArticle

Abstract

The arguments that posit inefficient banking practices as a potential root for banking instability are investigated in this study. A major proposition of these bank-centric views (BCVs) states that while increasing financial openness allows banks to tap foreign sources of funds for their lending activities, it also increases banks' vulnerability to the banking sector instability associated with a sudden withdrawal of external funds by international lenders. The focus is to characterise the banks' lending practices with respect to the origin of funds. In the long run, the lending paths of banks in Indonesia and Thailand are dictated by the banks' foreign borrowing and not by domestic funding. This increases the vulnerability of the lending banks to banking instability. For Malaysia, there is no evidence of long-run equilibrium relation between the banks' loan portfolios and funding sources. The findings support the BCV-based explanations of banking practices in Indonesia and Thailand but not in Malaysia.

Original languageEnglish
Pages (from-to)37-53
Number of pages17
JournalSingapore Management Review
Volume33
Issue number1
Publication statusPublished - 2011

Fingerprint

Thailand
Indonesia
Bank lending
Malaysia
Banking
Vulnerability
Lending
Funding
Long-run equilibrium
Bank loans
Loan portfolio
Banking sector
Borrowing
Financial openness
Foreign banks

Keywords

  • Bank-centric views
  • Banking sector fragility
  • Foreign borrowing
  • Lending

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)

Cite this

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abstract = "The arguments that posit inefficient banking practices as a potential root for banking instability are investigated in this study. A major proposition of these bank-centric views (BCVs) states that while increasing financial openness allows banks to tap foreign sources of funds for their lending activities, it also increases banks' vulnerability to the banking sector instability associated with a sudden withdrawal of external funds by international lenders. The focus is to characterise the banks' lending practices with respect to the origin of funds. In the long run, the lending paths of banks in Indonesia and Thailand are dictated by the banks' foreign borrowing and not by domestic funding. This increases the vulnerability of the lending banks to banking instability. For Malaysia, there is no evidence of long-run equilibrium relation between the banks' loan portfolios and funding sources. The findings support the BCV-based explanations of banking practices in Indonesia and Thailand but not in Malaysia.",
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