Main Article Content
Abstract
The purpose of this study is to assess the condition of financial system stability in Indonesia both before and during the Covid-19 pandemic and to look at its relationship with economic growth. This study develops six sub-sector groups described in 19 indicators in order to assess the condition of the financial system. Quarterly data for 6.5 years from Quarter I 2016 to Quarter II 2022 was evaluated. To assess the condition of the financial system, this study uses a composite index approach with the normalized max-min method. The correlation analysis method is used to assess the relationship between the index of financial system conditions and economic growth. The results showed that during the pandemic, there was a more significant increase in pressure on financial conditions than before the pandemic. The financial system instability index during the pandemic in the second quarter of 2020 was 3 times higher than the average and more than 5 times higher than the same quarter in 2019. In addition, the relationship between the financial condition index and economic growth is at 0.77 (strong category). The implication is this research can provide insight to the government, financial institutions, and the public regarding the condition of financial system stability before and during the Covid-19 pandemic. This research suggests that the government should control credit restructuring policies during the pandemic and strengthen financial institutions. This research has limitations in terms of objects that only include conventional financial institutions. Further studies can use other objects such as Islamic financial institutions.
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References
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- Albulescu, C. T. (2010). Forecasting the Romanian financial system stability using a stochastic simulation model. Romanian Journal of Economic Forecasting, 13(1), 81–98. https://ipe.ro/rjef/rjef1_10/rjef1_10_6.pdf
- Almfraji, M. A., & Almsafir, M. K. (2014). Foreign direct investment and economic growth literature review from 1994 to 2012. Procedia-Social and Behavioral Sciences, 12(9), 206–213. https://doi.org/10.1016/j.sbspro.2014.03.668
- Arzamasov, V., & Penikas, H. (2014). A financial stability index for Israel. Procedia Computer Science, 3(1), 985–994. https://doi.org/10.1016/j.procs.2014.05.351
- Azarenkova, G., Shkodina, I., Samorodov, B., & Babenko, M. (2018). The influence of financial technologies on the global financial system stability. Investment Management & Financial Innovations, 15(4), 229. https://www.ceeol.com/search/article-detail?id=741960
- Azizatunnishak, K. (2018). Impact shock policy China exchange rate (Devaluation of Yuan) to Indonesian economic fluctuation. Economics Development Analysis Journal, 7(1), 78–88. https://doi.org/10.15294/edaj.v7i1.21933
- Bank Indonesia (2021). Inflasi IHK 2020 Tercatat Rendah. https://www.bi.go.id/id/publikasi/laporan/Documents/Analisis_Inflasi_Desember_2020.pdf
- del Rio-Chanona, R. M., Mealy, P., Pichler, A., Lafond, F., & Farmer, J. D. (2020). Supply and demand shocks in the COVID-19 pandemic: An industry and occupation perspective. Oxford Review of Economic Policy, 36(1), 94–137. https://doi.org/10.1093/oxrep/graa033
- Dhiman, R. (2018). Identifying the key indicators of financial stability and financial development: a review of financial service sector. Asian Journal of Management Science and Applications, 3(4), 302–320. https://doi.org/10.1504/AJMSA.2018.098902
- Disemadi, H. S., & Shaleh, A. I. (2020). Banking credit restructuring policy amid COVID-19 pandemic in Indonesia. Jurnal Inovasi Ekonomi, 5(2), 63–70. https://doi.org/10.22219/jiko.v5i02.11790
- Dumičić, M. (2016). Financial stability indicators–The case of Croatia. Journal of Central Banking Theory and Practice, 5(1), 113–140. https://doi.org/10.1515/jcbtp-2016-0006
- Endiana, I. D. M., & Merawati, L. K. (2022). Financial inclusion on Indonesia’s financial system stability: The role intervening of financial technology. Jurnal Keuangan Dan Perbankan, 26(2), 405–415. https://doi.org/10.26905/jkdp.v2i2.6914
- Eze, O. R., & Ogiji, F. O. (2016). Impact of deficit financing on economic stability in Nigeria: Analysis of economic growth. Journal of Applied Finance and Banking, 6(1), 111–125. http://www.scienpress.com/upload/jafb/vol 6_1_7.pdf
- Fung, D. W., Lee, W. Y., Yeh, J. J., & Yuen, F. L. (2020). Friend or foe: The divergent effects of FinTech on financial stability. Emerging Markets Review, 4(5), 100727. https://doi.org/10.1016/j.ememar.2020.100727
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- Gunadi, N. L. D. S., Ardhya, S. N., & Setianto, M. J. (2022). Tinjauan yuridis pertanggungjawaban ganti rugi terhadap kerugian investor di pasar modal Indonesia. Jurnal Komunitas Yustisia, 5(2), 558–574. https://garuda.kemdikbud.go.id/documents/detail/3077803
- Gustiana, A., & Nasrudin, N. (2021). Evaluating financial system stability using heatmap from aggregate financial stability index with change point analysis approach. Asia-Pacific Financial Markets, 28(3), 367–396. https://doi.org/10.1007/s10690-020-09326-0
- Indrayono, Y. (2021). What factors affect stocks’ abnormal return during the COVID-19 pandemic: Data from the Indonesia stock exchange. European Journal of Business and Management Research, 6(6), 1–11. https://doi.org/10.24018/ejbmr.2021.6.6.1139
- Karanovic, G., & Karanovic, B. (2015). Developing an aggregate index for measuring financial stability in the Balkans. Procedia Economics and Finance, 3(3), 3–17. https://doi.org/10.1016/S2212-5671(15)01690-1
- Kondratovs, K. (2014). Modelling financial stability index for Latvian financial system. Regional Formation and Development Studies, 8(3), 118–129. https://doi.org/10.15181/rfds.v7i2.2368
- Kryzanowski, L., Liu, J., & Zhang, J. (2023). Effect of COVID-19 on non-performing loans in China. Finance Research Letters, 5(2), 103372. https://doi.org/10.1016/j.frl.2022.103372
- Marcu, M. R. (2021). The impact of the COVID-19 pandemic on the banking sector. Management Dynamics in the Knowledge Economy, 9(2), 205–223. https://intapi.sciendo.com/pdf/10.2478/mdke-2021-0015
- Morales, M. A., & Estrada, D. (2010). A financial stability index for Colombia. Annals of Finance, 6(4), 555–581. https://doi.org/10.1007/s10436-010-0161-7
- Morris, V. C. (2010). Measuring and forecasting financial stability: The composition of an aggregate financial stability index for Jamaica. Bank of Jamaica, 6(2), 34–51. https://www.boj.org.jm/uploads/pdf/papers_pamphlets/papers_pamphlets_Measuring_and_Forecasting_Financial_Stability__The_Composition_of_an_Aggregate_Financial_Stability_Index_for_Jamaica.pdf
- Noerhidajati, S., Purwoko, A. B., Werdaningtyas, H., Kamil, A. I., & Dartanto, T. (2021). Household financial vulnerability in Indonesia: Measurement and determinants. Economic Modelling, 9(6), 433–444. https://doi.org/10.1016/j.econmod.2020.03.028
- Nugroho, A. W., Adam, M., Widiyanti, M., & Sulastri, S. (2021). Analysis of financial stability determinants in Indonesia. Journal of Social Science, 2(2), 99–106. https://doi.org/10.46799/jss.v2i2.105
- Nurfalah, I., Rusydiana, A. S., Laila, N., & Cahyono, E. F. (2018). Early warning to banking crises in the dual financial system in Indonesia: The markov switching approach. Journal of King Abdulaziz University: Islamic Economic, 31(2), 133–156. https://journals.kau.edu.sa/index.php/JKAUIE
- Olorogun, L. (2021). Political economy and financial sustainability in the 21st century: US election spillover into the global financial system. Academia Letters. https://doi.org/10.20935/AL2051
- Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329–340. https://doi.org/10.1016/j.bir.2017.12.003
- Pambudi, T., & Rahadi, R. A. (2021). The impact of pandemic covid-19 on digital payment: Case study on electronic money in Indonesia. International Journal of Advanced Research in Economics and Finance, 3(1), 70–79. http://myjms.mohe.gov.my/index.php/ijaref
- Qi, X. Z., Ning, Z., & Qin, M. (2022). Economic policy uncertainty, investor sentiment and financial stability—an empirical study based on the time varying parameter-vector autoregression model. Journal of Economic Interaction and Coordination, 1(7), 779–799. https://doi.org/10.1007/s11403-021-00342-5
- Rahmi, Y., & Sumirat, E. (2021). A study of the impact of alma to profitability during the covid-19 pandemic. International Journal of Business, Economics, and Law, 24(3), 54–65. https://ijbel.com/wp-content/uploads/2021/04/IJBEL24-036.pdf
- Risman, A., Mulyana, B., Silvatika, B., & Sulaeman, A. (2021). The effect of digital finance on financial stability. Management Science Letters, 11(7), 1979–1984. https://doi.org/10.5267/j.msl.2021.3.012
- Sere-Ejembi, A., Udom, I. S., Salihu, A., Atoi, N. V., & Yaaba, B. N. (2014). Developing banking system stability index for Nigeria. Journal of Applied Statistics (JAS), 5(1), 49–77. https://dc.cbn.gov.ng/jas/vol5/iss1/4
- Susilawati, S., Falefi, R., & Purwoko, A. (2020). Impact of COVID-19’s pandemic on the economy of Indonesia. Budapest International Research and Critics Institute-Journal (BIRCI-Journal), 3(2), 1147–1156. https://doi.org/10.33258/birci.v3i2.954
- Swamy, V. (2014). Testing the interrelatedness of banking stability measures. Journal of Financial Economic Policy, 6(1), 25–45. https://doi.org/10.1108/JFEP-01-2013-0002
- Tatarici, L. R., Kubinschi, M. N., & Barnea, D. (2020). Determinants of non-performing loans for the EEC region: A financial stability perspective. Management & Marketing. Challenges for the Knowledge Society, 15(4), 621–642. https://doi.org/10.2478/mmcks-2020-0036
- Volz, U. (2015). Towards a Sustainable Financial System in Indonesia. http://www.unep.org/inquiry
- Wójcik, D., & Ioannou, S. (2020). COVID‐19 and finance: Market developments so far and potential impacts on the financial sector and centres. Tijdschrift Voor Economische En Sociale Geografie, 111(3), 387–400. https://doi.org/10.1111/tesg.12434
References
Al-Rjoub, S. A. (2021). A financial stability index for Jordan. Journal of Central Banking Theory and Practice, 10(2), 157–178. https://doi.org/10.2478/jcbtp-2021-0018
Albulescu, C. T. (2010). Forecasting the Romanian financial system stability using a stochastic simulation model. Romanian Journal of Economic Forecasting, 13(1), 81–98. https://ipe.ro/rjef/rjef1_10/rjef1_10_6.pdf
Almfraji, M. A., & Almsafir, M. K. (2014). Foreign direct investment and economic growth literature review from 1994 to 2012. Procedia-Social and Behavioral Sciences, 12(9), 206–213. https://doi.org/10.1016/j.sbspro.2014.03.668
Arzamasov, V., & Penikas, H. (2014). A financial stability index for Israel. Procedia Computer Science, 3(1), 985–994. https://doi.org/10.1016/j.procs.2014.05.351
Azarenkova, G., Shkodina, I., Samorodov, B., & Babenko, M. (2018). The influence of financial technologies on the global financial system stability. Investment Management & Financial Innovations, 15(4), 229. https://www.ceeol.com/search/article-detail?id=741960
Azizatunnishak, K. (2018). Impact shock policy China exchange rate (Devaluation of Yuan) to Indonesian economic fluctuation. Economics Development Analysis Journal, 7(1), 78–88. https://doi.org/10.15294/edaj.v7i1.21933
Bank Indonesia (2021). Inflasi IHK 2020 Tercatat Rendah. https://www.bi.go.id/id/publikasi/laporan/Documents/Analisis_Inflasi_Desember_2020.pdf
del Rio-Chanona, R. M., Mealy, P., Pichler, A., Lafond, F., & Farmer, J. D. (2020). Supply and demand shocks in the COVID-19 pandemic: An industry and occupation perspective. Oxford Review of Economic Policy, 36(1), 94–137. https://doi.org/10.1093/oxrep/graa033
Dhiman, R. (2018). Identifying the key indicators of financial stability and financial development: a review of financial service sector. Asian Journal of Management Science and Applications, 3(4), 302–320. https://doi.org/10.1504/AJMSA.2018.098902
Disemadi, H. S., & Shaleh, A. I. (2020). Banking credit restructuring policy amid COVID-19 pandemic in Indonesia. Jurnal Inovasi Ekonomi, 5(2), 63–70. https://doi.org/10.22219/jiko.v5i02.11790
Dumičić, M. (2016). Financial stability indicators–The case of Croatia. Journal of Central Banking Theory and Practice, 5(1), 113–140. https://doi.org/10.1515/jcbtp-2016-0006
Endiana, I. D. M., & Merawati, L. K. (2022). Financial inclusion on Indonesia’s financial system stability: The role intervening of financial technology. Jurnal Keuangan Dan Perbankan, 26(2), 405–415. https://doi.org/10.26905/jkdp.v2i2.6914
Eze, O. R., & Ogiji, F. O. (2016). Impact of deficit financing on economic stability in Nigeria: Analysis of economic growth. Journal of Applied Finance and Banking, 6(1), 111–125. http://www.scienpress.com/upload/jafb/vol 6_1_7.pdf
Fung, D. W., Lee, W. Y., Yeh, J. J., & Yuen, F. L. (2020). Friend or foe: The divergent effects of FinTech on financial stability. Emerging Markets Review, 4(5), 100727. https://doi.org/10.1016/j.ememar.2020.100727
Gadanecz, B., & Jayaram, K. (2008, August). Measures of financial stability-a review. In Measuring Financial Innovation and Its Impact: Proceedings of the IFC Conference, Basel (Vol. 31, pp. 365–383). https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=171888e66888906b686ba865bc2940e7b5f464db#page=371
Gomber, P., Kauffman, R. J., Parker, C., & Weber, B. W. (2018). On the fintech revolution: Interpreting the forces of innovation, disruption, and transformation in financial services. Journal of Management Information Systems, 35(1), 220–265. https://doi.org/10.1080/07421222.2018.1440766
Gunadi, N. L. D. S., Ardhya, S. N., & Setianto, M. J. (2022). Tinjauan yuridis pertanggungjawaban ganti rugi terhadap kerugian investor di pasar modal Indonesia. Jurnal Komunitas Yustisia, 5(2), 558–574. https://garuda.kemdikbud.go.id/documents/detail/3077803
Gustiana, A., & Nasrudin, N. (2021). Evaluating financial system stability using heatmap from aggregate financial stability index with change point analysis approach. Asia-Pacific Financial Markets, 28(3), 367–396. https://doi.org/10.1007/s10690-020-09326-0
Indrayono, Y. (2021). What factors affect stocks’ abnormal return during the COVID-19 pandemic: Data from the Indonesia stock exchange. European Journal of Business and Management Research, 6(6), 1–11. https://doi.org/10.24018/ejbmr.2021.6.6.1139
Karanovic, G., & Karanovic, B. (2015). Developing an aggregate index for measuring financial stability in the Balkans. Procedia Economics and Finance, 3(3), 3–17. https://doi.org/10.1016/S2212-5671(15)01690-1
Kondratovs, K. (2014). Modelling financial stability index for Latvian financial system. Regional Formation and Development Studies, 8(3), 118–129. https://doi.org/10.15181/rfds.v7i2.2368
Kryzanowski, L., Liu, J., & Zhang, J. (2023). Effect of COVID-19 on non-performing loans in China. Finance Research Letters, 5(2), 103372. https://doi.org/10.1016/j.frl.2022.103372
Marcu, M. R. (2021). The impact of the COVID-19 pandemic on the banking sector. Management Dynamics in the Knowledge Economy, 9(2), 205–223. https://intapi.sciendo.com/pdf/10.2478/mdke-2021-0015
Morales, M. A., & Estrada, D. (2010). A financial stability index for Colombia. Annals of Finance, 6(4), 555–581. https://doi.org/10.1007/s10436-010-0161-7
Morris, V. C. (2010). Measuring and forecasting financial stability: The composition of an aggregate financial stability index for Jamaica. Bank of Jamaica, 6(2), 34–51. https://www.boj.org.jm/uploads/pdf/papers_pamphlets/papers_pamphlets_Measuring_and_Forecasting_Financial_Stability__The_Composition_of_an_Aggregate_Financial_Stability_Index_for_Jamaica.pdf
Noerhidajati, S., Purwoko, A. B., Werdaningtyas, H., Kamil, A. I., & Dartanto, T. (2021). Household financial vulnerability in Indonesia: Measurement and determinants. Economic Modelling, 9(6), 433–444. https://doi.org/10.1016/j.econmod.2020.03.028
Nugroho, A. W., Adam, M., Widiyanti, M., & Sulastri, S. (2021). Analysis of financial stability determinants in Indonesia. Journal of Social Science, 2(2), 99–106. https://doi.org/10.46799/jss.v2i2.105
Nurfalah, I., Rusydiana, A. S., Laila, N., & Cahyono, E. F. (2018). Early warning to banking crises in the dual financial system in Indonesia: The markov switching approach. Journal of King Abdulaziz University: Islamic Economic, 31(2), 133–156. https://journals.kau.edu.sa/index.php/JKAUIE
Olorogun, L. (2021). Political economy and financial sustainability in the 21st century: US election spillover into the global financial system. Academia Letters. https://doi.org/10.20935/AL2051
Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329–340. https://doi.org/10.1016/j.bir.2017.12.003
Pambudi, T., & Rahadi, R. A. (2021). The impact of pandemic covid-19 on digital payment: Case study on electronic money in Indonesia. International Journal of Advanced Research in Economics and Finance, 3(1), 70–79. http://myjms.mohe.gov.my/index.php/ijaref
Qi, X. Z., Ning, Z., & Qin, M. (2022). Economic policy uncertainty, investor sentiment and financial stability—an empirical study based on the time varying parameter-vector autoregression model. Journal of Economic Interaction and Coordination, 1(7), 779–799. https://doi.org/10.1007/s11403-021-00342-5
Rahmi, Y., & Sumirat, E. (2021). A study of the impact of alma to profitability during the covid-19 pandemic. International Journal of Business, Economics, and Law, 24(3), 54–65. https://ijbel.com/wp-content/uploads/2021/04/IJBEL24-036.pdf
Risman, A., Mulyana, B., Silvatika, B., & Sulaeman, A. (2021). The effect of digital finance on financial stability. Management Science Letters, 11(7), 1979–1984. https://doi.org/10.5267/j.msl.2021.3.012
Sere-Ejembi, A., Udom, I. S., Salihu, A., Atoi, N. V., & Yaaba, B. N. (2014). Developing banking system stability index for Nigeria. Journal of Applied Statistics (JAS), 5(1), 49–77. https://dc.cbn.gov.ng/jas/vol5/iss1/4
Susilawati, S., Falefi, R., & Purwoko, A. (2020). Impact of COVID-19’s pandemic on the economy of Indonesia. Budapest International Research and Critics Institute-Journal (BIRCI-Journal), 3(2), 1147–1156. https://doi.org/10.33258/birci.v3i2.954
Swamy, V. (2014). Testing the interrelatedness of banking stability measures. Journal of Financial Economic Policy, 6(1), 25–45. https://doi.org/10.1108/JFEP-01-2013-0002
Tatarici, L. R., Kubinschi, M. N., & Barnea, D. (2020). Determinants of non-performing loans for the EEC region: A financial stability perspective. Management & Marketing. Challenges for the Knowledge Society, 15(4), 621–642. https://doi.org/10.2478/mmcks-2020-0036
Volz, U. (2015). Towards a Sustainable Financial System in Indonesia. http://www.unep.org/inquiry
Wójcik, D., & Ioannou, S. (2020). COVID‐19 and finance: Market developments so far and potential impacts on the financial sector and centres. Tijdschrift Voor Economische En Sociale Geografie, 111(3), 387–400. https://doi.org/10.1111/tesg.12434