BANK FINANCIAL CAPABILITY & COMPLIANCE ON MSME LENDING AMID ECONOMIC CHANGE & THE GROWTH OF FIN-TECH COMPANIES IN INDONESIA

Abstract

This paper studies ten years (2008-2018) of annual financial data from four state-owned banks, macroeconomic data and data from the financial technology (fintech) industry using ratio analysis, dynamic estimation and common size statements analysis. The study also considers the analysis of independent attributes, for example, GDP growth, interest rates and fintech lending capacity and capability that could affect the financial performance of the banks. Moreover, this research emphasizes that competition with fintech companies could affect banks’ performance and the capacity to supply loans which bring the diminishing of banks’ capability to disburse their loans, especially to MSMEs. In general, the results show that most of the banks are still capable of increasing lending capacity to MSMEs as mandated by the regulation in the short term. However, in the long run, the intention is moving slowly and tends to decrease, possibly due to the dynamics of economic growth and the development of financial technology companies. In particular, this study avails the strategy and policy that banks should be taking, for example, determining the risk management on capital invested in the long run amid the uncertainty of the economic situation, as reported previously in the long run as the GDP growth affected the MSME financing. Our research also contributes to the improvements of the banks’ credit management, the effectiveness of loan distribution, and explains the repercussion of the fintech lending on MSME. For instance, as mentioned in the analysis, this study suggests that the observations might have significant implications on further investigation on the prioritization of the strategy that optimally used to solve the issues on the allocation of funds by making collaboration between the bank and fintech companies. In addition, this study is expected to raise concern about financial inclusiveness amid the development of the digital economy. Overall, this research supplies some insights into the evaluation process of banking sector’s financial performance and the impact of macro-economy and digital economy through fintech on the bank lending services towards MSMEs, including analysis contributing to decision-makers in making correct decisions.