Measuring Procyclicality of Bank Lending In Dual Banking System: Amplitude and Frequency Indicator On the Credit Cycle
Ecky Imamul Muttaqin
Center for Economic Development and Public Policy (CEDPP), University Muhammadiyah Yogyakarta, Brawijaya Street, Yogyakarta, Indonesia
Abstract
The behavior of procyclicality is one of the important sources that encourage systemic risk in banking system in Indonesia. This study aims to analyze amplitude and frequency on credit cycle of Islamic and conventional banking in Indonesia. The data used are total Islamic bank financing and total conventional bank lending in monthly from 2004 to 2017. The methodology used is frequency based filter analysis (FBF) and turning point analysis. Determination of time range of cycle is examined using equation of standard deviation ratio between credit cycle and business cycle. The results showed that size of Islamic bank-s amplitude is larger than size of conventional bank-s amplitude. This is as characteristic of Sharia banks based on the pattern of financing of real sector. Meanwhile, unlike conventional banks encourage creation of bubble capital because it is related on the credit pattern based on speculative activities on basis of the interest system. Therefore, conventional banks need to encourage credit patterns based on the capital. Meanwhile, for the size of the frequency of Sharia banks has a longer frequency measure than conventional banks, but number of cycles formed is the same as a perfect cycle.
Keywords: Amplitude, Bank Lending, Credit Cycle, Dual Banking System, Frequency, Procyclicality
Topic: Islamic Finance and Banking