Interdependence of Loan and Deposit Volumes at Government-Owned, Private, and Joint-Venture Banks in Indonesia During 2003-2017


  • Masfar Gazali Trisakti University, Indonesia
  • Matrodji Mustafa Mercu Buana University, Indonesia



Interdependence, Loans, Deposits, VAR, VECM, Granger


This study examines the interdependence of loans and deposits at government-owned banks, private banks, and joint-venture banks in Indonesia. This study uses monthly time series of loans and deposits from January 2003 to December 2017. The Combined Loans and Combined Deposits from each group of banks are used for this empirical study. Based on Augmented Dickey-Fuller tests, this study finds that all the series are stationary after first-differencing.  This study also finds that loan and deposit volumes are cointegrated at government owned banks and private banks but not at joint-venture banks. Analyzing the interdependence of loans and deposits, this study uses the vector error correction model (VECM) for government-owned as well as private banks and the vector autoregressive (VAR) model for joint-venture banks. Based on Granger Causality tests, the results show that the interdependence of loans and deposits exists only in government-owned banks. In private banks, the causality was in one direction in which loan volumes depend on deposit volumes. No causality of loans and deposits was found in joint venture banks. The intense competition in the banking industry affects the strategy adopted include aggressive marketing executed by the bank's relationship managers. They initiate loans, and funding will follow. Hence, in modern banking, deposits affect loans, and loans affect deposits only observed at government-owned banks. Private banks follow the traditional intermediary theory, while joint-venture banks follow no theory


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