The Effect of Macroeconomic Uncertainty on Bank Credit Allocation in Indonesia

Abstract

Credit allocation shows how much portion of bank funds are used for credit, it is measured by loan to asset (LTA). LTA decisions change over time to adjust to economic conditions, but the most dangerous influence is macroeconomic uncertainty. Therefore, this study aims to analyze macroeconomic uncertainty in credit allocation decisions of banks in Indonesia. In this study, four indicators of macroeconomic uncertainty are used, with the uncertainty data analysis method using Generalized Autoregressive Conditional Heteroscedasticity (GARCH), while the regression analysis applies Autoregressive Distributed Lag (ARDL). This study uses monthly data from January 2012 to September 2024, with a sample of 105 Indonesian Commercial Banks. The results of the study confirm that macroeconomic uncertainty has a negative impact on credit allocation in Indonesian banks. The results of the study prove that banks in Indonesia act homogeneously in the face of macroeconomic uncertainty, namely tending to act more carefully in allocating credit. The implications of this study emphasize that monetary authorities must be careful in designing interest rate policies to support the development of the banking sector. Further research could examine policy interest rate uncertainty as a key to understanding macroeconomic uncertainty.