Portion of Foreign Ownership and Efficiency of Banks in Indonesia
This study aimed to accomplish the following: (1) determine the foreign ownership in a private national bank and a non-foreign exchange bank; (2) determine the impact of foreign ownership on the efficiency of the national private banking and non-foreign e
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Abstract This study aimed to accomplish the following: (1) determine the foreign ownership in a private national bank and a non-foreign exchange bank; (2) determine the impact of foreign ownership on the efficiency of the national private banking and non-foreign exchange; and (3) determine if there are differences in the impact of the percentage of foreign ownership of a bank on the efficiency of national private groups and non-foreign exchange. The samples are comprised of banks in the group of Foreign-Exchange National Private Bank (BUSND) and the National Private Bank Non-Foreign Exchange (BUSNND). The number of banks that became the subject of research include as many as 54 banks from the period 2001–2013 with the total number of observations being 702; however, the number of observations included in the data processing is 648. This is due to the use of variable BOPO in the previous year, so the data BOPO was 1 year before starting 2002. Research variables used are BOPO, share of foreign ownership, bank size, and group dummy variables. The equation used is OLS research using panel data. The results of this study prove the following: (1) Foreign ownership has a positive influence on inefficiencies for a particular group of BUSND and BUSNND; (2) the greater the bank’s assets, the more efficient the bank tends to be; and (3) there is no difference in the impact of foreign ownership on bank-efficiency levels among the BUSND and BUSNN groups. The results of this study have implications for the policy to restrict foreign ownership in national banks. Revisions of the Banking Act, one of which is to limit foreign ownership in national banks, are being processed in the Commission XI. The results of this study can be considered in the revision of the Banking Law. Foreign ownership is a particular point because increased foreign ownership tends to decrease banking system efficiency. Keywords Foreign ownership Banking law
The bank’s assets
BUSND
BUSNND
Sparta (&) Accounting Department, Indonesia Banking School, Jalan Kemang Raya No.35, Kemang, South Jakarta 12730, Indonesia e-mail: [email protected] URL: http://www.ibs.ac.id © Springer Nature Singapore Pte Ltd. 2017 E. Lau et al. (eds.), Selected Papers from the Asia-Pacific Conference on Economics & Finance (APEF 2016), DOI 10.1007/978-981-10-3566-1_9
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1 Introduction Since the banking regulations on foreign ownership issued by Bank Indonesia through Act 29 of 1999, foreign investors have been allowed to own national banks ( 99% ownership), has become a trigger mastered by the foreign banking industry. This condition would not be healthy and would affect the development of the national banking system. The regulation of foreign ownership in Indonesian banks is considered less strict compared with that in other countries. China have 30% foreign ownership in their banking sector (http://www.ibpa.co.id/News/) according to the research of Hawes and Chiu (2007; in Rusdi; November 2014 [http://kinerjabank.com/kepemilikanasing-di-perbankan-indonesia/]).
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