Citation:

Cepy Wildan Anwar, Cep Jandi Anwar, Agus Salim. "Monetary Policy and Financial Structure in the Indonesian Banking Industry" International Research Journal of Economics and Management Studies, Vol. 4, No. 8, pp. 155-163, 2025. Crossref. http://doi.org/10.56472/25835238/IRJEMS-V4I8P116

Abstract:

This research investigates how monetary policy, financial market development, macroprudential regulation, macroeconomic factors, and bank-specific characteristics influence bank capital structure in Indonesia, using Debt-to-Equity Ratio (DER) data from 2012Q1 to 2023Q4. It employs a dynamic panel data model with System GMM estimation. The study shows that higher central bank interest rates (BI Rate) decrease the DER while supporting both balance sheet and financial accelerator theories. Financial development produces conflicting outcomes because capital markets with deeper development lower DER, yet credit-based development increases leverage. The implementation of macroprudential policies demonstrates a strong negative effect on DER, which validates their ability to control excessive borrowing. The positive relationship between economic growth and DER suggests that banks tend to increase their borrowing during periods of economic expansion. The size of banks and their Return On Assets (ROA) influence their capital structure because larger banks have higher DER, while ROA produces conflicting effects across different model specifications. The findings demonstrate that well-capitalized banks choose equity financing because they maintain stronger Capital Adequacy Ratios (CAR).

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Keywords:

Capital Structure, Debt-To-Equity Ratio, Monetary Policy, Banking Sector in Indonesia, System GMM.