MARKET POWER AND BANKING LIQUIDITY RISK IN INDONESIA: AN EMPIRICAL STUDY WITH LCR AND NSFR
Abstract
This study examines the influence of market power on bank liquidity risk in Indonesia over the period 2019–2023, employing the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as measures of liquidity risk. Market power is proxied through asset, deposit (third-party funds), and loan market shares of 16 conventional commercial banks, which together account for approximately 75% of total industry assets. The empirical analysis is conducted using panel data regression with a Random Effects Model (REM) specification. The findings indicate that asset and deposit market shares exert a significant positive effect on the NSFR, whereas loan market share does not exhibit a statistically significant impact. In contrast, none of the three proxies for market power demonstrate a significant effect on the LCR. These results imply that market power contributes to reducing banks’ long-term liquidity risk, but has no discernible influence on short-term liquidity risk. This research offers important implications for regulators, highlighting the need to incorporate considerations of market structure when designing policies for bank liquidity management.
References
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Drechsler, I., Savov, A., & Schnabl, P. (2017). THE DEPOSITS CHANNEL OF MONETARY POLICY. The Quarterly Journal of Economics, 132(4), 1819–1876. https://doi.org/https://doi.org/10.1093/qje/qjx019
Drechsler, I., Savov, A., & Schnabl, P. (2021). Banking on Deposits : Maturity Transformation without Interest Rate Risk. The Journal of Finance, 76(3), 1091–1143. https://doi.org/10.1111/jofi.13013
Eisenbach, T., Keister, T., Mcandrews, J., & Yorulmazer, T. (2014). Stability of Funding Models : An Analytical Framework. FRBNY Economic Policy Review, February, 29–47.
Fadli, J. A., Sakti, I. M., & Jumono, S. (2021). Market Power and Bank Liquidity Risk: Implementations of Basel III using Net Stable Funding Ratio Approach. Jurnal Keuangan Dan Perbankan, 25(2), 434–449. https://doi.org/10.26905/jkdp.v25i2.5525
Fitriana, A. I., & Febrianto, H. G. (2018). Determinasi Manajemen Resiko Likuiditas Bank Perkreditan Rakyat Di Kota Tangerang. Prosiding Seminar Nasional Unimus, 1, 473–479.
Giordana, G. A., & Schumacher, I. (2013). Bank liquidity risk and monetary policy. Empirical evidence on the impact of Basel III liquidity standards. International Review of Applied Economics, 27(5), 633–655. https://doi.org/10.1080/02692171.2013.778821
Golubeva, O., Duljic, M., & Keminen, R. (2020). The impact of liquidity risk on bank profitability : some empirical evidence from the European banks following the introduction of Basel III regulations. Accounting and Management Information Systems, 18(4), 455–485. https://doi.org/http://dx.doi.org/10.24818/jamis.2019.04001
Husodo, Z. A., Raz, A. F., & Danarsari, D. N. (2024a). The bind and the slack of Basel III liquidity regulations: Evidence from Indonesia. JournalofInternational Financial Markets, Institutions & Money, 96(August). https://doi.org/https://doi.org/10.1016/j.intfin.2024.102046
Husodo, Z. A., Raz, A. F., & Danarsari, D. N. (2024b). The bind and the slack of Basel III liquidity regulations: Evidence from Indonesia. Journal of International Financial Markets, Institutions & Money, 96(August). https://doi.org/https://doi.org/10.1016/j.intfin.2024.102046
Huynh, J. (2024). Funding liquidity risk: does banking market structure matter? Managerial Finance, 20(2), 396–416. https://doi.org/10.1108/MF-02-2023-0097
İncekara, A., & Çetinkaya, H. (2019). Liquidity Risk Management: A Comparative Analysis of Panel Data Between Islamic And Conventional Banking In Turkey. Procedia Computer Science, 158, 955–963. https://doi.org/10.1016/j.procs.2019.09.136
Indraswari, C. R., Sari, K., & Anggraeni, P. W. (2023). Exploring the Relationship Between Diversification , Risk Bank , Size Bank , And Liquidity; Evidence From Conventional Banking in Indonesia. EcceS: Economics Social and Development Studies, 10(2), 184–204. https://doi.org/https://doi.org/10.24252/ecc.v9i2.32194
Jaiz, D. M., Rahmawati, & Asriany. (2020). PENGARUH CAPITAL ADEQUACY RATIO, SOLVABILITAS, DAN UKURAN PERUSAHAAN TERHADAP RISIKO LIKUIDITAS PADA BANK UMUM SYARIAH DI INDONESIA. Jurnal Ilmiah Wahana Akuntansi, 15(2), 107–124.
Janssens, J., Lamoot, J., & Nguyen, G. (2007). Liquidity risk in the banking sector: the Belgian perspective. Financial Stability Review, 5(1), 123-133,.
Jumono, S., Achsani, N. A., Hakim, D. B., & Fidaus, M. (2016). The Effect of Loan Market Concentration on Banking Rentability : A Study of Indonesian Commercial Banking , Dynamics Panel Data Regression Approach. International Journal of Economics and Financial Issues, 6(1), 207–213. https://www.econjournals.com/index.php/ijefi/article/view/1178
Kim, H., Park, K., & Song, S. (2015). Banking Market Size Structure and Financial Stability: Evidence from Eight Asian Countries. Emerging Markets Finance & Trade, 1–16. https://doi.org/10.1080/1540496X.2015.1025653
Kim, J. (2017). BANK COMPETITION AND FINANCIAL STABILITY : LIQUIDITY RISK PERSPECTIVE. Contemporary Economic Policy, 36(2), 337–362. https://doi.org/10.1111/coep.12243
King, M. R. (2013a). The Basel III Net Stable Funding Ratio and bank net interest margins. Journal of Banking and Finance, 37(11), 4144–4156. https://doi.org/10.1016/j.jbankfin.2013.07.017
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Published
2025-10-16
How to Cite
SYAFWAN1, Natasha Febrina; INDRASWARI, Citra Rahayu.
MARKET POWER AND BANKING LIQUIDITY RISK IN INDONESIA: AN EMPIRICAL STUDY WITH LCR AND NSFR.
Proceedings of the International Conference of Islamic Economics and Business (ICONIES), [S.l.], v. 11, n. 1, p. 1569-1584, oct. 2025.
ISSN 2541-3333.
Available at: <https://conferences.uin-malang.ac.id/index.php/iconies/article/view/3504>. Date accessed: 15 may 2026.
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Articles
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