Factors Affecting Assets Growth of Banks Owned by Foreign Shareholders in Indonesia


  • Hermanto Josoef


The aim of this research is  to assess  the dominant determinant that enable foreign owned banks to increase their assets in Indonesia and to confirm whether “follow the customers hypothesis” is also applicable in  motivating  foreign owned banks to do business in Indonesia to support investment  and trade activities of the companies originated from foreign countries. Using the panel  data of 28 foreign owned commercial banks in Indonesia between 2006-2015 obtained from Indonesian Banking Directory, Indonesian Banking Statistics databases, foreign country central bank websites,  a least square  dummy variable (LSDV)  regression model was applied to examine the effect of Bilateral Trade, Foreign Direct Investment (FDI), Interest Rate Differences, Domestic Deposits, Parent banks Return on Assets (ROA) and Length of Time presence of the foreign owned banks in Indonesia on Assets or Size of Foreign Owned Banks.   The main findings is that the decisions by foreign owned banks to operate and to expand its business in Indonesia is predominantly affected by the increase in realization of  projects funded by  Foreign Direct Investment from counterpart countries,   third parties  fund or domestic deposit denominated in foreign currencies, profitability of the parent banks in home country and longtime presence in Indonesia  to enable parent bank and their branches or subsidiaries gain better  operating experience, better general managerial expertise and better knowledge of  local environment. Bilateral Trade and Interest Rate Differences between home and host country has no impacts at all on Assets of Foreign Owned Banks.  “Follow the customer hypothesis” is applicable in Indonesia only in terms of FDIs but not applicable in terms of bilateral trade. .It is suggested foreign owned banks/foreign acquired banks to consider empowering its trade financing scheme which will increase assets or size of the foreign owned banks.