Natural disaster and local bank non-performing loan: Case of Nias Tsunami 2004

• Main Authors: Brahmana, Rayenda Khresna, Puah, Chin Hong, Chai, Michael
• Format: Article
• Language: English
• Published: Economics Bulletin 2016
• Subjects: HG Finance
• Online Access: http://ir.unimas.my/id/eprint/15309/1/Natural%20Disaster%20-%20Copy.pdf; http://ir.unimas.my/id/eprint/15309/; https://www.scopus.com/inward/record.uri?eid=2-s2.0-85007481692&partnerID=40&md5=e03c36df724ff4eadf8dfdabbadfa056

There is dilemma of Indonesia government to give fund relief in assisting the non-performing credit of natural disaster-affected area. This is due to the argument that natural disaster may not have any impact on banking performance of those affected areas. The fund relief is accused as another moral hazard from government. Hence, this research aims to investigate the effects of natural disaster on the local bank non-performing loan. We use event study and pair t-test to examine the effects of Nias tsunami on Indonesian banking sector. The study is motivated by the hypothesis that there are impacts towards the Indonesian banking institution before and after the natural disaster happens in 2004. The results show that there are increment in the good and under-supervision credit rating, while the other credit rating has decrement after the event. This might be due to the regulation the restriction of loan borrowing to mitigate the crisis hit towards the banking profitability. The NPL of local bank is also significantly different between before and after the tsunami. Using event study approach, the results shows also the significant impact of Aceh Tsunami on local bank non-performing loan.