13
Figure 4.5 Percentage Loan Portfolio Allocation Based on Loan Types for Acquired and Greenfield Foreign-owned Banks
4.1.2 Loan Portfolio Performance Risk and Return of Acquired vs Greenfield Foreign-owned Banks
The ratio of gross NPLs to Total Loans TLs is depicted in Figure 4.7.
Figure 4.7 Loan Repayment Default Risk of Acquired and Greenfield Foreign-owned Banks for the period 2003 to 2011
The NPLs of the acquired and greenfield FBs differ the most from each other in 2003, but very little from 2009 onwards. Overall, the NPLs for both the acquired and greenfield
banks show a decreasing trend from 2003 to 2011. It indicates that the overall credit risk of banks decreases and that the quality of their loan portfolios improved over the nine-year
study period.
Figure 4.8 Loan Portfolio Returns of Acquired and Greenfield Foreign-owned Banks
0.1 0.2
0.3 0.4
0.5 0.6
0.7 0.8
20 03
20 04
20 05
20 06
2 7
20 08
20 09
20 10
20 11
Acquired
wc invt
consumt 0.1
0.2 0.3
0.4 0.5
0.6 0.7
0.8 0.9
20 03
20 04
20 05
20 06
20 07
20 08
20 09
20 10
20 11
Greenfield
wc invt
consumt
0.02 0.04
0.06 0.08
0.1
2003 2004
2005 2006
2007 2008
2009 2010
2011 Acquired
Greenfield
0.05 0.1
0.15 0.2
2003 2004
2005 2006
2007 2008
2009 2010
2011 Acquired
Greenfield
15 Figure 4.8 depicts the loan interest income ratios for acquired and greenfield FBs over the
period 2003-2011. In general, both acquired and greenfield FBs experience a small downward trend in their gross interest income from 2003 to 2011. This is due to changes
in the central bank interest rate
6
from 12.75 in 2005 to 6 in 2011. It affects all banks but notwithstanding such changes, banks still apply different rates based on inter alia their
specific market segments and supply and demand for the loans that they provide. Acquired FBs show the highest loan interest income in all years. Considering this situation,
acquired FBs in general have a higher average return than greenfield FBs over the research period.
4.2 Differences in the Loan Portfolio Structure and Performance of Acquired and Greenfield Foreign-owned Banks
Table 4.2 displays the results of the Mann-Whitney test to verify the descriptive statistic findings presented in the previous section.
Table 4.2 Univariate Statistics for the Loan Portfolio Structure and Performance of Acquired and Greenfield Foreign-owned Banks
Acquired Banks
n=106 Greenfield
Banks n=189
Difference Mann-Whitney Test
Z Prob Z
EHHI 0.284
0.481 -0.197
10.702 0.000 THHI
0.560 0.714
-0.154 6.134 0.000
Risk 0.034
0.042 -0.008
0.113 0.910 Return
0.155 0.082
0.073 -8.195 0.000
Legend: The Mann-Whitney tests are conducted for testing the loan portfolio structure and performance median differences between the acquired and greenfield FBs over the nine-year study period. Statistically significant differences at 1, 5, and 10 significance levels
are respectively indicated by , , and .
The Mann-Whitney test shows that there are statistically significant differences in the loan portfolio concentration and in the loan portfolio return of acquired and greenfield FBs.
Overall, it confirms that the mode of entry significantly explain the loan portfolio structures and returns of FBs in Indonesia.
4.3 Empirical Results
Table 4.3 presents the pooled regression used to determine the relationship between FB mode of entry, their EHHI and THHI loan portfolio concentration levels, their loan
repayment default risk loan portfolio risk, and control variables with their loan portfolio returns.
6
Central bank rate serves as the reference rate since 2005, hence no data available prior to 2005.
