Agnes Melissa Sitepu, Farida Titik Kristanti

Stability and Survival of the Banking Sector in Indonesia

Introduction

Stability and survival of the banking sector in indonesia. Analyze the stability and survival of Indonesian banks (2015-2024) using Altman Z''-Score and Cox Model. Explore how inflation, interest rates, and economic growth impact distressed banks.

Abstract

Purpose – This paper seeks to examine the stability and survival of banking institutions listed on the Indonesia Stock Exchange (IDX) from 2015 to 2024, using the Altman Z''-Score to assess financial distress and the Cox Proportional Hazards Model to evaluate the impact of macroeconomic factors such as inflation, interest rates, and economic growth on their survival probability. Methodology/approach – A quantitative research approach was employed, using financial data from annual reports of banking institutions listed on the Indonesia Stock Exchange (IDX) for the 2015–2024 period. Financial distress was measured using the Altman Z''-Score, while survival probability was assessed using the Cox Proportional Hazards Model. Macroeconomic variables—including inflation, interest rates, and economic growth—were incorporated to analyze their influence on survival of distress banks. Purposive sampling was used to select banks that consistently published financial statements throughout the study period. Findings – It  was found that several banking institutions listed on the IDX experienced financial distress during the 2015–2024 period, as indicated by low Altman Z''-Scores. The survival analysis revealed that inflation and interest rates had a statistically significant negative effect on the survival probability of distressed banks, while economic growth had a positive impact. Among the three macroeconomic variables, interest rates were the most dominant factor influencing bank survival. Novelty/value –  This study offers a novel integration of Altman Z''-Score and Cox Proportional Hazards Model to assess bank survival under macroeconomic pressure, providing insights for early detection of financial distress in Indonesian banks.  

Review

The paper "Stability and Survival of the Banking Sector in Indonesia" tackles a highly relevant and critical topic concerning the resilience of financial institutions in an emerging market. The study's purpose, to examine the stability and survival of Indonesian banking institutions listed on the IDX from 2015 to 2024 using a multifaceted approach, is both timely and ambitious. By focusing on financial distress detection and the impact of macroeconomic variables, the paper aims to provide valuable insights into the health and longevity of the banking sector, a cornerstone of economic stability. Methodologically, the research employs a strong quantitative framework by integrating the Altman Z''-Score for assessing financial distress and the Cox Proportional Hazards Model for evaluating survival probabilities under various macroeconomic pressures. The inclusion of key variables such as inflation, interest rates, and economic growth, coupled with a substantial ten-year data period, provides a robust analytical foundation. The findings are particularly compelling, indicating that several IDX-listed banks faced financial distress and that inflation and interest rates significantly diminish the survival probability of these distressed institutions, while economic growth enhances it. The identification of interest rates as the most dominant macroeconomic factor is a crucial insight. The novelty claimed by the authors—integrating the Altman Z''-Score with the Cox Proportional Hazards Model to assess bank survival under macroeconomic pressure—is well-justified and represents a significant methodological contribution. This approach offers a powerful tool for the early detection of financial distress, providing invaluable insights for bank management, financial regulators, and policymakers in Indonesia. The specific identification of interest rates as a paramount influence offers actionable intelligence for policy formulation aimed at fostering a more stable and resilient banking environment. This study thus provides a practical and academically sound contribution to understanding banking sector dynamics in dynamic economic contexts.

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