Banking Intermediation to Promote Real Economy in Indonesia

This study utilizes system dynamic to investigate the behavior of banks in credit allocation, particularly to real sector in Indonesia. The model is able to replicate the mechanism of bank's credit allocation to real sector. The simulation of the model performs by decreasing some variables of income tax, real sector risk, reserve requirement, monetary policy instrument rate, provision regulation, and adding supervision fee. The result indicates that independent policy by different authorities does not have significant positive impact in promoting real sector, economic growth, and banks profitability. Integrated coordination policies among authorities in fiscal, financial system and real sector, has a more positive impact on real sector financing, economic growth, and banks profitability. The best simulation result is coordination policies in income tax incentive, improving real sector risk information and abolishing performing loan provision regulation