Determinants Of Bank Funding Costs: From Msme Credit Perspective

This research aims to analyse the impact of MSME credit performance, fintech lending, and bank operating costs on banks' funding costs in Indonesia. Bank-level data and aggregate fintech lending growth were collected from secondary sources and analysed using Stata software. A total of 46 commercial banks and using quarterly data from 2018 to 2022. High MSME credit performance and fintech lending significantly increase banks' funding costs. This implies that the growth of fintech lending creates a wave of competition and takes a portion of earnings. Banks tend to incur less funding costs when MSME credit is underperforming. In the enterprise-level analysis, the performance of micro-enterprise credit shows a negative impact. Unfortunately, the study did not find any significant impact on operating costs. Finally, smaller, less capitalised and highly leveraged banks tend to pay more for funding. The research is limited to public data, so the information acquired is on the surface. Further research is required to dig deeper into other factors that can determine bank funding costs. This research contributes to enriching the finance and banking literature. Understanding these findings will consequently allow banks and regulators to evaluate policies and design strategies.