Noer Azam Achsani

Dynamic Causal Links between the Russian Stock Exchange and Selected International Stock Markets

This paper analyses the causal relationships and dynamic links between the Russian stock exchange with other Central and East European as well as some important international commercial centres between August 1994 to February 2001. We use the data of the corresponding stock market indices.

The Impacts of ALMA Primary Variables on Profitability: An Empirical Study of Indonesian Banking

INTRODUCTION Indonesian Statistic Banking reported that during the period of 2001-2014 the ALMA indicators of Indonesian banking is in the proper conditions. This can be seen from the dynamic development of asset-liability structure and the integrated banking earnings structure in the behavior and performance of the banking management of which is growing rapidly. The national banking assets showed the total assets increased significantly over the period of 2001-2014. In 2001, the amount of total assets reached 1,099,699 billion, then it rose to 1,469,827 billion (2005). In 2010, the amount of total assets increased to 3,008,853 billion and by the end of 2014 it finally reached 5,615,149 billion. Furthermore, in terms of its asset structure, LAR ratio (loan to asset ratio) that describes the proportion of the volume of bank credit in the assets, which only reached 28.7% (2001), then it Vol. 8 | No. 1 ISSN: 2089-6271 8-1.indd 13 5/26/16 10:12 AM 14 International Research Journal of Business Studies vol. VIII no. 01 (2015) increased to 47.3% in 2005. In 2010, LAR ratio is at 56.9%, and at the end of 2014 it rose again to 62.8%. This indicates that the performance of banks is in the form of lending increased both in nominal and proportional, although it still needs to be improved. The non-credit productive assets proportion has a decline. In 2001, the value of non-credit productive assets reached 66.57% (from the value of total assets in current year). In 2005, it fell to 43.82%, then in 2010 it dropped again to 34.96% until at the end of 2014 it fell further to 26.32%. This indicator gives information of the allocation of financial resources from non-credits productive assets to loan. Unexpectedly, the growth of non-productive assets had an increment. The proportion of nonproductive assets in 2001 was only 4.69%, and it became 8.85% in 2005, while in 2010 declined again to 8.18%. Finally, in the end of 2014, in increased to 10.88%. This indicates in the assets growth, the national banking still needs the portfolio assets to be optimized. From the financial structure, it can be seen the TETA (the proportion of total equity in bank assets) ratio had an increment. In 2001, TETA reached 5.06% while in 2005 it increased again to 6.79%. In 2010, TETA reached 10.91%. In the end of 2014, it finally increased again to 12.86%. Then, from the point of view of funding activity, there is an increment in nominal. However, from the DTA (deposit proportion in assets) point of view, there is a decline. In 2001, DTA was at 87.06 %. In 2005, it dropped to 79.33%. In 2010, DTA reached 75.59%. Finally, in the end of 2014, TA increased to 70.23%. Meanwhile, DP2TA (proportion of second party fund of assets) had an increment. In 2001, DP2TA was at 7.87%. In 2005, it reached 13.87%. However, in 2010 it declined slightly to 13.49%. Finally, in the end of 2014, it increased again to 16.91%. This financial structure of bank condition gives the information that Indonesian banking has a good achievement of its performance in distributing the fund from surplus unit. The management of Indonesian banking also has a good achievement of its solvability. Based on the profit and loss of national banking, the total revenue (operational income) has an increment. In 2001, the total revenue was only at 152.435 billion, then in 2005 it increased to 177.377 billion. In 2010, it reached 350.873 billion and in the end of 2014 it increased to 716.452 billion. Based on the structure, the interest income still dominated the total revenue. In 2001, the II/ REV ratio (proportion of interest income of total revenue) reached 84.2%. In 2005, it dropped to 75.27%. In 2010, it decreased again to 71.69%. The other proportion of total revenue is fee based income. This indicates that Indonesian banking still depends on the primary income, which is operating income. Meanwhile fee based income still has the small role in Indonesian banking. The structure of profit shows the proportion of interest expense, overhead cost, and operating profit which are calculated by the total revenue. In 2001, IE/Rev (proportion of interest expense of total revenue) is at 59.36%, while the NIE/ Rev (proportion of non-interest expense of total revenue) is at 39.11%. The other is operating profit which was at 1.49%. In 2005 the IE/Rev dropped to 35.27% while NIE/Rev also increased to 53.04%, then the operating profit increased to 11.68%. In 2010, the IE/Rev dropped again to 29%, while NIE/ Rev increased again to 57.22%, then operating profit increased to 13.77%. In the end of 2014, IE/Rev increased to 41.01%, NIE/Rev dropped to 38.92%, operating profit increased to 20.05%. This indicates that management of banking industry can increase profit margin by utilizing the efficiency of operational expense. To maintain and protect Indonesian banking industry, Bank Indonesia as the central bank and the supervisor has the policy of banking industry future development which is stated in API (Indonesian Banking Architecture). The API programes is based on the vision to reach a healthy banking system, powerful, and efficient in order to 8-1.indd 14 5/26/16 10:12 AM 15 Sapto Jumono, Noer Azam Achsani, Dedi Budiman Hakim, Muhamad Firdaus / The Impacts of ALMA Primary Variables on Profitability / 13 32 An Empirical Study of Indonesian Banking create the financial system stability and to help the national economic growth. Nowadays, Bank Indonesia use two approaches of supervision, which are compliance based supervision and risk based supervision (RBS). The existence of the RBS approach does not mean ruling out based compliance approach, it tends to focus on enhancing surveillance systems therefore it can improve the efficiency and effectiveness of banking supervision. The management of assets and liability (ALMA) is the banking control system which aims to reach one of banking objectives which is creating stability of financial system. ALMA also becomes the main focus in every banking management. Even Bank for International Settlement (BISC) has adopted ALMA principles into CAMELS (Capital Adequacy, Assets Quality, Management Quality, Earnings, Liquidity, Sensitivity to Market Risks). CAMELS is already used on international banking industry in controlling banking system. It focuses on management control of capital, assets, profitability, liquidity, and sensitivity in facing the market volatility. If a bank does not concern about ALMA principles in its operational activity, then it is expected to have a bad performance. Applying ALMA principles in operational banking makes management can anticipate the volatility changes of level of market interest, structure of funding sources, increment of capital requirements, tighter competition, the development of information systems, the increasing role of banks, the availability of funds in the money market, changes in the composition of bank assets, the increment of performance, and increment of overhead costs. The objective of ALMA is to make the portfolio consistent, coordinated, and integrated from the side of assets and liability in order to maximize profit so the management decisions of assets and liabilities can be integrated. The ALMA dilemma or the main problem of banking management in ALMA implementation is how to solve the dilemma between liquidity and safety along with the ability of bank to increase profit. It is called liquidity safety versus earnings which is related to trust. A bank can be operated from the trust of citizen, the bigger the trust the bigger the existence of bank in the industry. The trade-off between liquidity with profitability is based on the argument than investment in shortterm funding gives the opposite effect to liquidity and profitability. Even though the investment in liquid assets can increase the liquidity, but it can not generate the profit as much as the investment in fixed assets. Then, even though the funding which comes from the liquid liabilities is cheap and more promising from the profit, but it has a higher risk. Based on this condition, the implementation of ALMA becomes a significant thing in banking operational management. If a bank does not concern on the trust development and always tends to reach higher profit, then the bank is in the state of wrong governance. The wrong banking liquidity management will make a liquidity crisis. The signs of that condition is the percentage of LDR reach 100%, becomes a money centre bank, compliance to reserve provision (should be greater), excessive credit expansion, the weakening of the management of secondary reserve, and evergreen loan. The liquidity risk is not only impacting the performance, but also affects the reputation (Jenkinson, 2008). A bank can lost the trust from depositors of the fund is not distributed on time. The bad liquidity position can make the regulators have sanctions. Therefore, the management should maintain the liquidity position to be in the right track. Akhtar (2007) stated that the liquidity risk has became the main focus and challenge for the modern bank. The tight competitiveness in attracting depositors, the product variances using technologies, those thing change the structure of 8-1.indd 15 5/26/16 10:12 AM 16 International Research Journal of Business Studies vol. VIII no. 01 (2015) funding management based on the risk. Crowe (2009) stated the bank which has the good assets quality, strong income and adequate capital, may fails if it can not maintain the liquidity. The danger of this mismanagement is the liquidity crisis. It a reputation that was built since many years prior can suddenly crumble only in a day simply because the bank is unable to meet the obligations in the maturity day. Why does this happen? Because liquidity is the trust. Liquidity management is the most fundamental thing for the banks, but top management often forgets about it because the always tends to make a large profit for the short term. From the empirical data and obs