DETERMINANT OF BANK DYNAMIC CAPABILITY AND IMPLICATIONS ON THE PERFORMANCE OF SMEs CREDIT DISTRIBUTION
ERIE FEBRIAN
Associate Professor in Banking and Finance
Doctorate Program in Business Management
UniversitasPadjadjaran
MOKHAMAD ANWAR
Associate Professor in Banking
Faculty of Economics & Business
UniversitasPadjadjaran
LAYYINATURRABBANIYAH
Research Staff in Finance
Faculty of Economics & Business
UniversitasPadjadjaran
Abstract
There have been many studies conducted to examine the financing of UMKM. However, there has been no empirical investigating study of the factors determining the distribution of credit for SMEs operating in developing countries and not subject to specific governmental subjects. This research intends to fill the gap of the literature. This research observes 126 respondents and uses Partial Least Square approach. The results of the study show that key stakeholder factors, SMEs Management Capacity, Core Competence, and Market Orientation influence the establishment of SMES Credit Distribution Performancethrough dynamic bank capability.
Keywords:
SMEs credit distribution, Bank dynamic capability
1 INTRODUCTION
Increasing the role of SMES in the economy of a State requires vital support from financing. Blumberg and Letterie (2008) stated that in developing countries SMES generally depends on loan facilities, but the number is very limited. It can be a reflection of its supply-side and demand-side demand in the SMES credit sector. Banks face the constraints of prudential banking rules, while most SMESs have not met the banking standards in question. Kropp et al. (2009) stated that many microfinance institutions are effective in the distribution of SMES loans through trust of trust on the basis of social capital rather than physical capital. Meanwhile, according to Bank Indonesia (2011) the problem of SMES credit lies in the difficulty of the bank choosing a suitable borrower and debtor who can not provide collateral. Firer and William (2003), Mavridis and Kyrmizoglow (2005) emphasize the importance of the bank's dynamic capability in optimizing cost management. Johnson (2012) states the importance of key stakeholders to actively participate in order for the business to operate. Lestariningsih (2017) found similar conclusions on the management of SMES-based agricultural enterprises in Indonesia.
Nevertheless, no studies have been undertaken to assess the non-specific SME multi-finance financing determinants into the subject of government assistance. This study is trying to fill the gap of the literature. Based on a review of the results of previous studies, the study of SME financing can be sharpened by focusing on the determinants of the bank's dynamic capability. The determinants of the bank's dynamic capabilities include (1) Major Stakeholders covering all parties directly involved in SMES's credit distribution and performance operations, (2) SMES Management Capacity related to SMES management technical capability still low, (3) core competency which is one the competitive strength of banks in providing services in accordance with the specific needs of SMES management, (4) Market Orientation, where to enhance dynamic capability, banks need to set their target markets effectively and set strategies to achieve their performance targets.Specifically, this Research aims to explain the Influence of key stakeholders, SMES management capacity, core competencies, market orientation to the bank's dynamic capability in SMES credit distribution.
2 LITERATURE REVIEW
Bessis (2002) emphasizes a limiting procedure in the management of borrowing / financing by loan officers / financiers to avoid a loss that could harm a financial institution. However Dekker (2004) argues that the limitation of the role of loan officer / financing is not necessary, since the role of loan officer / finance will determine the repayment ability of borrowers who reduce the risk. Burton (2008) states the reason why lenders have the power to distribute more loans / financing to borrowers who have repayment commitments. On the other hand, Thomas (2009) states that on the SMES credit application, the borrower's ability is in view of the weakness of cash flow and the absence of assets that lead to loan arrears / financing arrears.
SMES management capacity is the ability of SMES management to fulfill requirements as SMES Credit borrower that can be fulfilled through education, entrepreneurship, motivation improvement, technical management improvement of SMES supported by government and executing bank in order to achieve SMES management welfare through SMES credit program. SMES managers as SMES credits with their entrepreneurial spirit bear the financial risk (Hisrich and Brush in Winardi, 2003) because they are required to return the amounts they have borrowed from the bank. To be able to fulfill its obligations, SMES credit borrowers will try to increase their capacity and require guidance and guidance from implementing Banks as SMES credit distributors. This is reinforced by the opinion of Berger and Udell (2002) states the relationship of loan facilities based on open and mutually trusting information between borrowers and lenders. Thus, SMES management with its capacity to fulfill its obligations as a debtor will influence the SMES credit bank which seeks to increase its dynamic capability in distributing loan / financing by taking into account the amount of loan needs, cash flow of debtor business and communication with the debtor.
The dynamic capability of banks as the ability of SMES credit banks to rearrange their resources and capabilities in order to better improve the performance of SMES loan disbursements.Sonnetag and Frese (2002) argue that performance has multidimensional and dynamic characteristics naturally with three major perspectives on SMES performance in research, ie situational perspective, individual differences perspective and regulatory performance perspective. Each perspective deals with specific performance improvement interventions. This shows that the bank's dynamic capability will affect the performance of SMES loan disbursement.
From the results of the study of the literature we formulate the following hypothesis:
H1: Key stakeholders have an effect on the bank's dynamic capability.
H2: SMES management capacity affects the bank's dynamic capability.
H3: Core competence affects the bank's dynamic capability.
H4: Market orientation affects the bank's dynamic capability.H5: Kapabilitasdinamis bank berpengaruhterhadapkinerjapenyalurankreditSMES.
3 RESEARCH METHOD
This research uses purposive sampling and qualitative and quantitative research methods. The samples are the customers of the banks spread in various cities / regencies in the province of West Java. Data collection was conducted through a survey with questionnaires to 200 respondents, interviews and direct observation, as well as reference studies. A total of 126 responses from the questionnaires were then processed in this research.
We also interviewed a number of informants based on the results of quantitative studies to gain perspective on statistical outcomes. The speakers at this stage are the branch managers of the implementing banks that are considered to understand SMES credit management.The concept of this research variable is described in Table 1.
Table1 Variables
Variable / Sub Variable (Dimensi) / SkalaMain stakeholder (X1) / Local government agencies concerned / Ordinal
Credit Insurance company / Ordinal
Customer / Ordinal
SMESManagement Capacity(X2) / Motivation / Ordinal
Core competence (X3) / Typical ability / Ordinal
Market orientation (X4) / Customer Orientation / Ordinal
Bank dynamic capability (Y) / Strategic capability / Ordinal
Innovation capability / Ordinal
Change management capabilities
Performance of SMES credit distribution (Z) / Loan performance / Ordinal
Manajemen SMES tepatsasaran / Ordinal
Kesejahteraanmanajemen SMES
Empirical data collected were then analyzed with Partial Least Square (PLS). Furthermore the standardized solution value of each variable latent will be calculated, followed by the test of significance.
4RESULTS AND FINDING
The results of Partial Least Squares (PLS) analysis in this research can be seen on picture 1:
Source: processed data
Picture 1 Relationship Among Variables
PLS result
The picture above shows that variable of Main Stakeholder consisting of 10 demension has outer loading actor between 0.72 up to 087. From these results it can be explained that in the observed banks, in main stakeholder variables, the government assistance dimension is the most important element contributing to the degree (level) of main stakeholder.In the context of SMEs management capacity variable, loading factors range from 0.72 to 0.86. This condition indicates that for this variable, motivation is a dimension that contribute greatly to organizational culture.
The dimension of Core Competency has the loading actor of 0.77. The dimension of core competency, the typical capability, hassignificant contribution to the variable. The variable of market orientation consisting of understanding of customer has loading actorof 0.64.Furthermore, the results show that 3 dimensions of dynamic capability haveouter loading actors that range from 0.838. From the analysis, the dimensions of strategic capability has the greatest contribution compared to other dimensions.In the context of SMEs credit distribution, dimensions of loan performance that have 4indicators range from 0.675 to 0.855. The dimensions with the lowest loading actor are recorded in the dimensions of SMEs owner prosperity.
Average Variance Extracted (AVE) results for the PLS model in this study can be seen in Table 2.Table 2 shows that all variables are reliable.
Table 2 Average Variance Extracted (AVE)
NO / VARIABLE / AVE1 / MAIN STAKEHOLDER / 0.61
2 / SMES MANAGEMENT CAPACITY / 0.65
3 / CORE COMPETENCY / 0.67
4 / MARKET ORIENTATION / 0.59
5 / BANK DYNAMIC CAPABILITY / 0.55
6 / SMES CREDIT DISTRIBUTION / 0.61
Source: processed data
Table 3Composite Reliabilty
NO / VARIABLE / Composite Reliability1 / MAIN STAKEHOLDER / 0.94
2 / SMES MANAGEMENT CAPACITY / 0.95
3 / CORE COMPETENCY / 0.89
4 / MARKET ORIENTATION / 0.87
5 / BANK DYNAMIC CAPABILITY / 0.85
6 / SMES CREDIT DISTRIBUTION / 0.86
Source: processed data
The result of composite reliabilty test shows that all research variables are reliable.
Table 4Cronbach’s Alpha
NO / VARIABLE / Cronbach’s Alpha1 / MAIN STAKEHOLDER / 0.93
2 / SMES MANAGEMENT CAPACITY / 0.94
3 / CORE COMPETENCY / 0.84
4 / MARKET ORIENTATION / 0.82
5 / BANK DYNAMIC CAPABILITY / 0.79
6 / SMES CREDIT DISTRIBUTION / 0.78
Source: processed data
In this study prove the influence of main stakeholder toward credit istribution through bank dynamic capability with coefficient of 0.120 and significant at 5 percent. Meanwhile, core competence also affect the change of credit distribution through management capacirtof 0.077 and significant at 10 percent.
The findings of this research revise some of the findings from previous studies in between. Fok, yuan-chen, wan-tuz (2004) research shows that bank reputation and bank lending capacity is the determinant of bank competition strategy.
5 CONCLUSIONS
There have less sufficient studies carried out to investigate the determinants of credit distribution to SMEs, particularly in developing country. This study aims to fill in the literature gap. This study conducted a survey on 126 credit decision makers in banks operating in West Java Indonesia and employed PLS approach to answer the research questions. The result shows that main stakeholder, management capacity of SMEs,bank core competence and market orientation of banksdetermine the credit distribution of banks to SMEs through their dynamic capability.
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