A Study on the Determinants of Credit Distribution in Conventional Banks

Abstract

ABSTRACT

Purpose — To examine theories and analyze previous studies on the determining factors of credit distribution in conventional banks. This review aims to understand the various aspects that act as determinants in the credit distribution process.

Design/methodology/approach — This research uses a literature review method by analyzing articles and journals from previous studies. It employs qualitative descriptive analysis. The criteria for selecting articles and journals are based on the relevance of the variables discussed, specifically variables that are the same or related to factors influencing credit distribution in conventional banks, with a research period within the last five years, i.e., 2020-2024.

Findings — Analysis of 7 articles/journals reveals that the main factors influencing credit distribution in conventional banks include Loan to Deposit Ratio (LDR), reflecting the bank's liquidity as an indicator of its ability to meet credit needs; Third-Party Funds (TPF) as the primary funding source indicating the bank's capacity for fundraising; Capital Adequacy Ratio (CAR) measuring capital adequacy to support credit activities; Non-Performing Loans (NPL) representing the quality of disbursed credit and the level of non-performing credit risk; Operational Expenses to Operating Income (OEOI) reflecting the bank's operational efficiency; and Interest Rates affecting customer credit demand.

Practical implications — This review provides insights for banks to improve TPF management and OEOI efficiency to support optimal credit distribution. Interest rate policies should be managed to increase credit demand without raising default risks. Moreover, CAR management and NPL control are critical to credit stability. For the public, this review highlights the importance of prudent financial management to avoid non-performing loans.

Originality/value — This review provides a new perspective on the determinants of credit distribution in conventional banks, particularly concerning the impact of liquidity and operational efficiency on the sustainability and optimization of credit.

Keywords — Loan to Deposit Ratio, Third-Party Funds, Capital Adequacy Ratio, Non-Performing Loans, Operational Efficiency, Interest Rates, Credit Distribution.

Pape Type — Literature Review.