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Jurnal Ekonomi Malaysia

59 (2) 2025 –

The Role of Competition and Size on Zombie Rural Banks in Indonesia

School of Accounting
Bina Nusantara University
Jl. Jalur Sutera Bar. No.Kav. 21, RT.001/RW.004
Panunggangan, Kec. Pinang, Kota Tangerang, Banten 1514, INDONESIA.

rahmat.siauwijaya@binus.ac.id

School of Accounting
Bina Nusantara University
Jl. Jalur Sutera Bar. No.Kav. 21, RT.001/RW.004
Panunggangan, Kec. Pinang, Kota Tangerang, Banten 1514, INDONESIA.

claudya.izumi@binus.ac.id

School of Accounting
Bina Nusantara University
Jl. Jalur Sutera Bar. No.Kav. 21, RT.001/RW.004
Panunggangan, Kec. Pinang, Kota Tangerang, Banten 1514, INDONESIA.

verin.tiana@binus.ac.id

School of Accounting
Bina Nusantara University
Jl. Jalur Sutera Bar. No.Kav. 21, RT.001/RW.004
Panunggangan, Kec. Pinang, Kota Tangerang, Banten 1514, INDONESIA.

grisherra.valeryandra@binus.ac.id

Abstract

This study aims to identify rural banks categorized as “zombies” and explore how competitiveness level and bank size affect their likelihood of becoming zombies. This study uses data from rural banks spanning 2015 to 2022 and applies logistic regression analysis on balanced panel data. Findings indicate that increasing competitiveness among rural banks reduces their likelihood of becoming zombies, while larger bank size increases this risk. Specifically, a 1 percent increase in competitiveness decreases the probability of rural banks becoming zombies by 15–17 percent, whereas a 1 percent increase in bank size can increase this probability by 29–88 percent. Province-level analysis also identifies specific provinces that strongly influence zombie information. Robustness tests using the Panzar–Rosse H-statistic confirm the negative competition effect, although statistical significance is concentrated in one zombie definition, thereby validating the main results. Instrumental variable estimates that use provincial banking density as an instrument indicate that potential endogeneity is limited and does not materially bias the conclusions. Moreover, the competition effect is markedly stronger on the island of Java, and Banten emerges as a provincial hotspot for zombie rural banks, underscoring geographic heterogeneity in the phenomenon. This study expands existing literature by considering regional differences and exploring the impact of competition and bank size on rural banks within and outside the island of Java. The findings of this study suggest that policymakers and regulators need to carefully monitor rural banks and enhance regulation and supervision to mitigate the risk of zombie bank formation. The insights provided can also be implemented to improve the stability and sustainability of the banking sector.

Keywords

competition; instrumental variable; Rural bank; size; zombie
http://dx.doi.org/10.17576/JEM-2025-5902-12
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Siauwijaya, R., Izumi, C. C., Tiana, V. D., & Valeryandra, G. (2025). The Role of Competition and Size on Zombie Rural Banks in Indonesia. Jurnal Ekonomi Malaysia, 59(2), –. http://dx.doi.org/10.17576/JEM-2025-5902-12

@article{siauwijaya2025the,
  title={The Role of Competition and Size on Zombie Rural Banks in Indonesia},
  author={Siauwijaya, Rahmat and Izumi, Claudya Calvina and Tiana, Verin Dwi and Valeryandra, Grisherra},
  journal={Jurnal Ekonomi Malaysia},
  volume={59},
  number={2},
  pages={—},
 

year={2025},
}

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