Capital Buffer and Bank Risk-Taking: Evidence of Non-Linearity from Commercial Bank in Indonesia

Abstract :

Banks function as financial intermediaries and are inherently exposed to risk. Capital, particularly capital buffer, is one of the tools used to absorb such risks. Therefore, this study aims to examine the relationship between capital buffer and bank risk-taking levels, specifically focusing on the non-linear relationship among commercial banks in Indonesia. The data consists of annual data from Indonesian commercial banks from 2013–2023, excluding foreign bank branches and digital banks, with a sample size of 81 banks representing a total market share of 94%. The method employed is quantile regression. The result of the study shows that there is a non-linear and U-Shaped relationship between capital buffer and bank risk-taking among commercial banks in Indonesia.