Foreign Ownership and Access to Bank Services in Indonesia

This study aims to analyze the effect of the presence of foreign banks on the access to bank services—in term of the number of automatic teller machines (ATMs), branch offices, and the allocation of credit distribution by banks—to micro, small, and medium enterprises (MSME) in Indonesia. We use data from 63 commercial banks in Indonesia spanning eight years, from 2010 to 2017. We apply a panel data regression to conduct the estimation. This research found that the foreign ownership percentage of a bank does not have a significant effect on the number of ATMs. However, the effect on banks’ branch offices is negative and significant. Moreover, the foreign ownership percentage has a negative influence on MSME lending. Foreign banks’ method of entry through the acquisition of domestic banks or takeovers does not have a significant effect on the number of ATMs owned by banks. However, the effect is significant and positive on banks’ branch offices. A greenfield method was found to have a significant influence on banking accessibility, as illustrated through the number of ATMs owned by banks; however, this effect did not occur for the number of bank branch offices and MSME lending.