The Impact of Financial Conglomeration on Risk and Return Performance in Indonesia Banking Industry

Abstract

There is a tendency in financial market that occurs in many countries, in which some financial institutions formed to be conglomerate of financial institutions. They are created by combining a variety of financial services including commercial banking, insurance services and securities businesses into one company. The financial conglomerate is driven by the trend of globalization of trade, the development of technology and deregulation that led to the consolidation of cross-sector businesses. Conglomeration of financial institutions also occurred in Indonesia with the holding usually the bank holding company (BHC). According to Financial Services Authority (FSA), currently there are 31 financial institutions conglomerate operating in the Indonesian and control 77% of the financial institutions’ total assets. The conglomerate banks have several subsidiaries engaged in Islamic banking sector, securities firms as well as insurance companies with a composition of different investments.