Forming Peer Groups for Banks in Indonesia: A Cluster Analysis Using Financial Statements in 2011 and 2019

Abstract

This study examines the forming of bank peer groups based on their business activities or strategies as reflected in the financial statements and compares the bank peer groups resulting from the study with the current bank peer groups (BUKU). Using the latest Audited Financial Statements and Quarter 4 Publication Financial Report of all commercial banks in Indonesia, this research provides an overview. This study uses K-means clustering using K-Means analysis to identify peer groups for banks using some different indicators from financial statements. Based on the clustering analysis, we discovered that grouping banks based on core capital is insufficient to adequately explain the bank business activity variation. The result of this study shows that attempts to group the bank's business model should use other indicators, apart from the bank's core capital. Finally, this study provides a recommendation for regulators and the banking industry to set a more proper basis for grouping banks in Indonesia to support the growth and development of the banking industry in Indonesia.

Keywords: Bank peer group, bank business activity, bank business model, cluster analysis, financial statements, regulators