Issues and challenges in the shaping of Indonesia’s banking landscape: A theoritical and empirical study

Various factors influence the actual shaping of a nation’s banking sector. Prevailing banking environment and government regulations are certainly most defining of the issues and challenges encountered in the process. The objective of the present article is to discuss the influence of turbulent banking environment and government regulations on banking performance in Indonesia. The source of data for this research is all the banks in Indonesia,particularly the Bank of Indonesia’s annual reports, and Indonesia’s banking statistics and banking directories. The study reveals that Indonesian banking performance is highly adaptable to, and flexibile with, banking environmental turbulence and government regulations, implying that developing innovative strategies is fundamental to improving banking performance. The concept of continuous improvement is thus important in creating a solid performancethrough which the company is required to be more active economically as well as effective and efficient. Such measures are expected to contribute to the formulation of diversification strategies, to deliver information about the influence of environmental turbulence and that of government regulations, and to provide a practical contribution to decision makers.