THE INFLUENCE OF CREDIT RISK AND LIQUIDITY RISK ON BANK STABILITY

This research analyzes two fundamental risks that affect the bank stability, such as credit risk and liquidity risk. We used sample, taken from 28 conventional banks in Indonesia during 2013-2017 to analyze the effects of credit risk, liquidity risk and their interaction to the default probability and the reciprocal relationship between these two risks. The results of this study using panel data regression showed that credit risk had a negative effect on default probability, while liquidity risk and the interaction of credit risk and liquidity risk had positive effect on default probability. Through the simultaneous equation models showed that credit risk and liquidity risk did not influence each other, or there was no reciprocal relationship.Keywords: bank stability; credit risk; liquidity risk; control variables; default probability