Economic Globalization and Systemic Risks to Indonesian Banking Stability

Abstract

Economic globalization has significantly increased international market integration through trade, investment, and cross-border capital flows. This phenomenon has facilitated the entry of Multinational Corporations (MNCs) into developing countries such as Indonesia, strengthening capital inflows and technology transfer. However, it also presents challenges, including inequality and intense competition with domestic firms. The Indonesian banking sector, as the backbone of financial intermediation, exhibits notable vulnerability to external shocks, particularly during the COVID-19 pandemic, which amplified credit risks and pressured profitability. Systemic banking risk demonstrates a two-way relationship with macroeconomic conditions: economic downturns increase the potential for non-performing loans, while banking instability can further weaken the economy through credit freezes and asset price declines. The role of foreign investors is ambivalent; they enhance stability by providing capital and expertise, yet pose a significant risk of sudden capital outflows. This study employs a literature review method to examine globalization dynamics, the role of MNCs, systemic risk, and foreign investors in safeguarding the resilience of Indonesian banking.