The impact of banking risk on regional development banks in Indonesia
-
DOIhttp://dx.doi.org/10.21511/bbs.15(2).2020.12
-
Article InfoVolume 15 2020, Issue #2, pp. 130-137
- Cited by
- 1696 Views
-
253 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Financial performance of a bank represents its financial condition for a certain period of time, either in relation to fund raising or fund allocation, which is usually observed for several indicators, such as capital adequacy, liquidity, and bank profitability. In banking industries, profitability is the most accurate indicator to measure bank performance. Instruments used to measure profitability are Return on Equity (ROE) and Return on Assets (ROA). In this study, the impact of banking risk is analyzed using the ratio of Non-Performing Loans (NPL), Net Interest Margin (NIM), the Loan-to-Deposit ratio (LDR), and the ratio of Operational Cost to Operational Income (OCOI/BOPO) on financial performance of regional development banks in Indonesia. The data used in this study were obtained from the annual reports disseminated on the website of each bank. The number of samples includes 26 Indonesian regional development banks for 2013–2015. The study includes 4 hypotheses for testing. The results show that simultaneously, NPL, NIM, LDR, and OBOI/BOPO are significant to ROA; while NPLs are significant and negatively affect ROA, NIM is significant and positively affects ROA, LDR is not significant and negatively affects ROA, and OCOI/BOPO is significant and negatively affects ROA. This means the banks should minimize the ratio of NPLs, LDR, and BOPO, as they have a negative influence on ROA. Conversely, banks should maximize the ratio of NIM since the latter has a positive effect on ROA.
- Keywords
-
JEL Classification (Paper profile tab)G21, G32
-
References12
-
Tables3
-
Figures0
-
- Table 1. Definition of operational variables
- Table 2. Descriptive statistics
- Table 3. Regression result on the impact of NPL, NIM, LDR and BOPO on ROA of BPD banks in Indonesia
-
- Ericsson, J., & Renault, O. (2006). Liquidity and Credit Risk. Journal of Finance, 61(5), 2219-2250.
- Hempel, G., Coleman, A., & Smon, D. (1986). Bank Management Text and Cases. New York: Willey.
- Kalish, L., & Gilbert, R. A. (1973). The Influence of Bank Regulation on The Operating Efficiency of Commercial Banks. The Journal of Finance, 28(5), 1287-1301.
- Li, J., & Zinna, G. (2018) How Much of Bank Credit Risk Is Sovereign Risk? Evidence from Europe. Journal of Money, Credit and Banking, 50(6), 1225-1269.
- Petria, N., Capraru, B., & Ihnatov, L. (2015). Determinants of Banks’ Profitability: Evidence from EU 27 Banking Systems. Procedia Economics and Finance, 20, 518-524.
- Prasanjaya, A. A. Y., & Ramantha, I. W. (2013). Analisis Pengaruh Rasio CAR, BOPO, LDR dan Ukuran Perusahaan Terhadap Profitabilitas Bank Yang Terdaftar Di BEI. E-Jurnal Akuntansi, 4(1), 230-245.
- Sudiyanto, B., & Suroso, J. (2010). Analisis Pengaruh Dana Pihak Ketiga, BOPO, CAR, dan LDR terhadap Kinerja Keuangan pada Sektor Perbankan yang Go Public di Bursa Efek Indonesia (BEI). Dinamika Keuangan dan Perbankan, 2(2), 125-137.
- Tainio, R., Korhonen, P. K., & Santalainen, T. J. (2000). In Search of Explanation for Bank Performance – Some Finnish Data. Organization Studies, 12(3), 425-450.
- Tulung, J. E., & Ramdani, D. (2016). The Influence of Top Management Team Characteristics on BPD Performance. International Research Journal of Business Studies, 8(3), 155-166.
- Tulung, J. E., & Ramdani, D. (2018). Independence, size and performance of the board: An emerging market research. Corporate Ownership & Control, 15(2-1), 201-208.
- Usman, B. (2003). Analisis Rasio Keuangan Dalam Memprediksi Perubahan Laba Pada Bank-Bank di Indonesia. Media Riset Bisnis dan Manajemen, 3(1), 59-74.
- Veithzal, R., Basir, S., Sudarto, S., and Veithzal, A. (2013). Commercial Bank Management. Jakarta: Rajawali Pers.