The relationship between profitability and capital buffer in the Indonesian banking sector


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This study examines profitability as a mediating variable to explore variables that affect the capital buffer in commercial banks. The research population is conventional commercial banks operating in Indonesia, with an observation period of 2017–2020. A purposive sampling method was used, during which 90 observations were found. Data analysis used multiple regression and the Sobel test to test for the mediating role of profitability. The results show that profitability acts as a mediating variable for non-performing loans and the ratio of loans to deposits in the capital buffer. Therefore, it is suggested that banks must maintain their ability to generate profitability in order to avoid liquidity risk. Another finding that is also important for bank managers is that non-performing loans have a significant effect on reducing profitability, while loans to total assets have a positive impact. Loan-to-deposit ratio and income diversification are not significant to profitability. Profitability, debt-to-total assets ratio, and income diversification have a negative impact on the capital buffer. Non-performing loans are not significant, while the loan-to-deposit ratio has a significant positive impact on the capital buffer.

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    • Table 1. Data distribution
    • Table 2. Test of regression 1
    • Table 3. Test of regression 2
    • Table A1. Calculation data for the capital buffer component of Indonesian banks for 2017–2020
    • Conceptualization
      Gregorius N. Masdjojo, Bambang Sudiyatno
    • Investigation
      Gregorius N. Masdjojo, Titiek Suwarti
    • Methodology
      Gregorius N. Masdjojo
    • Visualization
      Gregorius N. Masdjojo, Titiek Suwarti
    • Writing – review & editing
      Gregorius N. Masdjojo, Cahyani Nuswandari, Bambang Sudiyatno
    • Validation
      Titiek Suwarti, Bambang Sudiyatno
    • Writing – original draft
      Titiek Suwarti
    • Data curation
      Cahyani Nuswandari
    • Formal Analysis
      Cahyani Nuswandari, Bambang Sudiyatno
    • Project administration
      Cahyani Nuswandari
    • Resources
      Cahyani Nuswandari
    • Funding acquisition
      Bambang Sudiyatno
    • Supervision
      Bambang Sudiyatno