The impact of banking risk on regional development banks in Indonesia

  • Received December 9, 2019;
    Accepted April 16, 2020;
    Published June 3, 2020
  • Author(s)
  • DOI
  • Article Info
    Volume 15 2020, Issue #2, pp. 130-137
  • Cited by
    6 articles

Creative Commons License
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.

view full abstract hide full abstract
    • 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
    • Conceptualization
      Herman Karamoy, Joy Elly Tulung
    • Data curation
      Herman Karamoy, Joy Elly Tulung
    • Project administration
      Herman Karamoy
    • Supervision
      Herman Karamoy
    • Validation
      Herman Karamoy
    • Visualization
      Herman Karamoy, Joy Elly Tulung
    • Writing – review & editing
      Herman Karamoy, Joy Elly Tulung
    • Formal Analysis
      Joy Elly Tulung
    • Investigation
      Joy Elly Tulung
    • Writing – original draft
      Joy Elly Tulung