Structural equation modeling to evaluate the financial performance of Indonesian conventional commercial banks

In this research, the authors proposed a new method to evaluate borrowers’ credit risk and quality of financial statements information provided. They use qualitative and quantitative criteria to measure the quality and the reliability of its credit customers. Under this statement, the authors evaluate 35 features that are empirically utilized for forecasting the borrowers’ credit behavior of a Greek Bank. These features are initially selected according to universally accepted criteria. A set of historical data was collected and an extensive data analysis is performed by using non parametric models. Our analysis revealed that building simplified model by using only three out of the thirty five initially selected features one can achieve the same or slightly better forecasting accuracy when compared to the one achieved by the model uses all the initial features. Also, experimentally verified claim that universally accepted criteria can’t be globally used to achieve optimal results is discussed.

This study investigates the effect of credit risk and macroeconomic factors on profitability of 20 ASEAN banks, particularly from Indonesia, Malaysia, Thailand and Philippines, covering the period of 2012 to 2017. The unbalanced panel data were tested for heteroscedasticity and normality. A fixed effects model and a random effects model were utilized followed by simple ordinary least squares (OLS) regression. The obtained results show that credit risk and GDP growth negatively affect Return on Equity (ROE) at 5% level of significance. The inflation rate increases ROE by 0.323%. In terms of influence, inflation has the highest impact on ROE followed by GDP growth and credit risk. Credit risk and GDP growth negatively affect Return on Assets (ROA) at 5% level of significance. ROA was also influenced by an increase in inflation rate. Therefore, this study will help banks and bank managers, depositors, investors, policy makers and governments to identify factors affecting bank profitability.

This paper examines the macro-economic and bank-specific factors affecting non-performing loans in commercial banks. Using 47 listed commercial banks from six countries, namely 19 banks from Nigeria, 14 banks from Benin, 3 banks from Burkina Faso, 3 banks from Gambia, 3 banks from Guinea, and 5 banks from Liberia for the period 2008 to 2019, fixed and random effect model was used. The Hausman test favored the selection of fixed effect model, and it was found from the estimation that the liquidity ratio, capital adequacy ratio and inflation rate significantly affect non-performing loans. As a result, it is advised that banks depend not only on their ability to achieve the capital adequacy ratio, but also guarantee that loans are thoroughly scrutinized before being issued to beneficiaries. Bank managers should guarantee that banking staff is not simply awarding loans to secure their jobs by accumulating deposits from consumers at the price of the bank’s long-term stake. In addition, the economies of West Africa should keep their inflation rates low so that repayment of loans on time is cheap and realistic.

Acknowledgment
I would like to appreciate Fezile Nonjabulo Gcwabaza for love and support throughout this research project.