BANK SPECIFIC DETERMINANTS OF BANK PROFITABILITY IN INDONESIA FOR THE PERIOD 2008-2019

• Main Author: Luthfi Utomo, Muhammad
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/57256
• Institution: Institut Teknologi Bandung

Bank is one of the most important financial intermediaries in Indonesia. Banks have an important role in the economy and are the significant driver of economic growth since banks are the financial intermediary institution that is responsible to mobilize public funds and support the development of a country through financing to the industries in the economy. Therefore, it is important to know and manage the determinants that affect performance of bank, so they can maintain and improve their performance. Bank performance can be seen from its profitability; hence banks need to be maintained profitable to keep operating and avoid the bank failure and its systemic impact on the economy. This study attempts to know the relationship between bank-specific variables of Liquid Assets to Total Assets (LATA), Non-performing Loans to Total Loans (NPLTL), Operating Cost to Operating Income (OCOI), Third-party funds to Total Assets (TPFTA), and Core Capital Tier 1 to Total Assets (TIER1TA) toward bank profitability by using Return on Assets (ROA) and Return on Equity (ROE) as the measure. The data used are 7 banks of Business Activity Commercial Bank (BACB) 4 category for the period 2008-2019 in quarterly frequency. The research uses panel data regression of the fixed-effects model to deal with cross-section and time-series data. The findings show that LATA is significant negative to ROA and ROE, NPLTL has a significant positive relationship with both ROA and ROE, OCOI has a significant negative relationship with ROA and ROE, TPFTA has a significant positive relationship with ROA and ROE, and TIER1TA is significant negative toward ROA and ROE. Banks should maintain their operating expense low, increase their interest income, and getting a source of funds with low cost to get more profit.