THE DETERMINANTS INFLUENCING LIQUIDITY RISK USING LOAN FUNDING RATIO (LFR) : CASE STUDY ON 19 COMMERCIAL BANKS IN INDONESIA YEAR PERIOD 2008-2014

• Main Author: Savitri, Ganes
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72344
• Institution: Institut Teknologi Bandung

Liquidity management is a relatively complex problem in the operations of the bank. Due to the outrage and loss in financial markets due to the financial crisis in 2008, to better understanding the concept of liquidity as its relation with another financial risk determining the determinant of it is vital. Financial institutions liquidity is crucial to the economic excellence of a country. The aim of this paper is to identify the determinants of liquidity risk using Loan to Funding Ratio (LFR) which is an adjusted ratio from Loan to Deposit Ratio based on Bank Indonesia Regulation Number 17/11/PBI/2015. This rule requires banks to place liquidity in the form of securities to maintain the liquidity of banks in Indonesia. The liquidity problem may arise when the bank could not liquefy the money to give it back to the depositors The analysis is performed using secondary data that published by Financial Service Authority in the period of January 2008 until December 2014. The data banks that are used in this research is 19 banks, which has capital of at least IDR 5 trillion and included in Bank Activity of Commercial Bank (BACB) 3 & 4. This study used multiple linear regression performed by Eviews Program for analysing the data. With Loan Funding Ratio as the dependent variable this study aim to find the correlation and how significant the impact of Earning Asset Quality Category (Current Earning Asset, Special Mention Earning Asset, Substandard Earning Asset, Doubtful Earning Asset, Loss Earning Asset), External Funding Ratio (EFR), and Capital Adequacy Ratio (CAR). The result has revealed that the CTEA, SMTEA, SSTEA, DTEA, EFR, and CAR is significant to Loan Funding Ratio (LFR) and LTEA has no significant relation to LFR. CTEA and SMTEA have a positive and significant relationship with LFR. SSTEA, DTEA, EFR, and CAR has negative and significant relation with LFR. This research indicates the six independent variables (CTEA, SMTEA, SSTEA, DTEA, EFR, and CAR) could define 58.96% of LFR as the dependent variable, while 41.04% is explained by others variables. To maintain the Loan Funding Ratio (LFR), the banks need to maintain their earning assets quality (from current to doubtful earning assets), External Funding Ratio, and Capital Adequacy Ratio.