EXPLORING HOW NON-PERFORMING LOAN, NET INTEREST MARGIN, LOAN TO DEPOSIT RATIO, LIQUIDITY COVERAGE RATIO AND CAPITAL ADEQUACY RATIO RELATE TO RETURN ON ASSET IN 19 INDONESIAN COMMERCIAL BANKS FROM 2005-2014

• Main Author: Putra Pratama Sofyan, Yuvizar
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/72459
• Institution: Institut Teknologi Bandung

Nowadays, banking industry is growing rapidly, especially in Indonesia. There are so many banks spread across Indonesia. It makes tight competition among banks. Banks have two main business activities, there are raising funds and accepting credit/loans. From these two main activities, banks earn income or often called interest margin. Interest margin is the gap between the interest income that received by bank and the interest cost of its borrowed funds (Rose & Hudgins, 2010). The primary goal of bank is generating profits. However, it is not easy to generate profits due to several problems and risks that faced by bank in running its business. Therefore, this research aims to reveal the relationships of aspects in bank business activities that represented by Non- Performing Loan, Net Interest Margin, Loan to Deposit Ratio, Liquidity Coverage Ratio, and Capital Adequacy Ratio toward Return On Asset as the determinant of profitability. The data of this research obtained from the monthly reports of 19 Indonesian commercial banks that categorized in Bank Umum Kegiatan Usaha (BUKU) 3 and BUKU 4 from 2005 to 2014.BUKU III is banks which have capital between five to thirty trillion rupiah and BUKU IV has capital more than thirty trillion rupiah. The research is conducted using panel data regression with fixed effect method to know which variables that have relationship toward Return On Asset. The results indicate that Net Interest Margin, Non-Performing Loan, Loan to Deposit Ratio, and Capital Adequacy Ratio have significant effect toward Return On Asset. But in contrary, only Liquidity Coverage Ratio has no significant effect toward Return On Asset. Furthermore, Net Interest Margin, Capital Adequacy Ratio, and Liquidity Coverage Ratio have positive relationship toward Return On Asset, while Non- Performing Loan and Loan to Deposit Ratio have relate negatively toward Return On Asset. Banks should consider several aspects such as loans, third party funds, high quality liquid asset, and capital in order to earn bigger profits.