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The impact of credit and liquidity risk on bank financial performance: the case of Indonesian Conventional Bank with total asset above 10 trillion Rupiah

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  • Achsania Ruziqa

Abstract

This paper examines the impact of credit and liquidity risk on bank's financial performance. This study especially focuses on Indonesian Conventional Bank with total asset above 10 trillion Rupiah within 2007 to 2011. Bank financial performances are measured by return on asset, return on equity and net interest margin; credit risk are measured by non-performing loan ratio and liquidity risk are measured by liquidity ratio. Furthermore, this study also measured bank capital and bank size's effect on bank financial performance. The results show that credit risk has negative significant effect on ROA and ROE. While liquidity ratio was found having positive significant effect on ROA and ROE. The effect of bank capital is positively significant on ROA, ROE, and NIM, while bank size was only found to have negative significant impact on NIM. Both credit risk and liquidity ratio was found to have insignificant impact on NIM.

Suggested Citation

  • Achsania Ruziqa, 2013. "The impact of credit and liquidity risk on bank financial performance: the case of Indonesian Conventional Bank with total asset above 10 trillion Rupiah," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 6(2), pages 93-106.
    • Handle: RePEc:ids:ijepee:v:6:y:2013:i:2:p:93-106
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    Citations

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    Cited by:

    1. Hamdi, Helmi & Hakimi, Abdelaziz, 2019. "Does Liquidity Matter on Bank Profitability? Evidence from a Nonlinear Framework for a Large Sample," Business and Economics Research Journal, Uludag University, Faculty of Economics and Administrative Sciences, vol. 10(1), pages 13-26, January.
    2. Mosab I. Tabash & Eissa A. Al-Homaidi & Anwar Ahmad & Najib H.S. Farhan, 2020. "Factors affecting financial performance of Indian firms: an empirical investigation of firms listed on Bombay Stock Exchange," International Journal of Economic Policy in Emerging Economies, Inderscience Enterprises Ltd, vol. 13(2), pages 152-172.
    3. Omar Durrah & Abdul Aziz Abdul Rahman & Syed Ahsan Jamil & Nour Aldeen Ghafeer, 2016. "Exploring the Relationship between Liquidity Ratios and Indicators of Financial Performance: An Analytical Study on Food Industrial Companies Listed in Amman Bursa," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 435-441.
    4. Mahmoud Al-Rdaydeh & Ali Matar & Odai Alghzwai, 2017. "Analyzing the Effect of Credit and Liquidity Risks on Profitability of Conventional and Islamic Jordanian Banks," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(12), pages 1145-1155, December.
    5. Jamil Salem Al Zaidanin & Omar Jamil Al Zaidanin, 2021. "The impact of credit risk management on the financial performance of United Arab Emirates commercial banks," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 303-319, April.
    6. J. H. A. Аbu-Аlrop & I. A. Kokh, 2020. "Impact of Credit Risk on the Performance of Russian Commercial Banks," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 19(1), pages 5-18.
    7. Elie M. El Hokayem, 2024. "The Impact of Risk Taking and Institutional Quality on MENA Region Banking Performance," International Business Research, Canadian Center of Science and Education, vol. 17(1), pages 1-32, February.
    8. Sohail Farooq & Raza Muhammad Khan & Muhammad Akram Gilal, 2020. "Credit Risk and Profitability of Commercial Banks in Pakistan," Global Economics Review, Humanity Only, vol. 5(1), pages 75-89, March.
    9. Putri P. R. Marditia & James Xaverius & jeff Gerardo & Rya Terassa Manihuru & Ryan Ricardo, 2022. "Arrangement model for the implementation of pledge of shares execution for a public company by private sale to create sustainable economic development," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 11(1), pages 398-406, January.
    10. Rim Boussaada & Abdelaziz Hakimi & Majdi Karmani, 2022. "Is there a threshold effect in the liquidity risk–non‐performing loans relationship? A PSTR approach for MENA banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1886-1898, April.

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