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The Impact of Financial Ratios, Operational Efficiency and Non- Performing Loan Towards Commercial Bank Profitability

Author

Listed:
  • Fiola Christaria

    (Universitas Multimedia Nusantara, Indonesia Author-2-Name: Ratnawati Kurnia Author-2-Workplace-Name: Universitas Multimedia Nusantara, Indonesia)

Abstract

"Objective � The objective of this paper is to determine the impact of Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), Operational Efficiency proxies by Operational Expense to Operating Income Ratio (BOPO) and Non- Performing Loan (NPL) towards bank profitability proxies by Return on Assets (ROA). Methodology/Technique � Purpose sampling is applied to gather samples of the banking sector that was listed on the Indonesia Stock Exchange for the period of 2012 - 2014. Multiple regression analysis was used to analyse data. Findings � The F test result shows that CAR, LDR, BOPO, and NPL simultaneously, have a significant impact towards ROA. This means that the model can be used to predict bank profitability. It is also deduced that Operational Efficiency proxies by Operational Expense to Operating Income Ratio has a significant impact towards banking profitability. Novelty � This paper suggests that banks perform lending selectively and banks maintain the level of non-performing loans to be low in order to manage the risks and to improve their profitability as a means of increasing public confidence level."

Suggested Citation

  • Fiola Christaria, 2016. "The Impact of Financial Ratios, Operational Efficiency and Non- Performing Loan Towards Commercial Bank Profitability," GATR Journals afr116, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:afr116
    as

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    Citations

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    Cited by:

    1. Ayrton Psaila & Jonathan Spiteri & Simon Grima, 2019. "The Impact of Non-Performing Loans on the Profitability of Listed Euro-Mediterranean Commercial Banks," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 166-196.
    2. Alexandra Horobet & Magdalena Radulescu & Lucian Belascu & Sandra Maria Dita, 2021. "Determinants of Bank Profitability in CEE Countries: Evidence from GMM Panel Data Estimates," JRFM, MDPI, vol. 14(7), pages 1-23, July.
    3. Durguti Esat A., 2020. "Challenges of Banking Profitability in Eurozone Countries: Analysis of Specific and Macroeconomic Factors," Naše gospodarstvo/Our economy, Sciendo, vol. 66(4), pages 1-10, December.

    More about this item

    Keywords

    Capital Adequacy Ratio; Loan to Deposit Ratio; Non-performing Loan; Operating Expense to Operating Income; Return on Assets.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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