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The Determinants of Successful Bank Profitability in Indonesia : Empirical Study for Provincial Government’s Banks and Private Non-Foreign Banks

Author

Listed:
  • Mokhamad Anwar

    (Department of Management and Business, Faculty of Economy, Padjadjaran University)

  • Aldrin Herwany

    (Department of Management and Business, Faculty of Economy, Padjadjaran University)

Abstract

The purpose of this research is to investigate factors that determine Commercial Bank’s Performance and Profitability, especially among Provincial Government’s Banks and Private Non-Foreign Exchange Banks in Indonesia for the period of 1993-2000. Return on Assets and Return on Equity were used as the proxies for the profitability. This research applies cross sectional and pooled data. Data was obtained from Indonesia Banking Directory which was published by Bank Indonesia. This paper studies some financial ratios particularly used in banking Industry and some macroeconomic indicators which are hypothesized significantly affecting the profitability. Macroeconomic Indicators are also used to assess the degree of relationship among variables and their fluctuations. Statistics and econometrics are employed to find the fittest model. The result of this research has shown that TETA (Total Expenses to Total Assets and CRTA (Capital and Reserves to Total Assets) dominantly and consistently affect ROA and ROE. In General, it can be concluded that cost management, capital adequacy, and assets and liabilities management are the most important factors that determine the bank’s profitability.

Suggested Citation

  • Mokhamad Anwar & Aldrin Herwany, 2006. "The Determinants of Successful Bank Profitability in Indonesia : Empirical Study for Provincial Government’s Banks and Private Non-Foreign Banks," Working Papers in Business, Management and Finance 200601, Department of Management and Business, Padjadjaran University, revised Jan 2006.
    • Handle: RePEc:unp:wpaman:200601
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    File URL: http://lp3e.fe.unpad.ac.id/wpaman/200601.pdf
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    References listed on IDEAS

    as
    1. Berger, Allen N, 1995. "The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 404-431, May.
    2. Lloyd-Williams, D. M. & Molyneux, Phil & Thornton, John, 1994. "Market structure and performance in Spanish banking," Journal of Banking & Finance, Elsevier, vol. 18(3), pages 433-443, May.
    3. Gary Whalen, 1987. "Concentration and profitability in non-MSA banking markets," Economic Review, Federal Reserve Bank of Cleveland, issue Q I, pages 2-9.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Arief Putranto & Aldrin Herwany & Erman Sumirat, 2012. "The Determinants Of Commercial Bank Profitability In Indonesia," Working Papers in Business, Management and Finance 201202, Department of Management and Business, Padjadjaran University, revised Dec 2012.

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    More about this item

    Keywords

    profitability; ROA; ROE;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General

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