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Banking Profitability: How do the banking intermediary, secondary reserve, operational efficiency, and credit risk effect?

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  • Herry Achmad Buchory

    ("Sekolah Tinggi Ilmu Ekonomi Ekuitas, Jln. PHH. Mustopa No. 31, 40124, Bandung, Indonesia " Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

" Objective - A Bank is a financial institution that collects and distributes funds to the public to obtain Profitability. The Covid-19 pandemic has affected the economic sector, especially the banking sector. The intermediation function needs to run optimally, increasing investment in secondary reserves, decreasing operational efficiency, increasing credit risk, and reducing bank profitability. The research aimed to determine the effect of Banking Intermediation, Secondary Reserves, Operational Efficiency, and Credit Risk on Profitability at Regional Development Banks in Indonesia for the 2019 – 2022 period, partially and simultaneously. Banking Intermediation is measured by the ratio of credit to total third-party funds (Loan to Deposit Ratio/LDR), Secondary Reserve is measured by the percentage of securities held to third-party funds (TPF), Operational Efficiency is measured by the ratio of operating expenses to operating income (OEOI), Credit Risk is measured by Non-performing Loans (NPLs), and Profitability is measured by Return on Assets (ROA). Methodology – Descriptive and verification methods with a quantitative approach will be used in this study with secondary data from published financial reports from 22 Regional Development Banks in Indonesia. The data analysis technique used is multiple linear regression. Findings – The study's findings show that partially LDR has a positive and significant effect on ROA; Secondary reserve has a positive but not significant impact on ROA; OEOI and NPLs ratios have a negative and significant effect on ROA. While simultaneously, LDR, Secondary Reserve, OEOI Ratio, and NPLs substantially impact ROA. Novelty – Compared to previous studies, bank profitability is not only influenced by banking intermediation, operational efficiency, and credit risk but also by secondary reserves, although not significantly. Type of Paper - Empirical"

Suggested Citation

  • Herry Achmad Buchory, 2023. "Banking Profitability: How do the banking intermediary, secondary reserve, operational efficiency, and credit risk effect?," GATR Journals jfbr214, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:jfbr214
    DOI: https://doi.org/10.35609/jfbr.2023.8.2(1)
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    References listed on IDEAS

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    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. Juliana Stanley Isanzu, 2017. "The Impact of Credit Risk on the Financial Performance of Chinese Banks," Journal of International Business Research and Marketing, Inovatus Services Ltd., vol. 2(3), pages 14-17, March.
    3. Lorna Katusiime, 2021. "COVID 19 and Bank Profitability in Low Income Countries: The Case of Uganda," JRFM, MDPI, vol. 14(12), pages 1-19, December.
    4. Ughulu Stephen Ebhodaghe & Edogiawerie Nosa Monday & Musa Abdulai Alaikhue, 2023. "Credit risk management and deposit money banks’ profitability in Nigeria: A panel data regression approach," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 16(2), pages 53-64.
    5. Fatma Benchenna & Mohamed Djemoui Korichi, "undated". "Credit risk management and its impact on the profitability of Algerian banks: An applied study using Panel –Data model during the period 2009-2020," Review of Socio - Economic Perspectives 202303, Reviewsep.
    6. Bipasha Barua & Suborna Barua, 2021. "COVID-19 implications for banks: evidence from an emerging economy," SN Business & Economics, Springer, vol. 1(1), pages 1-28, January.
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    More about this item

    Keywords

    Banking Intermediation; Banking Profitability; Credit Risk; Operational Efficiency; Secondary Reserve.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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