IDEAS home Printed from https://ideas.repec.org/a/uii/journl/v8y2016i2p109-119.html
   My bibliography  Save this article

Modeling the profitability of commercial banks in Indonesia

Author

Listed:
  • Tri Wulandari
  • Lukytawati Anggraeni
  • Trias Andat

    (3 Management and Business Graduate Program, Bogor Agriculture Institute, Bogor, Indonesia.
    3 Management and Business Graduate Program, Bogor Agriculture Institute, Bogor, Indonesia.
    3 Management and Business Graduate Program, Bogor Agriculture Institute, Bogor, Indonesia.)

Abstract

This study examines the effect of lending on Micro, Small and Medium Enterprises (MSMEs) on the profitability of commercial banks in Indonesia. The profitability is meas- ured as Return-on-Assets (ROA) and Return-on-Equity (ROE). It covers the period of 2011 to 2014 using a panel data regression model. It finds that MSME loans have a positive impact on ROE. The internal factors that significantly influence the profitability of banks are MSME’s NPL (non-performing loan), the operational efficiency ratio (OER) and loan-to- deposit ratio (LDR), while external factors that significantly influence the profitability of banks are inflation, Gross Domestic Product (GDP) growth and the Bank Indonesia (BI) rate.

Suggested Citation

  • Tri Wulandari & Lukytawati Anggraeni & Trias Andat, 2016. "Modeling the profitability of commercial banks in Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 8(2), pages 109-119, April.
    • Handle: RePEc:uii:journl:v:8:y:2016:i:2:p:109-119
    DOI: 10.20885/ejem.vol8.iss2.art3
    as

    Download full text from publisher

    File URL: https://journal.uii.ac.id/JEP/article/download/6005/5763
    Download Restriction: no
    File URL: https://journal.uii.ac.id/JEP/article/view/6005/5763
    Download Restriction: no
    File URL: https://libkey.io/10.20885/ejem.vol8.iss2.art3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Demirguc, Asli & Huizinga, Harry, 1999. "Determinants of Commercial Bank Interest Margins and Profitability: Some International Evidence," The World Bank Economic Review, World Bank, vol. 13(2), pages 379-408, May.
    2. Piman Limpaphayom & Sirapat Polwitoon, 2004. "Bank Relationship and Firm Performance: Evidence From Thailand Before the Asian Financial Crisis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(9‐10), pages 1577-1600, November.
    3. Marianne Gizycki, 2001. "The Effect of Macroeconomic Conditions on Banks’ Risk and Profitability," RBA Research Discussion Papers rdp2001-06, Reserve Bank of Australia.
    4. Ahmad Aref Almazari, 2014. "Impact of Internal Factors on Bank Profitability: Comparative Study between Saudi Arabia and Jordan," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(1), pages 1-7.
    5. Piman Limpaphayom & Sirapat Polwitoon, 2004. "Bank Relationship and Firm Performance: Evidence From Thailand Before the Asian Financial Crisis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 31(9-10), pages 1577-1600.
    6. Vincent Okoth Ongore & Gemechu Berhanu Kusa, 2013. "Determinants of Financial Performance of Commercial Banks in Kenya," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 237-252.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ihsen Abid & Mohamed Goaied & Mouldi Ben Ammar, 2019. "Conventional and Islamic Banks’ Performance in the Gulf Cooperation Council Countries; Efficiency and Determinants," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 17(3), pages 623-665, September.
    2. Zhang, Huili & Chan, Kam C., 2018. "Bank shareholding and corporate cash management: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 44(C), pages 235-253.
    3. Limpaphayom, Piman & Rogers, Daniel A. & Yanase, Noriyoshi, 2019. "Bank equity ownership and corporate hedging: Evidence from Japan," Journal of Corporate Finance, Elsevier, vol. 58(C), pages 765-783.
    4. P. Thich D. & П. Тхих Д., 2017. "Детерминанты доходности банков: эмпирические данные из Вьетнама // Determinants of Banks’ Profitability: Empirical Evidence from Vietnam," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 5(4), pages 37-45.
    5. Pejman Ebrahimi & Maria Fekete-Farkas & Parisa Bouzari & Róbert Magda, 2021. "Financial Performance of Iranian Banks from 2013 to 2019: A Panel Data Approach," JRFM, MDPI, vol. 14(6), pages 1-15, June.
    6. Ozili, Peterson, K, 2016. "Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa," MPRA Paper 75856, University Library of Munich, Germany.
    7. Santosh Kumar Das & Khushboo Uppal, 2021. "NPAs and profitability in Indian banks: an empirical analysis," Future Business Journal, Springer, vol. 7(1), pages 1-9, December.
    8. Lin, Xiaochi & Zhang, Yi & Zhu, Ning, 2009. "Does bank ownership increase firm value? Evidence from China," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 720-737, June.
    9. Ameur Imane & Zerouti Messaoud & Bouchetara Mehdi, 2023. "Internal Determinants Of Profitability In Public Algerian Banks," Journal of Financial Studies, Institute of Financial Studies, vol. 8(Special-J), pages 95-116, June.
    10. Mehmed Ganić & BETÜL Ismić & Ognjen Riđić, 2015. "What drives the profitability of the banking sector? An Empirical evidence from Bosnia &Herzegovina," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 18(55), pages 39-56, March.
    11. Vithessonthi, Chaiporn, 2023. "The consequences of bank loan growth: Evidence from Asia," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 252-270.
    12. Francesco Fasano & Tiziana Rocca, 2024. "Does the bank-firm human relationship still matter for SMEs? The game-changing role of digitalization," Small Business Economics, Springer, vol. 62(1), pages 159-178, January.
    13. Eric Kofi Boadi & Eric Kofi Boadi & Yao Li & Victor Curtis Lartey & Victor Curtis Lartey, 2016. "Role of Bank Specific, Macroeconomic and Risk Determinants of Banks Profitability: Empirical Evidence from Ghana's Rural Banking Industry," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 813-823.
    14. Gorkittisunthorn, Maneeporn & Jumreornvong, Seksak & Limpaphayom, Piman, 2006. "Insider ownership, bid-ask spread, and stock splits: Evidence from the Stock Exchange of Thailand," International Review of Financial Analysis, Elsevier, vol. 15(4-5), pages 450-461.
    15. Mohamed Aymen Ben Moussa & Wiem Majouj, 2016. "Determinants of Bank Net Interest Margin: Case of Tunisia," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 5(3), pages 103-116, April.
    16. Tumer-Alkan, G., 2008. "Essays on banking," Other publications TiSEM 8d5ec521-4702-4e75-bc79-a, Tilburg University, School of Economics and Management.
    17. Ha Nguyen, 2023. "Credit Risk and Financial Performance of Commercial Banks: Evidence from Vietnam," Papers 2304.08217, arXiv.org, revised Apr 2023.
    18. António Pedro Soares Pinto & Mário Gomes Augusto & Pedro M. Gama, 2010. "Bank Relationships And Corporate Governance: A Survey Of The Literature From The Perspective Of Smes," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 65-85.
    19. Vithessonthi, Chaiporn & Tongurai, Jittima, 2015. "The effect of leverage on performance: Domestically-oriented versus internationally-oriented firms," Research in International Business and Finance, Elsevier, vol. 34(C), pages 265-280.
    20. Luo, Wei & Zhang, Yi & Zhu, Ning, 2011. "Bank ownership and executive perquisites: New evidence from an emerging market," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 352-370, April.

    More about this item

    Keywords

    Loan; return on asset; return on equity; commercial bank;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uii:journl:v:8:y:2016:i:2:p:109-119. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Yuliani (email available below). General contact details of provider: https://journal.uii.ac.id/JEP/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.