Banking Profitability: How does the Credit Risk and Operational Efficiency Effect?

Herry Achmad Buchory^1,

¹EKUITAS Economics College, Jl. PHH. Mustopa No. 31 Bandung 40124, Indonesia

Cite this paper

Herry Achmad Buchory. Banking Profitability: How does the Credit Risk and Operational Efficiency Effect?. Journal of Business and Management Sciences. 2015; 3(4):118-123. doi: 10.12691/JBMS-3-4-3

Abstract

The aim of this study was to analyze the effect of credit risk and operational efficiency to the banking profitability. Credit risk as measured by non performing loans (NPLs), operational efficiency as measured by ratio of operating expense to operating income (OEOI) and banking profitability as measured by return on assets (ROA). The method used is descriptive and verification method, with secondary data from financial statements of 26 Regional Development Bank in Indonesia as a research object units. Data analysis technique is the multiple linear regression, hypothesis testing while using T - test to examine the effect of partial variables and F - test to examine the effect of variables simultaneously with a significance level of 5 %. Based on the results, it is concluded that the partial, NPLs has positive and significant effect to ROA; While the OEOI has negative and significant effects to the ROA Simultaneously that variable of NPLs and OEOI significantly influence to ROA variable with the level of 57.1%, while the remaining 42.9% thought to be influenced by other variables not examined in this study.

Keywords

non-performing loans (NPLs), ratio of operating expenses to operating income (OEOI), return on assets (ROA)

Copyright

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References

[1]	Adeusi, Stephen Oluwafemi and Funso Tajudeen Kolapo (2014). Determinats of Commercial Banks’ Profitability : Panel Evidence From Nigeria; International Journal of Economics, Commerce and Management, II (12), p. 1-18.
[2]	Ahmad, Muhammad Ishfaq, Mudassar Hassan, Rizwan Ali & Ramiz ur Rehman (2014). Non-Performing Loans and Growth & profitability of Pakistani Banking Sector, Elixir International Journal (2014), 70, p. 24090-24091.
[3]	Arimi, Millatina (2012). Analyze of Influence Factors Banking Profitability: Study of public banking listed at Indonesian Stock Exchange during 2007-2010. Skripsi, Economic and Business Faculty, Diponegoro University, Semarang.
[4]	Artarina, Octa, et.al (2013). Factors of the Rentability on Rural Bank in Blora Regency. Journal of Accounting Dinamic, Finance and Banking, 2 (1), p. 44-51.
[5]	Bank Indonesia, Circular Letter (SE) No. 13/24/DPNP on October 25th, 2011, Subject: Valuation of Level Commercial Bank Soundness.
[6]	Bank Indonesia Circular Letter (SE) No.6/23/DPNP/2005 subject: Rating System for Commercial Banks.
[7]	Buchory, Herry Achmad. (2006). The Influence of Financial Intermediary Function Implementation, Risk Management Application and Bank Capital Structure on Banking Financial Performance. Disertation, Economic and Business Faculty, Padjadjaran University, Bandung.
[8]	Buchory, Herry Achmad, (2015). Determinant of Banking Profitability in Indonesian Regional Development Bank. The First International Conference “Actual Economy : Local Solutions for Global Challenges : ACE-2015, 02-03 July 2015, Pataya, Thailand, Pp. 46-49.
[9]	Budiwiyono, Eko, (2012). BPD (Regional Development Bank) For Strength In Accelerating Implementation of Regional Autonomy: Prospects and Problems, Papers Presented at the National Seminar on Indonesian Economist Association, Yogyakarta, 2012.
[10]	Chatarine, Alvita and Putu Vivi Lestari (2014). The effect of asset quality (KAP), operating performance (OEOI) towards profitability (ROA) and capital adequacy ratio (CAR) of BPR in Badung regency. E-Journal of Management, Udayana University, Vo. 3 No. 2, 2014 P. 561-576.
[11]	Dendawijaya, L. (2009). Banking Management, Ghalia Publishing, Jakarta, Indonesia.
[12]	Eng, Tan Sau (2013). The Effect of NIM, Operational Efficiency Ratio (BOPO), LDR, NPL & CAR Toward ROA Of International And National Public Listed Banks For The Period Of 2007-2011, Journal of Dinamic Management, (l). 3 p. 153-167.
[13]	Financial Service Authority of Republic Indonesia, Indonesia Banking Statistics, Volume 13 No. 1 December, 2014.
[14]	Francis, Munyambonera Ezra (2013). Determinants of Commercial Bank Profitability in Sub-Saharan Africa, International Journal of Economics and Finance, 5 (9), p. 134-147.
[15]	Gujarati, Damodar, 2003. Basic Econometric, Fourth Edition. NewYork: Mc. Graw-Hill Book Co.
[16]	Harahap, Sofyan Syafri (2015). Critical Analysis toward Financial Statement, Rajawali Pers, Jakarta.
[17]	Haruna, Muhammad Auwalu, 2011. Determinant of Cost of Financial Intermediation in Nigeria’s Pre-consolidated Banking Sector, Department of Accounting Ahmadu Bello University, Zaria, Nigeria
[18]	Hempel, George H., Simonson Donald G., Coleman Alan B., 1994. Bank Management Text and Cases, Fourth Edition. New York: John Wiley & Sons, Inc.
[19]	Karim, Mohd Zaini (2008). Bank Efficiency and Non Performing Loans in Malaysia and Singapore, Proceeding of Applied International Business Conference 2008. P. 948-958.
[20]	Manikam, Johar et.al. (2013). Analyze of the influence of the CAR (Capital Adequacy Ratio), NPL (Non Performing Loan), BOPO, NIM (Net Interest Margin), and LDR (Loan to Deposit Ratio) toward bank profitability of National General Banking in Indonesia period 2005 through 2012. Diponegoro Journal of Accounting. 2 (4), p. 1-10.
[21]	Mbizi, Rangga (2012). An Analysis of the Impact of Minimum Capital Requirements on Commercial Bank Performance in Zimbabwe, International Journal of Independent Research and Studies. 1(4) p. 124-134.
[22]	Nusantara, Ahmad Buyung (2009). Analyze of the influence of the Non Performing Loan (NPL), Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR) and BOPO toward Banking Profitability. Thesis, Master Program in Management, Diponegoro University, Semarang.
[23]	Oktaviantari, Luh Putu Eka and Ni Luh Putu Wiagustini. (2013). The influence level of banking risks towards the profitability in Bank Perkreditan Rakyat (BPR) in Badung Regency. E-Journal of Management, Udayana University, 2 (12), p. 1617-1633.
[24]	Purwoko, Didik Bambang Sudiyatno. (2013). The Factors Affecting Bank Performance (Empirical Study of the Banking Industry in Indonesia Stock Exchange), Jurnal Bisnis dan Ekonomi, 20 (1), p. 25-39.
[25]	Prasanjaya, Yogi and I Wayan Ramantha (2013). Analize Ratio CAR, BOPO, LDR and Firm Size to Profitability of banks in BEI period 2008-2011. E-Jurnal Akuntansi Universitas Udayana, 4 (1), p.230-245.
[26]	Restiyana and Mahfud M. Kholiq (2011). The effect of CAR, NPL, BOPO, LDR, and NIM to the ROA of commercial banks in Indonesia in the period 2006-2010, Thesis, Faculty of Economics and Business > Department of Management, Dipenogoro University, Semarang.http://eprints.undip.ac.id/29393/.
[27]	Sinha, Pankaj et.al. (2014). Determinants of bank profits and its persistence in Indian Banks: A study in a dynamic panel data framework, MPRA Paper No. 61379, November 2014 p.1-21.
[28]	Sugiyono (2009). Research Methods, Jakarta: Salemba Empat.
[29]	Taswan (2010). Banking Management, concept, technic & aplication, UPP STIM YKPN Publishing, Yogyakarta.
[30]	Vong, Anna P.I. et.al. (2009). Determinants of Bank Profitability in Macao, http://www.amcm.gov.mo/publication/ quarterly/July2009/macaoprof_en.pdf, p.93-113.
[31]	Widati, Listyorini Wahyu (2012). Analysis the influence of Camel (CAR, PPAP, DER, BOPO, LDR) toward Performance of Banking Companies in Indonesia, Journal of Accounting Dinamic, Finance and Banking, 1 ( 2) p. 105-119.