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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
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    References listed on IDEAS

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    2. Marianne Gizycki, 2001. "The Effect of Macroeconomic Conditions on Banks’ Risk and Profitability," RBA Research Discussion Papers rdp2001-06, Reserve Bank of Australia.
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    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, November.
    6. 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.
    Full references (including those not matched with items on IDEAS)

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    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

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