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The Determinants Of Commercial Bank Profitability In Indonesia

Author

Listed:
  • Arief Putranto

    (Department of Management and Business, Padjadjaran University)

  • Aldrin Herwany

    (Department of Management and Business, Padjadjaran University)

  • Erman Sumirat

    (Department of Management and Business, Padjadjaran University)

Abstract

This thesis seeks to examine the determinants of bank profitability in Indonesia. The sample used is a panel data of 25 publicly traded Indonesian commercial banks in 2007-2012 period. This research used Return on Assets (ROA) and Return on Equity (ROE) as proxies of profitability and analyze how variables from three categories that is internal, external, and market share variable affects them. We found some intriguing findings from this study, namely, the effect of CAR that we found to be negative towards profitability,which indicated that the capitals of Indonesian banks are beyond their optimal level. Then we found that Loan to Deposit ratio and Market Share of Credit, contrary to common sense, also demonstrated a negative effect, which appears to be caused by the 2008-2010 Global Financial Crisis. Last, we also found that Inflation positively affect profitability, which seemingly caused by a demand-pull type of inflation.

Suggested Citation

  • 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.
    • Handle: RePEc:unp:wpaman:201202
    as

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    File URL: http://lp3e.fe.unpad.ac.id/wpaman/201202.pdf
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    References listed on IDEAS

    as
    1. Husain AL‐Omar & Abdullah AL‐Mutairi, 2008. "Bank‐Specific Determinants of Profitability: The case of Kuwait," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 24(2), pages 20-34, December.
    2. Hong Liu & John Wilson, 2010. "The profitability of banks in Japan," Applied Financial Economics, Taylor & Francis Journals, vol. 20(24), pages 1851-1866.
    3. Raza, Syed Ali & Jawaid, Syed Tehseen & Shafqat, Junaid, 2013. "Profitability of the Banking Sector of Pakistan: Panel Evidence from Bank-Specific, Industry-Specific and Macroeconomic Determinants," MPRA Paper 48485, University Library of Munich, Germany.
    4. 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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Return on Assets; Return on Equity; Loan to Deposit Ratio; Credit Market Share;
    All these keywords.

    JEL classification:

    • M0 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General

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    This paper has been announced in the following NEP Reports:

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