The Determinants of Successful Bank Profitability in Indonesia: Empirical Study for Provincial Government’s Banks and Private Non-Foreign Banks

Mokhamad Anwar () and Aldrin Herwany ()
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Mokhamad Anwar: Department of Management and Business, Faculty of Economy, Padjadjaran University

No 200601, Working Papers in Business, Management and Finance from Department of Management and Business, Padjadjaran University

Abstract: The purpose of this research is to investigate factors that determine Commercial Bank’s Performance and Profitability, especially among Provincial Government’s Banks and Private Non-Foreign Exchange Banks in Indonesia for the period of 1993-2000. Return on Assets and Return on Equity were used as the proxies for the profitability. This research applies cross sectional and pooled data. Data was obtained from Indonesia Banking Directory which was published by Bank Indonesia. This paper studies some financial ratios particularly used in banking Industry and some macroeconomic indicators which are hypothesized significantly affecting the profitability. Macroeconomic Indicators are also used to assess the degree of relationship among variables and their fluctuations. Statistics and econometrics are employed to find the fittest model. The result of this research has shown that TETA (Total Expenses to Total Assets and CRTA (Capital and Reserves to Total Assets) dominantly and consistently affect ROA and ROE. In General, it can be concluded that cost management, capital adequacy, and assets and liabilities management are the most important factors that determine the bank’s profitability.

Keywords: profitability; ROA; ROE (search for similar items in EconPapers)
JEL-codes: G0 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2006-01, Revised 2006-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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