Internal Determinants of Commercial Bank Profitability In Indonesia

Widyastuti Umi, Dedi Purwana E.S. and Zulaihati Sri
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Zulaihati Sri: Faculty of Economics, Universitas Negeri Jakarta, Jakarta 13220, Indonesia

Mediterranean Journal of Social Sciences, 2017, vol. 8, issue 3, 219-223

Abstract: Internal determinants of bank profitability can be defined as those factors that are influenced by the bank’s management decisions and policy objectives. This paper is aimed to examine the internal factors that impact on commercial banks profitability in Indonesia. The factors reviewed in the model namely capital adequacy, credit risk (non-performing loan), liquidity (loans to deposit ratio), net interest margin and operating efficiency (operating expenses to operating income ratio). Using purposive sampling method, the analysis used thirty three commercial banks, with 168 observations for the period 2010 to 2015. Based on the Chow-test, the common effect model was preferred. The model is estimated using Ordinary Least Squares method. The results revealed that two hypotheses were not be accepted. There are no significant effects of capital adequacy and credit risk on profitability, but the model explains that there are significant effects of all explanatory variables toward commercial bank profitability. However, other important internal determinants of bank profitability still have not included in the model of this paper.

Keywords: capital adequacy; non-performing loan; net interest margin; loan to deposit ratio; operating efficiency; profitability (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:mjsosc:v:8:y:2017:i:3:p:219-223:n:16

DOI: 10.5901/mjss.2017.v8n3p219

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