Determination of Bank Health Through Profitability as an Intervening Variable in Conventional Banks

Umi Subadriyah (), Eleonora Sofilsa and Lavlimatria Esya
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Umi Subadriyah: University of Trisakti, Faculty of Economics and Business
Eleonora Sofilsa: University of Trisakti, Faculty of Economics and Business
Lavlimatria Esya: University of Trisakti, Faculty of Economics and Business

A chapter in Proceedings of the International Conference on Sustainable Collaboration in Business, Technology, Information, and Innovation (SCBTII 2024), 2024, pp 149-166 from Springer

Abstract: Abstract The aim of this study is to test the determination of bank health through profitability as an intervening variable in conventional banks. The study employed a quantitative approach, utilizing a structural equation model (SEM) analysis. The data is 105 conventional banks in Indonesia from 2018 to 2023. The results indicate that there is a direct effect of macroeconomic variables, liquidity risk and credit risk on profitability. However, the indirect effects of these variables on bank health do not exist. In contrast, the indirect effects of macroeconomic variables and liquidity on credit risk and profitability are significant. The findings of this research indicate that macroeconomic indicators, liquidity risk, credit risk, and profitability are the primary factors influencing the health of banks. This study concludes that only credit risk and profitability have an effect on bank health while liquidity and macroeconomic risks, and credit risk have an effect on increasing profitability. Therefore, banks must meet capital adequacy (CAR) to overcome the increasingly high credit risk, banks provide a certain amount of funds to bear the burden of losses in the event of a default.

Keywords: Credit Risk; Liquidity Risk; Profitability; Macro Variables and Bank Health (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-558-4_9

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DOI: 10.2991/978-94-6463-558-4_9

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