Understanding the Importance of Bank Performance Indicators

Oct 13, 2025 by windailys.com 11 views

The Effect of Capital Adequacy Ratio, Non-Performing Loans, Operational Expenses per Operating Income, and Net Interest Margin to Return on Assets at Commercial Banks Listed on the Indonesia Stock Exchange in 2013-2017

In the realm of economics, the role of banks as intermediation institutions between those who have excess funds and those who need funds is vital. The bank facilitates the flow of money, so that it becomes the main driver in the smooth running of the economy. Together with other financial institutions, banks play a role in the transfer of assets, conduct transactions, and maintain liquidity and efficiency. Along with the rapid development of banks in Indonesia, competition between banks is getting tougher. This dynamics creates dynamic market conditions, demanding banks to operate more effectively and efficiently in order to survive in the national banking system. Bank performance is measured by several indicators, one of which is Return on Asset (ROA), which shows how effective the bank is to use its assets to generate profits.

Understanding the Importance of Bank Performance Indicators

Return on Asset (ROA) is a crucial indicator of bank performance, as it measures the bank's ability to generate profits from its assets. A high ROA indicates that the bank is using its assets efficiently to generate profits, while a low ROA suggests that the bank is not using its assets effectively. In this study, we aim to investigate the effect of several variables, namely Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Operational Expenses per Operating Income, and Net Interest Margin (NIM) on Return on Commercial Bank Assets Listed on the Stock Exchange Indonesia during the 2013-2017 period.

Theoretical Framework and Research Methodology

This study is included in the causal research category, which aims to investigate the causal relationship between bank financial variables. According to Sinulingga (2011), causal research was conducted to understand the relationship between the causative factors and the consequences caused. The focus of this study is to analyze the effect of several variables on Return on Commercial Bank Assets Listed on the Stock Exchange Indonesia during the 2013-2017 period. The data used in this study is secondary data, which is obtained from the Indonesia Stock Exchange (IDX) and the Bank of Indonesia (BI).

Results and Discussion

The results of this study show that the Capital Adequacy Ratio and Non-Performing Loan variables had no significant effect on Return on Assets. This shows that although CAR and NPL are important indicators in assessing bank financial health, both do not directly contribute to bank profitability in the ROA context. On the other hand, the variable operational expenses per operating income and net interest margin have proven to have a significant effect on return on assets.

Capital Adequacy Ratio (CAR)

Capital Adequacy Ratio is a measure that shows how much capital the bank has in the proportion of the risk taken. Although CAR is important to maintain financial stability and prevent bankruptcy, the results show that this ratio does not directly affect return on assets. This may be caused by the fact that banks with large capital do not always mean more efficient in generating profits.

Non-Performing Loan (NPL)

NPL reflects the quality of bank assets. The high NPL means more loans are jammed, which should affect bank profitability. However, this study found that NPL had no significant effect on ROA. The possibility of good risk management factors in banks in this study, which is able to manage problem loans in an effective manner, so that it does not have a direct impact on profitability.

Operational Expenses per Operational Income

This ratio measures the bank's efficiency in managing operational costs relative to its income. The results that show a significant influence indicate that the more efficient a bank in managing operational expenses, the higher the ability to generate profits. Banks that can control their operational costs properly tend to have a higher ROA, because they can allocate more income for profits.

Net Interest Margin (NIM)

NIM is an important indicator that shows how much profit the bank is generated from the difference between interest received from loans and interest paid to the Depository. This study found that NIM had a significant effect on ROA, which shows that banks with better interest margins can generate higher profits. This reflects the ability of banks in managing loan portfolios and efficient placement.

Conclusion and Implications

In conclusion, although the capital adequacy ratio and non-performing loans play an important role in maintaining the stability and financial health of the bank, its direct effect on return on assets is not significant. Conversely, operational efficiency and ability to manage interest margins are proven to be more relevant in increasing bank profitability. These findings can be an important consideration for bank managers in their financial development development and management strategies.

Recommendations for Future Research

This study provides several implications for future research. Firstly, further research is needed to investigate the effect of other variables on return on assets, such as liquidity ratio and asset quality ratio. Secondly, the study can be replicated in other countries to see if the findings are consistent with the Indonesian banking industry. Finally, the study can be extended to include other types of financial institutions, such as insurance companies and pension funds.

Limitations of the Study

This study has several limitations. Firstly, the study uses secondary data, which may not be comprehensive or accurate. Secondly, the study only focuses on the Indonesian banking industry, which may not be representative of other countries. Finally, the study only investigates the effect of several variables on return on assets, which may not be the only factor affecting bank profitability.

Conclusion

In conclusion, this study provides several insights into the effect of capital adequacy ratio, non-performing loans, operational expenses per operating income, and net interest margin on return on assets at commercial banks listed on the Indonesia Stock Exchange in 2013-2017. The study finds that operational efficiency and ability to manage interest margins are more relevant in increasing bank profitability, while capital adequacy ratio and non-performing loans do not have a significant effect on return on assets. These findings can be an important consideration for bank managers in their financial development development and management strategies.
Frequently Asked Questions (FAQs) about the Effect of Capital Adequacy Ratio, Non-Performing Loans, Operational Expenses per Operating Income, and Net Interest Margin on Return on Assets

Q: What is the purpose of this study? A: The purpose of this study is to investigate the effect of capital adequacy ratio, non-performing loans, operational expenses per operating income, and net interest margin on return on assets at commercial banks listed on the Indonesia Stock Exchange in 2013-2017.

Q: What are the key findings of this study? A: The key findings of this study are that operational efficiency and ability to manage interest margins are more relevant in increasing bank profitability, while capital adequacy ratio and non-performing loans do not have a significant effect on return on assets.

Q: What is the significance of this study? A: This study is significant because it provides insights into the factors that affect bank profitability, which can be used by bank managers to develop effective financial development and management strategies.

Q: What are the limitations of this study? A: The limitations of this study are that it uses secondary data, which may not be comprehensive or accurate, and it only focuses on the Indonesian banking industry, which may not be representative of other countries.

Q: What are the implications of this study for bank managers? A: The implications of this study for bank managers are that they should focus on improving operational efficiency and managing interest margins to increase bank profitability, rather than relying on capital adequacy ratio and non-performing loans.

Q: What are the implications of this study for policymakers? A: The implications of this study for policymakers are that they should consider the factors that affect bank profitability when developing policies to promote financial stability and development.

Q: What are the implications of this study for future research? A: The implications of this study for future research are that further studies should be conducted to investigate the effect of other variables on return on assets, such as liquidity ratio and asset quality ratio, and to replicate the study in other countries.

Q: What are the implications of this study for the banking industry? A: The implications of this study for the banking industry are that banks should focus on improving operational efficiency and managing interest margins to increase profitability, and that they should not rely on capital adequacy ratio and non-performing loans as the sole indicators of financial health.

Q: What are the implications of this study for the financial sector? A: The implications of this study for the financial sector are that it highlights the importance of operational efficiency and interest margin management in increasing bank profitability, and that it suggests that policymakers should consider these factors when developing policies to promote financial stability and development.

Q: What are the implications of this study for the economy? A: The implications of this study for the economy are that it suggests that banks that focus on improving operational efficiency and managing interest margins are more likely to be profitable, which can contribute to economic growth and stability.

Q: What are the implications of this study for the banking regulatory framework? A: The implications of this study for the banking regulatory framework are that it suggests that regulators should consider the factors that affect bank profitability when developing regulations to promote financial stability and development.

Q: What are the implications of this study for the banking industry's risk management practices? A: The implications of this study for the banking industry's risk management practices are that it suggests that banks should focus on managing operational risks and interest rate risks to increase profitability, and that they should not rely on capital adequacy ratio and non-performing loans as the sole indicators of financial health.

Q: What are the implications of this study for the banking industry's financial reporting practices? A: The implications of this study for the banking industry's financial reporting practices are that it suggests that banks should provide more detailed information about their operational efficiency and interest margin management practices in their financial reports, to help investors and regulators understand their financial health.