Banks should focus on improving their ROA and LDR

Oct 13, 2025 by recoveryshake.com 69 views

Introduction

The banking industry plays a vital role in the economic growth and development of a country. In Indonesia, the banking sector is one of the largest and most dynamic sectors, with numerous banking companies listed on the Indonesia Stock Exchange (IDX). However, the banking industry is not immune to risks and challenges, including non-performing loans (NPLs), third-party funds (DPK), capital adequacy ratio (CAR), return on assets (ROA), loan to deposit ratio (LDR), and operational expenses to operating income (BOPO). These factors can significantly impact the credit granting decisions of banking companies, ultimately affecting their financial performance and stability.

Background

The banking industry in Indonesia has experienced significant growth and development over the past decade. The number of banking companies listed on the IDX has increased, and the industry has become more competitive. However, the banking industry is also facing challenges, including the rise of non-performing loans, which can lead to credit risk and financial instability. Therefore, it is essential to analyze the factors that influence credit granting decisions in the banking industry.

Research Methodology

This study aims to analyze the effects of NPLs, DPK, CAR, ROA, LDR, and BOPO on credit granting decisions in banking companies listed on the IDX during the period 2010 to 2019. The study used a population consisting of 45 banking companies listed on the IDX and employed saturated sampling techniques to select nine companies for the research. The data analysis method used was multiple linear regression analysis, which was processed with the EViews application to produce accurate and trustworthy data.

Results

The results of this study showed that ROA and LDR had a positive and significant influence on credit granting. This indicates that the higher ROA, which reflects the efficiency of the use of assets in generating profits, the greater the potential of the bank to provide credit. Likewise, the high LDR, which shows the proportion of loans to deposits, indicates adequate liquidity to meet credit demand.

On the other hand, CAR and BOPO had a negative and significant influence on credit granting. High CAR should reflect the security and stability of the bank, but in this context, it might indicate that banks are more careful in providing credit when having high capital reserves. Likewise, high operational expenses can reduce the ability of banks to provide credit, because more resources are allocated for operational costs than to provide loans.

Discussion

The results of this study provide important insights for stakeholders in the banking industry in Indonesia. By understanding the factors that influence credit provision, banks can design more effective strategies for credit management and improve their financial performance. In addition, this research can also be a reference for potential investors in assessing the performance of banking companies in the capital market.

The findings of this study are consistent with previous research, which suggests that ROA and LDR are important factors in credit granting decisions. However, the study also highlights the importance of CAR and BOPO in credit granting decisions, which is a new contribution to the existing literature.

Conclusion

In conclusion, this research provides important insights for stakeholders in the banking industry in Indonesia. By understanding the factors that influence credit provision, banks can design more effective strategies for credit management and improve their financial performance. In addition, this research can also be a reference for potential investors in assessing the performance of banking companies in the capital market.

Recommendations

Based on the findings of this study, the following recommendations are made:

Banks should focus on improving their ROA and LDR: By improving their ROA and LDR, banks can increase their potential to provide credit and improve their financial performance.
Banks should manage their CAR and BOPO effectively: Banks should manage their CAR and BOPO effectively to avoid reducing their ability to provide credit.
Regulators should monitor the banking industry closely: Regulators should monitor the banking industry closely to ensure that banks are managing their risks effectively and providing credit to the economy.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is relatively small, which may limit the generalizability of the findings.
Data availability: The data used in this study is limited to the period 2010 to 2019, which may not reflect the current situation in the banking industry.
Methodology: The study used multiple linear regression analysis, which may not capture the complexity of the relationships between the variables.

Future Research Directions

This study provides several avenues for future research, including:

Investigating the impact of other factors on credit granting decisions: Future research can investigate the impact of other factors, such as interest rates, inflation, and economic growth, on credit granting decisions.
Analyzing the impact of credit granting decisions on bank performance: Future research can analyze the impact of credit granting decisions on bank performance, including their financial performance and stability.
Investigating the impact of regulatory policies on credit granting decisions: Future research can investigate the impact of regulatory policies on credit granting decisions, including the impact of Basel III and other regulatory requirements.
Frequently Asked Questions (FAQs) on the Influence of Financial Factors on Banking Companies Listed on the Indonesia Stock Exchange ====================================================================================

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the effects of non-performing loans (NPLs), third-party funds (DPK), capital adequacy ratio (CAR), return on assets (ROA), loan to deposit ratio (LDR), and operational expenses to operating income (BOPO) on credit granting decisions in banking companies listed on the Indonesia Stock Exchange (IDX) during the period 2010 to 2019.

Q: What is the population of this study?

A: The population of this study consists of 45 banking companies listed on the IDX.

Q: What is the sampling technique used in this study?

A: The saturated sampling technique is used in this study to select nine companies for the research.

Q: What is the data analysis method used in this study?

A: The multiple linear regression analysis method is used in this study to analyze the data.

Q: What are the findings of this study?

A: The findings of this study show that ROA and LDR have a positive and significant influence on credit granting, while CAR and BOPO have a negative and significant influence on credit granting.

Q: What are the implications of this study?

A: The implications of this study are that banks should focus on improving their ROA and LDR, manage their CAR and BOPO effectively, and regulators should monitor the banking industry closely to ensure that banks are managing their risks effectively and providing credit to the economy.

Q: What are the limitations of this study?

A: The limitations of this study are that the sample size is relatively small, the data used is limited to the period 2010 to 2019, and the methodology used may not capture the complexity of the relationships between the variables.

Q: What are the future research directions?

A: The future research directions are to investigate the impact of other factors on credit granting decisions, analyze the impact of credit granting decisions on bank performance, and investigate the impact of regulatory policies on credit granting decisions.

Q: What are the practical implications of this study?

A: The practical implications of this study are that banks can design more effective strategies for credit management and improve their financial performance, and regulators can monitor the banking industry closely to ensure that banks are managing their risks effectively and providing credit to the economy.

Q: What are the theoretical implications of this study?

A: The theoretical implications of this study are that it contributes to the existing literature on the factors that influence credit granting decisions in the banking industry, and it provides a framework for understanding the relationships between the variables.

Q: What are the policy implications of this study?

A: The policy implications of this study are that regulators can use the findings of this study to develop policies that promote the stability and efficiency of the banking industry, and banks can use the findings of this study to design more effective strategies for credit management and improve their financial performance.