By Fiona Junica
11503007
BACHELOR’S DEGREE in
BUSINESS ADMINISTRATION – BANKING & FINANCE FACULTY OF BUSINESS AND COMMUNICATION
SWISS GERMAN UNIVERSITY The Prominence Tower
Jalan Jalur Sutera Barat No. 15, Alam Sutera Tangerang, Banten 15143 – Indonesia
July 2019
Revision after the Thesis Defense on July 11th, 2019
Fiona Junica STATEMENT BY THE AUTHOR
I hereby declare that this submission is my own work and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made in the thesis.
Fiona Junica
_____________________________________________
Student Date
Approved by:
Ida Ayu Agung Faradynawati, M. Sc.
_____________________________________________
Thesis Advisor Date
Dr. Nila K. Hidayat, SE., MM.
_____________________________________________
Dean Date
Fiona Junica ABSTRACT
BANK-SPECIFIC DETERMINANTS OF BANK PROFITABILITY:
EMPIRICAL EVIDENCE FROM INDONESIA
By Fiona Junica
Ida Ayu Agung Faradynawati, M. Sc., Advisor
SWISS GERMAN UNIVERSITY
This study aims to analyze the impact of the bank size, Capital Adequacy Ratio (CAR), Non-Performing Loans (NPL), Loan to Deposit Ratio (LDR), and Operational Expenses to Operating Income (OEOI) towards Return on Assets (ROA) and Return on Equity (ROE) as a proxy of bank profitability. The method used is multiple linear regression analysis with a sample of 29 of banks in Indonesia that are listed on the Indonesia Stock Exchange from 2014 to 2018. The results of the analysis with a statistical t-test showed that bank size, NPL, and OEOI partially have a significant effect on bank profitability while CAR and LDR only affect ROE. Furthermore, based on the result of F-test, all of the variables simultaneously have a significant effect on both ROA and ROE.
Keywords: Bank Size, Capital Adequacy Ratio, Non-Performing Loan, Loan to Deposit Ratio, Operating Expense to Operating Income, Return on Assets, Return on Equity
Fiona Junica
© Copyright 2019 by Fiona Junica All rights reserved
Fiona Junica DEDICATION
I dedicate this work to my savior, Jesus Christ; my beloved parents and sister for their endless support, love, and prayers.
Fiona Junica To God be the glory!
First and foremost, I express my highest gratitude to Jesus Christ for the blessings, health, and opportunity to complete this undergraduate thesis.
In the process of making this thesis, there are a lot of people who gave me motivation, support, and advice. I would like to express my sincere appreciation to all of them:
My thesis advisor, Miss Ida Ayu Agung Faradynawati. Thank you for giving me heartfelt support, guidance, inspiration, and suggestions in my quest for knowledge.
Without her assistance, this thesis would never have been accomplished.
Besides my advisor, I also would like to thank my other lecturers, especially Pak Yosman Bustaman, Miss Margareth Lingga, Pak Fiter Abadi, and Sir Mochammad Riyadh Rizky Adam, for their encouragement and valuable knowledge. I am so happy to be their student because their teaching style and enthusiasm always carry positive memories for me.
Most importantly, none of this could ever happened without my Grandma and my parents, Papa and Mama. Thank you for always believe in my decisions and supporting me both mentally and financially throughout my years of study.
My sister, Felita Oktaviani, the one who always listen to my grievances and cheer me up when I stressed out about my thesis. I am so blessed to have a sister like her.
My best friends, Clarisa and Nikko, whom I have gone through ups and downs with since the first day at university, and also my other International Business Administration friends, Almira, Belva, Maureen, Jason, Michael, Joshua, Aripin, Stella M., Jessica, Winda, Regina E., Gary, and Sam, for all the fun and happy moments in the last four years. It was them I had the best days of my life with.
Last but not least, to all people who have helped me which I cannot mention one by one. Their direct or indirect involvements in this thesis making process is really meaningful to me.
Fiona Junica TABLE OF CONTENTS
Page
DEDICATION... 5
ACKNOWLEDGEMENTS ... 6
TABLE OF CONTENTS ... 7
LIST OF FIGURES ... 10
LIST OF TABLES ... 11
CHAPTER 1 – INTRODUCTION ... 12
1.1 Background ... 12
1.2 Research Problems ... 16
1.3 Research Questions ... 16
1.4 Research Objectives ... 17
1.5 Scope and Limitations... 17
1.6 Significance of Study ... 18
CHAPTER 2 - LITERATURE REVIEW ... 19
2.1 Conceptual Framework ... 19
2.2 Bank-Specific Factors ... 21
2.2.1 Bank Size ... 21
2.2.2 Capital Adequacy ... 22
2.2.3 Credit Risk ... 23
2.2.4 Liquidity Risk ... 25
2.2.5 Management Efficiency ... 26
2.3 Bank Profitability ... 29
2.3.1 Return on Assets ... 30
2.3.2 Return on Equity ... 31
Fiona Junica
2.6 Hypotheses ... 35
CHAPTER 3 – RESEARCH METHODS ... 37
3.1 Type of Study ... 37
3.2 Unit Analysis ... 38
3.3 Sampling Design ... 38
3.3.1 Population & Sample ... 38
3.3.2 Sampling Method ... 38
3.3.3 Sample Size ... 39
3.4 Type of Data and Collection Method... 40
3.5 Research Model ... 41
3.6 Variable Operationalization ... 42
3.7 Data Analysis Technique ... 43
3.7.1 Model Testing ... 44
3.7.2 Classical Assumption Test ... 46
3.7.3 Multiple Regression Analysis ... 47
3.7.4 Hypothesis Testing... 48
CHAPTER 4 – RESULTS AND DISCUSSIONS ... 50
4.1 General Description of Research Object ... 50
4.2 Analysis of Research Result ... 51
4.2.1 Descriptive Data Analysis... 52
4.2.2 Choosing the Best Model ... 54
4.2.3 Classical Assumption Test ... 56
4.3 Regression Analysis Result... 60
4.3.1 Regression Analysis Result 1... 60
4.3.2 Regression Analysis Result 2... 64
4.3.3 Hypotheses Discussion ... 68
Fiona Junica
5.2 Managerial Implications ... 74
5.3 Recommendations for Further Study ... 77
GLOSSARY... 78
ABBREVIATIONS ... 79
REFERENCES ... 80
APPENDICES ... 85
Appendix 1: Banks Listed in Indonesia Stock Exchange (IDX) 2018 ... 85
Appendix 2: Descriptive Statistic of Research Variables ... 87
Appendix 3: Data Method Analysis (Fixed Effect Model) ... 88
Appendix 4: Chow Test ... 90
Appendix 5: Hausman Test ... 92
Appendix 6: Likelihood Ratio Test... 94
Appendix 7: Multiple Regression Analysis ... 96
CURRICULUM VITAE ... 98