PROFITABILITY PROJECTED BY THE RETURN ON RISK WEIGHTED ASSET (RORWA) AND RETURN ON ASSET (ROA) ON
FOREIGN BANKS AND NON FOREIGN BANKS IN INDONESIA
By
Hebert Theniando 2-3114-020
MASTER’S DEGREE in
MASTER OF BUSINESS ADMINISTRATION
FACULTY OF BUSINESS ADMINISTRATION AND HUMANITIES
SWISS GERMAN UNIVERSITY EduTown BSD City
Tangerang 15339 Indonesia
July 2016
Hebert Theniando 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.
Hebert Theniando
_____________________________________________
Student Date
Approved by:
Dr. Antonius TP. Siahaan, SE., Akt., MM
_____________________________________________
Thesis Advisor Date
Prof. Eric J. Nasution, MBA, MA, Ph.D
_____________________________________________
Thesis Co-Advisor Date
Prof. Eric J. Nasution, MBA, MA, Ph.D
_____________________________________________
Dean Date
Hebert Theniando ABSTRACT
IMPACT OF FINANCIAL RATIOS TO PROFITABILITY PROJECTED BY THE RETURN ON RISK WEIGHTED ASSET (RORWA) AND RETURN ON ASSET
(ROA) ON FOREIGN BANKS AND NON FOREIGN BANKS IN INDONESIA
By
Hebert Theniando
Dr. Antonius TP. Siahaan, SE., Akt., MM, Advisor Prof. Eric J. Nasution, MBA, MA, Ph.D, Co-Advisor
SWISS GERMAN UNIVERSITY
Developments in the banking world is very rapid and high level of complexity can affect the performance and increase the risks faced by banks in Indonesia. The main challenge for banks today is how to accurately determine how much risk associated with their assets yet still deliver the desirable profit. Management implementing additional profitability measurement apart from Return on Asset (ROA) that measures the rate of Return on Risk-Weighted Assets (RORWA). The objective of this study is to analyze impact of Net Interest Margin (NIM), Operating Efficiency Ratio (OER) and Non Performing Loan (NPL) on profitability shown in RORWA and ROA on Foreign and Non Foreign Banks. The financial reports 2015 of 65 foreign and non foreign banks and by using purposive sampling method of banks that earns profit, foreign exchange, conventional bank, asset above IDR 24tn, 21 of them were used as sample. The multiple regression analysis was used to test hypothesis. The result shows that variables NIM has positive influence, while OER and NPL have negative influences. Furthermore, NIM and OER have significant influence, while NPL has insignificant influence on ROA and RORWA.
Keywords: Profitability, ROA, RORWA, NIM, OER, NPL.
Hebert Theniando
© Copyright 2016 by Hebert Theniando
All rights reserved
Hebert Theniando DEDICATION
I dedicate this works for the future of the country I loved: Indonesia
Hebert Theniando ACKNOWLEDGEMENTS
This is the part where you express your gratitude to all parties involved in the success of your thesis work. However, keep it simple and short.
I wish to thank God for the blessing in completing the thesis work, and also all members of SGU staff, lecturer, classmates for the experience, teamwork and good humor. Dr. Antonius TP. Siahaan was particularly helpful in guiding me with clear direction, communication and idea exchange from the start to finish of my thesis work. Prof. Eric J. Nasution helps me in providing input on how to improve the overall thesis work. Finally, I would like to thank all parties involved in my study from beginning to the end that enable me to not only complete a degree but to complete it with excellence.
I have found my coursework throughout the Curriculum and Instruction program to be stimulating and thoughtful, providing me with the tools with which to explore both past and present ideas and issues.
Hebert Theniando TABLE OF CONTENTS
Page
STATEMENT BY THE AUTHOR ... 2
ABSTRACT ... 3
DEDICATION ... 5
ACKNOWLEDGEMENTS ... 6
TABLE OF CONTENTS ... 7
LIST OF GRAPH ... 10
LIST OF TABLES... 11
CHAPTER 1 - INTRODUCTION ... 13
1.1 Background ... 13
1.2 Research Problems ... 16
1.3 Research Objectives ... 16
1.4 Significance of Study ... 17
1.5 Research Questions ... 17
1.6 Hypothesis ... 17
CHAPTER 2 – LITERATURE REVIEW AND CONCEPTUAL FRAMEWORK .. 19
2.1 Literature Review... 19
2.1.1 Bank ... 19
2.1.2 Banking Performance Assessment ... 21
2.1.3 Financial Ratio Analysis ... 28
2.1.4 Profitability ... 29
2.1.4.1 Profitability Definition ... 29
2.1.4.2 Return On Asset (ROA)... 29
2.1.4.3 Return On Risk Weighted Asset (RORWA) ... 29
2.1.5 Net Interest Margin (NIM) ... 30
2.1.5.1 Net Interest Margin Definition ... 30
2.1.5.2 NIM Influence Towards Profitability ... 31
2.1.6 Operating Effeciency Ratio (OER) ... 31
2.1.6.1 Operating Effeciency Ratio Definition ... 31
2.1.6.2 OER Influence Towards Profitability ... 32
2.1.7 Non Performing Loan (NPL)... 32
2.1.7.1 Non Performing Loan Definition ... 32
Hebert Theniando
2.1.8 Previous Studies... 33
2.2 Conceptual Framework ... 39
CHAPTER 3 – RESEARCH METHODS ... 41
3.1 Scope and Time Frame of Study... 41
3.2 Research Object ... 41
3.3 Variable and Operational Variable ... 41
3.3.1 Profitability ... 41
3.3.2 Net Interest Margin (NIM) ... 42
3.3.3 Operating Efficiency Ratio (OER) ... 42
3.3.4 Non Performing Loan (NPL)... 42
3.4 Sampling Method ... 43
3.5 Data Processing... 44
3.5.1 Normality Test ... 44
3.5.2 Multicolinearity Test ... 45
3.5.3 Heteroscedasticity Test ... 45
3.5.4 Autocorelation Test ... 46
3.6 Hypothesis Test ... 48
3.6.1 t-test ... 48
3.6.2 F-test... 48
3.6.3 R2-test ... 49
3.6.4 Chow Test... 49
CHAPTER 4 – RESEARCH RESULTS ... 51
4.1 Overview Research Object ... 51
4.2 Classic Assumption Test ... 55
4.2.1 Normality Test ... 55
4.2.1.1 Normality Test Foreign Bank ... 55
4.2.1.2 Normality Test Non Foreign Bank ... 59
4.2.2 Multicolinearity Test ... 63
4.2.2.1 Multicolinearity Test Foreign Bank ... 63
4.2.2.2 Multicolinearity Test Non Foreign Bank ... 64
4.2.3 Heteroscedasticity Test ... 65
4.2.3.1 Heteroscedasticity Test Foreign Bank ... 66
4.2.3.2 Heteroscedasticity Test Non Foreign Bank ... 68
4.2.4 Autocorelation Test ... 70
4.2.4.1 Autocorelation Test Foreign Bank ... 71
Hebert Theniando
4.3 Multiple Regression Analysis ... 75
4.3.1 Multiple Regression Analysis Foreign Bank... 75
4.3.2 Multiple Regression Analysis Non Foreign Bank ... 77
4.4 Hypothesis Test ... 78
4.4.1 t-test ... 78
4.4.1.1 t-test Foreign Bank (RORWA-ROA) ... 78
4.4.1.1.1 Hypothesis Test 1a ... 78
4.4.1.1.2 Hypothesis Test 2a ... 79
4.4.1.1.3 Hypothesis Test 3a ... 79
4.4.1.1.4 Hypothesis Test 4a ... 80
4.4.1.1.5 Hypothesis Test 5a ... 81
4.4.1.1.6 Hypothesis Test 6a ... 81
4.4.1.2 t-test Non Foreign Bank (RORWA-ROA) ... 82
4.4.1.2.1 Hypothesis Test 1b ... 82
4.4.1.2.2 Hypothesis Test 2b ... 83
4.4.1.2.3 Hypothesis Test 3b ... 83
4.4.1.2.4 Hypothesis Test 4b ... 84
4.4.1.2.5 Hypothesis Test 5b ... 85
4.4.1.2.6 Hypothesis Test 6b ... 85
4.4.2 F-test... 86
4.4.2.1 F-test Foreign Bank ... 86
4.4.2.2 F-test Non Foreign Bank... 87
4.4.3 R2-test ... 88
4.4.3.1 R2-test Foreign Bank ... 89
4.4.3.2 R2-test Non Foreign Bank ... 89
4.4.4 Chow Test... 90
4.4.5 Hypothesis Test Summary ... 93
CHAPTER 5 – CONCLUSION AND RECOMMENDATIONS ... 94
5.1 Conclusion ... 94
5.2 Recommendations ... 97
GLOSSARY ... 98
REFERENCES ... 99
CURRICULUM VITAE ... 103
