Abstract
This paper investigates the factors that determine bank profitability in Indonesia particularly on state-owned banks during the 2007 to 2017. The research applied Vector Error Correction Model (VECM) to measure short-term and long-term effects of independent variable on dependent variable. The research data ini this paper is drawn from two main sources namely Bank Indonesia (BI) and Financial Services Authority (OJK) from 2007 to 2017. The findings showed that in the long term, BOPO, LDR, NPLs, economic growth, and exchange rates have positive relationship toward bank profitability while in the short term, inflation and BI rates do not have effect on bank profitability. However, in the short run, all variables mentioned do not have impact toward banking profitability. In addition, based on Impulse Response Function test, it showed that there are only two independent variables are able to provide a response in case of shock, namely inflation and the exchange rate toward bank’s profitability.
Highlights
Bank is an institution that has an important role in the economy of a country
The findings showed that accounting variables are able to explain the price and level of profit efficiency, but the efficiency of the price has a little impact on the profitability of the banking and corporate profits
Variable used can be classified as internal variables including Loan to Deposit Ratio (LDR) and non-performing loans (NPL) while external variables include economic growth, inflation, Bank Indonesia (BI) rates, and exchange rates
Summary
Bank is an institution that has an important role in the economy of a country. Bank is act to collect funds from the public and as an institution that provides funds to the public for various purposes. The amount of state-owned banks remained stable namely BRI, BNI 46, Bank Mandiri, and Bank Tabungan Negara (BTN). It showed better performance (Haryanto, 2012). Another interesting point of the banking company that becomes the object of research is the high mobility of operational such as collecting funds tend to increase from year to year level in distributing loans. In Indonesia, the market share of state-owned bank is larger than the other banks (Dewi & Rahmat, 2016) It remarked that state owned banks have higher efficiency level than other banks from private sector because state owned banks have larger scale
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