NPL Effect Moderating LDR, Profitability & CAR on Profitability of Indonesian Private Banks

Abstract

Banks, as central entities within the economic sphere, are responsible for maintaining stability and integration, one aspect of which is preserving profitability. A common measure for evaluating a bank’s performance in generating profits through operational activities, which plays a crucial role in this context. This study aims to investigate the extent to which the loan-to-deposit ratio (LDR), profitability, and capital adequacy ratio (CAR) impacts the return on assets (ROA), with non-performing loans (NPL) serving as a moderating variable. By employing quantitative methods, this research analyzes processed data from the company’s financial reports. The study period spans from 2015 to 2020, a time during which ROA, NPL, operating expense to operating income (BOPO), net interest margin (NIM), and CAR experienced fluctuations in conventional banks, leading to a research gap. The rationale behind this investigation stems from these observed fluctuations. This study focuses on all commercial banks supervised by the financial services authority (OJK), using a sample of 15 national private banks as the population. Data analysis techniques encompass descriptive analysis, partial least squares (PLS), and hypothesis testing. The findings reveal that CAR and LDR do not have a significant impact on ROA. In contrast, NIM and BOPO exert a considerable influence on ROA. However, no substantial effect was observed in the NPL interaction, which moderates the relationship between LDR, BOPO, NIM, and CAR on ROA.
 Keywords: loan deposit ratio, profitability, capital adequacy ratio, return on assets, non-performing loans