The Determinant of Regional Development Bank’s Profitability in Indonesia

Abstract

Regional Development Bank (RDB) is a Regional Owned Enterprise where the majority of ownership is owned by the provincial government and district or city governments within the province which have an important role in regional development and improving the economy of regional communities. The aim of this research is to analyze the factors that affect RDB profitability in Indonesia. The profitability of RDB in this research consists of net interest margin (NIM) and return on assets (ROA). Meanwhile, bank specific variables include bank size (SIZE), fee-based income (FEE), market power (LG), capital adequacy ratio (CAR), non-performing loans (NPL), management efficiency (BOPO), and loan to deposit ratio. (LDR). The data used consists of 24 regional development banks in Indonesia from 2018 to 2022. The results of panel data analysis with random effect model show that there are two bank-specific factors that have a significant affect NIM namely LDR and BOPO. This is in line with the factors that affect ROA, where LDR and BOPO have a significant affect ROA. LG, CAR, and NIM also contribute to the high ROA of RDB in Indonesia. These empirical results can provide an overview of the determinant factors that influence RDB profitability and how RDB management strategies are used to maintain profitability. Apart from that, the Financial Services Authority (OJK) is able to encourage the government to increase capital in RDB. As well as encouraging RDB to increase credit distribution thereby increasing interest charges. Keywords: Regional Development Banks, Profitability, Net interest Margin.