THE EFFECT OF CREDIT AND LIQUIDITY RISK ON BANK PROFITABILITY AND CAPITAL ADEQUACY RATIO AS MEDIATION VARIABLES IN INDONESIA

K.T Ariwidanta,I.G.B Wiksuana

doi:10.18551/rjoas.2018-09.19

Abstract

This study aims to determine the relationship between credit and liquidity risk to profitability through the capital adequacy ratio as a mediating variable. The population in this study was 43 Indonesian banks listed on the Indonesia Stock Exchange. The method in determining the sample uses purposive sampling and obtained 26 banking companies that meet the sample criteria. Data in the study are secondary data. The data analysis technique used is Path Analysis. The results of this study found that credit risk has a negative and significant effect on profitability, liquidity has a positive and significant effect on profitability, credit risk has a negative and significant effect on the capital adequacy ratio, liquidity has a positive and insignificant effect on the capital adequacy ratio, capital adequacy ratio has a positive and not significant to profitability. As well as the capital adequacy ratio is not able to mediate the effect of credit and liquidity risk on profitability. This research can provide information to be considered by banks in Indonesia to maintain the standard provisions for financial ratios that have been implied by Bank Indonesia. KEY WORDS Credit risk, liquidity, capital adequacy ratio, profitability

Highlights

Banks in carrying out their operational activities have the main objective, namely to achieve maximum profitability
There are various profitability assessment indicators that are often used by banks, Return on Assets (ROA) is a ratio that shows the return of the amount of assets used in the company (Kasmir, 2016: 115)
The phenomenon of an increase in the ratio of Non-Performing Loans which is a proxy of credit risk indicates the cause of a decline in Indonesia's banking profitability

Summary

Introduction

Banks in carrying out their operational activities have the main objective, namely to achieve maximum profitability. There are various profitability assessment indicators that are often used by banks, ROA is a ratio that shows the return (return) of the amount of assets used in the company (Kasmir, 2016: 115). The phenomenon of an increase in the ratio of Non-Performing Loans which is a proxy of credit risk indicates the cause of a decline in Indonesia's banking profitability. One of the bank's main activities to increase profitability is by providing credit. Credit Risk which is proxied by NPL (Non-Performing Loan) serves to measure the bank's ability to cover the risk of failure of credit repayment by the debtor. To measure bank liquidity, proxied by the Loan to Deposit Ratio (LDR). The LDR shows the ability of a bank to repay customers' obligations by channeling funds or providing credit to customers. If there is an increase in the LDR percentage, this is because the volume of bank lending increases and the automatic interest payments obtained by banks increase, (Septiani and Lestari, 2016)

Objectives

Methods

Results

Conclusion