Abstract
This research is based on a bank, a law entity in which one of the main activities is lending. This study aims to analyze the credit risk, i.e. non-performing loan and allowance for impairment losses towards the profitability represented by bank return on asset with operating expense to operating income as the intervening variable. The technique of data analysis is statistical descriptive analysis of research variable, multiple regression analysis and path analysis which aim to measure the effect of intervening variable. The results of this study show that Non-performing loan ratio has positive and significant effect on operating expense to operating income efficiency ratio, ratio allowance for impairment losses has positive, but not significant effect on operating expense to operating income efficiency. KEY WORDS Credit risk, profitability, efficiency, intervening variable.
Highlights
In Indonesian bank regulation which is made based on Statement of Financial Accounting Standard (SFAS) No.[50] and 55, Allowance for Impairment Losses should be formed in order to overcome the lose risk; the higher funds being proposed to cover losses because of loan problems the higher Operating Expense to Operating Income efficiency
Regarding to the result of the previous studies, for instance a study conducted by Zou and Li (2014) who tested variable of Capital Adequacy Ratio (CAR) and Non-Performing Loan (NPL) to measure credit risk, and tested its profitability using Return on Asset (ROA) ratio and Return on Equity (ROE),stated that NPL affects significantly on ROA and ROE, whereas CAR does not significantly affect ROA and ROE; it can be concluded that the credit risk (NPL) positively affects bank profitability
The sampling technique used is a purposive sampling technique in which samples are chosen based on some considerations, such as: (1) the bank should involve in Commercial Bank Based on Business Activities 3 within 2013-2015 and having total asset more than 100 Billion in 2015, (2) the bank should have complete data which relates to the variables use in the study i.e. Non-Performing Loan (NPL), Allowance for Impairment Losses, Return on Asset (ROA), and Operating Expense to Operating Income
Summary
Bank is the largest financial institution in the world which main activities are funding and fund distribution in a form of credit for debtors (lending). Domestically economic development in 2015 slowed down to 4.79% and the high lending on low quality loan causes the decrease of bank profitability. In this case, the credit risk scale can be seen in a form or Non-Performing Loan (NPL) ratio. These NPL and Allowance for Impairment Losses ratio is used to measure the credit risk. This study uses credit problem NonPerforming Loan (NPL) and Allowance for Impairment Losses as the indicator variables representing credit risk, efficiency using Operating Expense to Operating Income, and using Return on Asset (ROA) ratio to measure profitability. Does Non-Performing Loan (NPL) have positive, significant effect on Operating Expense to Operating Income efficiency ratio?; (2) does Allowance for Impairment Losses have positive, significant effect on Operating Expense to Operating Income efficiency ratio?; (3) does NonPerforming Loan (NPL) have negative, significant effect on profitability?; (4) does Allowance for Impairment Losses ratio have negative, significant effect on profitability?; (5) does Operating Expense to Operating Income efficiency have negative, significant effect on profitability?; (6) does Non-Performing Loan (NPL) have negative, significant effect on profitability with Operating Expense to Operating Income as the intervening variable?; (7) does Allowance for Impairment Losses ratio have negative and significant effect on profitability with Operating Expense to Operating Income as the intervening variable?
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