Abstract
The increasing business activities of state-owned banks in Indonesia increases risks. This circumstance can impact the level of state-owned banks’ efficiency. Thus, this research analyses the influence of banking risks on the state-owned banks’ efficiency in Indonesia from 2016 to 2019. Moreover, inflation as one of the macroeconomic factors may also affect the relationship between banking risks and efficiency; hence, this research also examines the inflation role as a moderating variable of this relationship. The samples of this research are all state-owned banks in Indonesia. Ordinary Least Squares (OLS) regression analysis shows that liquidity risk and credit risk have positive and significant influences on efficiency. However, inflation as a moderating variable has no significant influence on efficiency. Inflation also fails to moderate the relationship between liquidity risk and efficiency of state-owned banks in Indonesia. Nevertheless, inflation successful moderates the relationship between credit risk and efficiency.
Highlights
State-owned banks operating expenses to operating revenue increased from 72.58% in 2015 to 76.39% at the end of 2019 (Indonesia Financial Service Authority, 2019)
A decrease in efficiency indicates a decrease in banks’ capability in managing their input consisting of deposit funds, assets, and labour and in generating optimal output, such as loans and investments
These variables consist of efficiency as the dependent variable, liquidity ratio and credit ratio as dependent variables, inflation as the moderating variable, and size as the control variable
Summary
State-owned banks operating expenses to operating revenue increased from 72.58% in 2015 to 76.39% at the end of 2019 (Indonesia Financial Service Authority, 2019). A decrease in efficiency indicates a decrease in banks’ capability in managing their input consisting of deposit funds, assets, and labour and in generating optimal output, such as loans and investments. According to Indonesia Financial Service Authority (2019), the number of state-owned banks’ deposit funds increased about 48% from Rp 1,734,961 (in billion rupiahs) in 2015 to Rp 2,581,349 (in billion rupiahs) in 2019. Allocating deposit funds into loans and some investments may generate some risks. According to Indonesia Financial Service Authority (2019), the loan to deposit ratio of state-owned banks in Indonesia increased from 88.58% in 2015 to 94,17% at the end of 2019. An increase in liquidity risk may increase banks expenses and decrease their efficiency
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