Abstract
This research aims to investigate how internal and external factor influence the rate of profitability of rural banks in Indonesia. Internal factors are factors within the bank itself, namely core capital, loan to deposit ratio, and nonperforming loan ratio. External factors are macroeconomics variables uncontrollable to the rural banks, such as inflation and interest rate. VECM test proved the existence of cointegration function. Any deviation from last period will be adjusted at the rate of 8.863%. In the long-run, core capital and inflation affect rural banks’ performance. Impulse response function indicated that any shocks that occurred to core capital, inflation, loan to deposit ratio and nonperforming loan had the inhibiting effect on rural banks’ performance. On the other hand, interest rate was the only variable that provided positive stimulus on rural banks’ performance. This showed us that rural banks should have improved risk and capital management practice so that they will not have to depend on the interest rate to have a better performance.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.