Effect of CAR and NPL on ROA: Empirical Study in Indonesia Banks

Abstract

This study seeks to analyze the effect of Non-Performing Loans and Capital Adequacy Ratio on Return on Assets on ten conventional banks listed on the Indonesia Stock Exchange (BEI-IDX). This study uses secondary panel data for 2015-2019 in the form of CAR and NPL values from ten conventional banks listed on the BEI-IDX during the 2020 observation period. The research approach is quantitative descriptive with data analysis methods, namely, linear regression. The testing phase of this study includes: transform value, F-test, T-test and hypothesis test with significancy level sig < 0.05. The results of this study reveal that Non-Performing Loans had a significant negative effect (t =-2,637) (0.011 <0.0) on Return on Assets, while Capital Adequacy Ratio has no significant effect on ROA (0.760 > 0.05). R2 value is 0.128 or 12.8%. It has a significant effect on variables, calling efforts by banks, governments, and authorities monetary of related institutions to maintain the stability of finance. The reduction of Non-Performing Loan impacts on assets and capital adequacy ratio, besides, the normal NPL will control the stability of finance. If a balance is created either in the form of values or amounts of the variables, the reduction in Non-Performing Loans will be controlled.

An analysis of factors that affect earnings quality on Islamic commercial banks: The case at Indonesia and Malaysia

“…However, in other studies, leverage does not contribute to earnings quality (Nadirsyah & Muharram, 2016;Soly & Wijaya, 2018;Hasanuddin et al, 2021). Likewise, liquidity also gives mixed results on earnings quality (Hasanuddin et al, 2021), but on the other hand, liquidity did not affect earnings quality (Herninta & Ginting, 2020). Furthermore, profitability, as proxied by return on assets (ROA), has no effect on earnings quality at commercial banks in Iraq (Imad et al, 2017), but in other studies, there is a partially significant effect of profitability on earnings quality (Herninta & Ginting, 2020;Purnamasari & Fachrurrozie, 2020;Risdawaty & Subowo, 2015;Warrad, 2017;Roy & Shijin, 2019).…”

“…Previous research on the factors that affect earnings quality gives mixed results, where there is a direct influence of leverage on earnings quality (Imad et al, 2017;Purnamasari & Fachrurrozie, 2020;Ramadan, 2015;Risdawaty & Subowo, 2015;Warrad, 2017). However, in other studies, leverage does not contribute to earnings quality (Nadirsyah & Muharram, 2016;Soly & Wijaya, 2018;Hasanuddin et al, 2021). Likewise, liquidity also gives mixed results on earnings quality (Hasanuddin et al, 2021), but on the other hand, liquidity did not affect earnings quality (Herninta & Ginting, 2020).…”

Islamic Humanity: A New Approach to Minimizing Non-Performing Financing at the Islamic Bank in Indonesia

“…Return on Assets focuses on the ability of a bank to benefit from its operations through its active capabilities. The higher the value of the non-performing loans or bad loans, the more it will affect the decline in profits/profits of a bank due to poor credit quality (Burton, Lauridsen, and Obel 2002;Selling and Stickney 1989;Tangngisalu et al 2020). Return on Assets is one of the basic measures to assess a company's profitability (Muhammad, Rehman, and Waqas, 2016;Qayyum and Noreen, 2019;Yanikkaya, Gümüş, and Pabuçcu, 2018) According to Firdaus and Ariyanti (2008), in general, the factors that cause problematic financing are (a) factors of the debtor (the character of the debtor's Customer and the ratio of capital to debt); (b) internal factors of financing.…”

Impact of Board Characteristics on Bank Risk: The Case of Vietnam

“…In other words, it reflects how much interest the company earns on 1 dong of the asset. The higher these figures, the better the ability to use assets (Tangngisalu et al, 2020). The authors assume that the bank with higher bank performance has an unfavorable relationship with risk (Banna, Ahmad, & Koh, 2017).…”