Financial Ratio Analysis to Predict Financial Distress on Islamic Bank

Abstract

The purpose of this study was to determine the influence of Capital Adequacy Ratio, Financing to Deposite Ratio and Non-Performing Financing on Financial Distress. The object of research is 11 Islamic Commercial Banks registered in the Financial Services Authority (OJK) and Bank Indonesia (BI), with data from 2013 to 2017. The research was conducted with quantitative methods, to test the influence of independent variables on the dependent variable. Analysis of the data used is descriptive statistical analysis and hypothesis testing in the form of multiple linear regression tests, and assisted by SPSS software. The results of this study indicate that the Capital Adequacy Ratio, and Financing to Deposite Ratio each have no significant influence on financial distress, while Non-Performing Financing has a significant positive influence on Financial Distress.

The Impact of Car, Credit Risk, Roa, Ldr, and Ownership Structure Towards Financial Distress

“…Meanwhile, [5] stated that CAR has a positive and significant impact on Financial Distress. Furthermore, for Credit Risk, [3] and [6] stated that Credit Risk has a positive and significant impact on Financial Distress. Meanwhile, [8] stated that Credit Risk has a negative and significant impact on Financial Distress.…”

“…Where the higher the CAR level, it indicates the bank has more credit to offer which can increase the bank's profits, so that the bank's ability to bear risks is getting better, and can reduce the possibility of financial distress. Under these conditions, CAR is considered to have a relationship with signaling theory, because increasing CAR can give a positive signal to investors [6]. H1: CAR has a negative and significant effect on Financial Distress.…”

“…To maintain the sustainability of banking, this can be done by avoiding the risk of bankruptcy, and predicting financial distress conditions or Financial Distress so that internal and external parties can find out how the financial condition and performance of the banking sector are, and ways to overcome them can be made if needed [4]. Furthermore, there are several factors, both internally and externally, that can cause Financial Distress conditions, such as (1) low liquidity levels; (2) there is bad credit; (3) lack of company revenue; and (4) poor management performance within the company [3,5,6]. Not only that, with conditions such as the outbreak of coronavirus disease (COVID-19) and a decline in financial aspects such as ROA can also cause Financial Distress.…”

The Role of Early Warning System Components in Financial Distress: Evidence from Indonesian Islamic Banks

“…If a bank experiences a loss (negative profit) but the capital ratio is high enough, the bank is said to be healthy even though the condition is the loss. Hasibuan et al (2020), Purbayati (2020) and Pamungkas et al (2021) revealed that there is an effect of the NPF ratio on FD. It is explained that high NPF causes banks to lose sources of income from profit-sharing income and profit margin income, resulting in a decrease in profits and the potential for FD.…”

“…It is explained that the FDR value shows the low liquidity capacity and total bank financing, thus risking FD. Meanwhile, research by D. W. Sari (2017), Erni & Imron (2019) and Hasibuan et al (2020) shows that the FDR ratio does not affect FD. It is evidenced by the FDR ratio value of less than 94.75%, so the potential for FD is low.…”