The Effect of Liquidity, Leverage and Bank’s Size on Bank’s Profitability of Indonesian Listed Bank

Abstract

<p><em>The purpose of this study is to determine the impact of liquidity, leverage and bank size on profitability in Indonesian conventional banking sector</em><em> as the influencer of economic movements in this country</em><em>. This study employed the total of 29 commercial banks listed on Indonesia Stock Exchange during the period of 2010-2019. There are total of 290 observations made in the study. The dependent variable used in this study is bank’s profitability measured by return on asset (ROA), return on equity (ROE) and net interest margin (NIM). The independent variables are liquidity</em><em> measured by loan to deposit ratio (LDTR)</em><em>, leverage</em><em> measured by equity to asset ratio (ETAR)</em><em> and bank size</em><em> measured by natural log of total asset (LNTA) </em><em>. The result shows that liquidity was observed to has insignificant negative impact on bank’s ROA and ROE, and positively affect NIM but statistically insignificant. While leverage has negative but insignificant impact on ROA and NIM, and significanlly has negative affect on ROE. Meanwhile, bank size has positive and significant impact on ROA, then has insignificant negative impact on ROE, and significantly has negative affect on NIM.This study could help the internal management of Indonesian conventional banking sector to make policy and decision in order to improve bank’s profitability.</em><em></em><em></em></p>

Determinants of Profitability in Banking Sector: Empirical Evidence from Bangladesh

“…Present study showed that the inflation rate has no positive impact on productivity. Few studies have proved the similar result like Bhattarai [40], ] Lestaria et al [27], Sukmana R., Febriyati [55], inflation on of determinates of profitability of bank that with induce high volume of bank's loan which is affected bank profitability. Table 7 showed that GDP growth rate has a positive impact on banks profitability [56].…”

“…Moudud-Ul-Huq, Halim and Biswas [26] conducted a study on completion and profitability of banks from Middle East and North African countries during 2011-2017 found a significant negative impact of completion on bank's profitability. Lestaria, et al [27] found that there is a negative impact of liquidity and leverage on profitability (ROE) and positive impact of bank size on profitability.…”

Liquidity Potential Analysis of Sharia Banks Using Stock-Based and Flow-Based Methods

“…Profitability measures management efficiency in using organizational resources to add business value. Profitability can be considered a relative term to measure profit and its relationship with other elements directly affecting company profits (Lestari et al, 2021).…”

“…Return on assets (ROA) is one of the indicators of profitability used to measure the efficiency of a company in generating profits from the management of company assets. ROA shows the company's profit relative to the total assets owned, calculated by net profit to total assets (Lestari et al, 2021). ROA as indicators for measuring bank profitability and measured by the following formula: ROA = Many studies discuss the relationship between bank liquidity and profitability (Moussa & Boubaker, 2020).…”

“…The study of Lestari et al, 2021 on the Effect of Liquidity, Leverage and Bank's Size of the Profitability Conventional Banks Listed on Indonesia Stock Exchange found that liquidity measured by loan to deposit ratio (LDTR) has an insignificant negative impact on bank's ROA and ROE. The Study with title The Impact of Liquidity on Bank Profitability found that (liquid assets / total assets) and (total credits/total deposits) have a negative and significant impact on ROE (return on equity).…”