Determinants Of Rural Bank's Rentability In Indonesia: Data Panel Approach

Abstract

This study aims to investigate the determinants of the rentability of rural banks in Indonesia. Rural bank rentability in Indonesia in this study uses Return on Assets (ROA). This study also uses bank-specific CAR, NPL, LDR, Bank Size and Third Party-Fund growth factors as independent variables. The Generalized Method of Moments (GMM) fixed model is built on 5-year panel data for 295 rural banks in Indonesia. The results showed that all specific factors, except Bank Size, had a significant effect on rentability as measured by ROA. Furthermore, the results showed that the ratio of capital, credit quality, liquidity and growth ratio of third party funds are significant variables of rentability in the context of rural banks in Indonesia. The results provide a better insight into the Indonesian banking sector and the determinants of rentability, particularly rural banks.