Panel Data Analysis Of Profitability Determinants: Evidence From Rural Bank’s Indonesia

Abstract

This study aims to investigate determinants of profitability’s rural bank in Indonesia. The method used in this study uses panel data analysis. The data used are secondary data obtained from Bank publication reports during period 2009 - 2018. The population used in this study is rural banks in East Java and sample selection based on purposive sampling. Empirical investigation shows that capital, non-performing loan, operations efficiency, and credit growth have a strong relationship to profitability’s bank. Net interest margin and cash ration do not have relationship to bank perform. The high level of non-performing loans reduces the ability of banks to disburse further loans, thus affecting the bank's profitability. This requires banks to have strong capital. Inefficient bank management also disrupts bank capital which can reduce bank profitability. Rural bank needs to continuously improve its efficiency in order to avoid the risk of bankruptcy. Credit growth also needs to be accompanied by good credit quality so that it does not increase non-performing loans and has the opportunity to earn high interest income. This study is useful to determine the indicators of bank profitability which are reflected in financial ratios to ensure the continuity of the bank's business, especially rural bank by using bank-specific variables.