DOI: https://doi.org/10.9744/jak.21.2.58-67

Key Determinants of Indonesia’s Banks Financial Performance

Martin Panggabean, Stefan Batara Panggabean

Abstract


Depositors, investors, as well as public in general need easily accessible indicators that are important to differentiate various banks. This research addresses simultaneously two important issues: analyzing and identifying which key publicly available financial indicators of banks are important, as well as approximating the weight of the aforementioned indicators when banks’ comparisons are to be made. Utilizing the recent 2017 database from 90 conventional banks, this study analyzes 17 banking ratios using the method of principal component analysis. The calculations show that five components explain around 75 percent of total variation in the data. Those five components represent indicators on profitability, quality of capital, quality of loans, fee-based activities, and liquid assets in the balance sheets. Further, by combining five principal components, the result shows that even small banks can achieve good financial performances.


Keywords


Bank comparisons; capital quality; financial ratios; indonesia banking; loan quality; principal component analysis; profitability; JEL; G21; C38; D22

Full Text:

PDF

References


  1. Abdi, H., and Williams, L. J. (2010). Principal component analysis. Wiley interdisciplinary reviews: computational statistics, 2(4), 433–459. doi: https://doi.org/10.1002/wics.101

  2. Alfansi, L., and Sargeant, A. (2000). Market segmentation in the Indonesian banking sector: the relationship between demographics and desired customer benefits. International Journal of Bank Marketing, 18(2), 64–74. doi: https://doi.org/10.1108/02652320010322976

  3. Benink, H., and Wihlborg, C. (2002). The new Basel capital accord: making it effective with stronger market discipline. European Financial Management, 8(1), 103–115. doi: https://doi.org/ 10.1111/1468-036X.00178

  4. Demirgüç-Kunt, A., and Huizinga, H. (2004). Market discipline and deposit insurance. Journal of Monetary Economics, 51(2), 375–399. doi: https://doi.org/10.1016/j.jmoneco.2003.04.001

  5. Dewi, F. S., Arifati, R., and Andini, R. (2016). Analysis of Effect of CAR, ROA, LDR, Company Size, NPL, and GCG to Bank Profitability (Case Study on Banking Companies Listed in BEI Period 2010-2013). Journal Of Accounting, 2(2). http://jurnal.unpand.ac.id/ index.php/AKS/article/view/465

  6. Dietrich, A., and Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions and Money, 21(3), 307–327. doi: https://doi.org/10.1016/j.intfin.2010.11.002

  7. Firmansyah, G., Hasibuan, Z. A., and Sucahyo, Y. G. (2014). Indonesia e-Government components: A principal component analysis approach. In Information Technology Systems and Innovation (ICITSI), 2014 International Conference on (pp. 148–152). IEEE. doi: https://doi.org/10.1109/ICITSI.2014.7048255

  8. Gasbarro, D., Sadguna, I. G. M., and Zumwalt, J. K. (2002). The changing relationship between CAMEL ratings and bank soundness during the Indonesian banking crisis. Review of Quantitative Finance and Accounting, 19(3), 247–260.

  9. Johnson, R. A., Johnson, R. A., and Wichern, D. W., Applied multivariate stastistical analysis, Prentice-Hall of India Private Limited., 2003.

  10. Leon, S. J., Linear algebra with applications, eight edition, Prentice Hall, Inc., New Jersey, 2010. doi: https://doi.org/10.1080/1062936060 0678310

  11. Mihailović, N. (2016). Ranking of banks in Serbia. Yugoslav Journal of Operations Research, 19(2). http://www.yujor.fon.bg.ac.rs/index. php/yujor/article/download/330/221

  12. Otoritas Jasa Keuangan. (2016). Peraturan otoritas jasa keuangan nomor 6 /pojk.03/2016 tentang kegiatan usaha dan jaringan kantor berdasarkan modal inti bank. Indonesia. https://www.ojk.go.id/id/kanal/perbankan/regulasi/peraturan-ojk/Documents/Pages/pojk-kegiatan-usaha-dan-jaringan-kantor-berdasarkan-modal-inti-bank/SALINAN-POJK.6 BUKU.pdf

  13. Otoritas Jasa Keuangan. (2017). Statistik Perbankan Indonesia. Jakarta. http://www. ojk.go.id/id/kanal/perbankan/data-dan-statistik/statistik-perbankan-indonesia/Pages/ Statistik-Perbankan-Indonesia---November-2017.aspx

  14. Patrick, H. (1997). Banking System Failures in Developing and Transition Countries; Diagnosis and Predictions. BIS Economic Paper.

  15. Petroni, A., and Braglia, M. (2000). Vendor selection using principal component analysis. Journal of supply chain management, 36(1), 63–69. doi: https://doi.org/10.1111/j.1745-493X. 2000.tb00078.x

  16. Rochet, J.-C. (2004). Macroeconomic shocks and banking supervision. Journal of Financial Stability, 1(1), 93–110. doi: https://doi.org/ 10.1016/j.jfs.2004.06.004

  17. Rojas-Suarez, L. (2002). Rating banks in emerging markets: What credit rating agencies should learn from financial indicators. In Ratings, rating agencies and the global financial system (pp. 177–201). Springer.

  18. Said, R. M., and Tumin, M. H. (2011). Performance and financial ratios of commercial banks in Malaysia and China. International Review of Business Research Papers, 7(2), 157–169. https://www.bizresearchpapers.com/ 11. Rasidah-FINAL.pdf

  19. Sastrosuwito, S., and Suzuki, Y. (2011). Post crisis Indonesian banking system profitability: bank-specific, industry-specific, and macroeconomic determinants. In The 2nd International Research Symposium in Service Management (pp. 588–597). https://www.researchgate.net/ profile/Yasushi_Suzuki3/publication/267566466_Post_Crisis_Indonesian_Banking_System_Profitability_Bank-Specific_Industry-Specific_and_Macroeconomic_Determinants/links/549d1d410cf2fedbc30ff693.pdf

  20. Sato, Y. (2005). Bank restructuring and financial institution reform in Indonesia. The Developing Economies, 43(1), 91–120. doi: https://doi.org/10.1111/j.17461049.2005.tb00254.x

  21. Sharma, S., and Sharma, S. (1996). Applied multivariate techniques. John Wiley & Sons. ISBN: 978-0471310648.

  22. Shlens, J. (2014). A tutorial on principal component analysis. arXiv preprint arXiv:1404. 1100.

  23. Stork, D. G., Hart, P. E., and Duda, R. O., Pattern Classification, Second Edition, John Wiley & Sons. ISBN: 978-0471056690.

  24. Stoica, O., Mehdian, S., and Sargu, A. (2015). The impact of internet banking on the performance of Romanian banks: DEA and PCA approach. Procedia Economics and Finance, 20, 610–622. https://www.science-direct.com/science/article/pii/S221256711500115X

  25. Teo, L. E., Enoch, C., Lindgren, C.-J., Baliño, T. J. T., Gulde, A. M., and Quintyn, M. G. (2000). Financial Sector Crisis and Restructuring; Lessons from Asia: Lessons from Asia. International Monetary Fund. https://www. imf.org/en/Publications/Occasional-Papers/ Issues/2016/12/30/Financial-Sector-Crisis-and-Restructuring-Lessons-from-Asia-Lessons-from-Asia-3395

  26. Tsai, C.-F. (2009). Feature selection in bankruptcy prediction. Knowledge-Based Systems, 22(2), 120–127. doi: https://doi.org/10.1016/ j.knosys.2008.08.002

  27. Ueda, T., and Hoshiai, Y. (1997). Application of principal component analysis for parsimonious summarization of DEA inputs and/or outputs. Journal of the Operations Research Society of Japan, 40(4), 466–478. https://www. jstage.jst.go.jp/article/jorsj/40/4/40_KJ00001203119/_article/-char/ja/

  28. Victor, S., Zhang, Q., and Mingxing, L. (2007). Comparing the performance of Chinese banks: a principal component approach. China Economic Review, 18(1), 15–34. doi: https://doi.org/10.1016/j.chieco.2006.11.001

  29. Von Luebke, C. (2010). The politics of reform: political scandals, elite resistance, and presidential leadership in Indonesia. Journal of Current Southeast Asian Affairs, 29(1), 79–94. http://journals.sub.uni-hamburg.de/giga/jsaa/ article/view/210

  30. Widiarti, A. W., Siregar, H., and Andati, T. (2015). The determinants of bank’s efficiency in indonesia. Bulletin of Monetary Economics and Banking, 18(2), 129–156. doi: https://doi. org/10.21098/bemp.v18i2.520

  31. World Bank. (2016). World Development Indicators 2016, World Bank. doi: 10.1596/978-0-8213-7386-6

  32. Yazici, B., and Yolacan, S. (2007). A comparison of various tests of normality. Journal of Statistical Computation and Simulation, 77(2), 175–183. doi: https://doi.org/10.1080/ 10629360600678310

  33. Yoshino, N., and Taghizadeh-Hesary, F. (2015). Analysis of credit ratings for small and medium-sized enterprises: Evidence from Asia. Asian Development Review, 32(2), 18–37. doi: https://doi.org/10.1162/ADEV_a_00050.




DOI: https://doi.org/10.9744/jak.21.2.58-67



Template for Preparing Article for JAK

The Journal is published by The Institute of Research & Community Outreach - Petra Christian University. It available online supported by Directorate General of Higher Education - Ministry of National Education - Republic of Indonesia.

©All right reserved 2018. Jurnal Akuntansi dan Keuangan, ISSN: 1411-0288, e-ISSN: 2338-8137

click tracking
View My Stats