Key Determinants of Indonesia’s Banks Financial Performance

Authors

  • Martin Panggabean Faculty of Economics and Business, Atma Jaya Catholic University of Indonesia http://orcid.org/0000-0001-9963-4879
  • Stefan Batara Panggabean Department of Mathematics, Institut Teknologi Bandung

DOI:

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

Keywords:

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

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.

Author Biographies

Martin Panggabean, Faculty of Economics and Business, Atma Jaya Catholic University of Indonesia

Department Head, Master in Applied Economics

Stefan Batara Panggabean, Department of Mathematics, Institut Teknologi Bandung

Student,

Department of Mathematics, 

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Published

2019-11-04