Determinants Of Profit Growth In BPRs In North Sumatra Province 2015-2021 Period

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Determinants of Profit Growth in BPRs in North Sumatra Province 2015-2021 Period

Introduction

The banking industry in Indonesia has experienced significant growth over the past few decades, with the People's Credit Bank (BPR) being one of the key players in the sector. BPRs are specialized banks that provide financial services to the rural and underserved communities in Indonesia. Despite their importance, BPRs face numerous challenges, including high non-performing loans (NPLs), low operational efficiency, and limited access to capital. In this study, we aim to identify the determinants of profit growth in BPRs in North Sumatra Province during the 2015-2021 period.

Background

The banking industry in Indonesia is highly competitive, with numerous BPRs operating in the market. To remain competitive, BPRs need to focus on improving their operational efficiency, managing their risk exposure, and increasing their profitability. However, BPRs in North Sumatra Province face unique challenges, including high NPLs, low operational efficiency, and limited access to capital. These challenges can have a significant impact on the profitability of BPRs in the region.

Methodology

This study uses a quantitative approach to analyze the determinants of profit growth in BPRs in North Sumatra Province. The data used in this study is sourced from the Financial Services Authority (OJK) and covers the period from 2015 to 2021. The data analysis technique used is panel regression analysis, which allows us to examine the relationship between the independent variables and the dependent variable (profit growth).

Independent Variables

The independent variables studied in this research include:

  • Non-Performing Loans (NPLs)
  • Loan to Deposit Ratio (LDR)
  • Return on Assets (ROA)
  • Return on Equity (ROE)
  • Net Profit Margin (NPM)
  • Gross Profit Margin (GPM)
  • Net Interest Margin (NIM)
  • Operational Efficiency (BOPO)
  • Capital Adequacy Ratio (CAR)
  • Productive Asset Quality (KAP)
  • Debt to Equity Ratio (DER)

Dependent Variable

The dependent variable studied in this research is profit growth.

Results

The results of this study show that the NPL and NIM variables have a significant negative impact on earnings growth. This suggests that high NPLs and low NIMs can have a negative impact on the profitability of BPRs in North Sumatra Province. On the other hand, the LDR, ROE, CAR, and DER variables show positive but insignificant effects on earnings growth. This suggests that while these variables may have a positive impact on profitability, they are not significant in this study.

Analysis of Determinants of Profit Growth

Effect of NPL and NIM

Non-Performing Loans (NPL) is one of the crucial factors in assessing BPR financial health. High NPLs indicate that many loans are not smooth, which can interfere with cash flow and reduce profits. It also reflects a higher credit risk. Meanwhile, the low net interest margin (NIM) shows that the difference between interest received from loans and interest paid to depositors is also not optimal, thereby affecting potential earnings.

The role of LDR, ROE, CAR, and DER

Although the Loan to Deposit Ratio (LDR) and Capital Adequacy Ratio (CAR) are important indicators in the management of liquidity and capital, in this study, both showed an insignificant positive influence. This can occur because of inefficient management in the use of funds obtained from deposits. Return on equity (ROE) and Debt to Equity Ratio (DER) also show a similar pattern, where the influence is positive but not significant, indicating that shareholders may not get a proportional return with the risks taken.

Significance of NPM, Bopo, and KAP

Net Profit Margin (NPM) and Operational Efficiency (BOPO) show a significant relationship with earnings growth. High NPM indicates efficiency in operations, while low BOPO shows that BPR operational costs are well managed. Productive Asset Quality (KAP) is also an important indicator, because the quality of good productive assets can encourage better profit growth.

Conclusion

Overall, this research provides an important insight into the determinant of profit growth in the North Sumatra Province BPR. BPRs need to pay attention to good NPL and NIM management and increase operational efficiency to achieve optimal earnings growth. The results of this study also showed the need for more attention to the factors that had a significant impact, such as NPM, BOPO, and KAP, so that BPRs could operate more effectively in maximizing future profit potential.

Useful Resources

  • Financial Services Authority (OJK) - ojk.go.id
  • Book "Financial Management: Theory and Practice" by T. Harjito and I. Marshal
  • Applied Economics and Business Journal- ejournal.stie-aas.ac.id

Recommendations

Based on the findings of this study, we recommend that BPRs in North Sumatra Province focus on improving their operational efficiency, managing their risk exposure, and increasing their profitability. Specifically, BPRs should:

  • Improve their NPL management by reducing the number of non-performing loans and increasing the recovery rate.
  • Increase their operational efficiency by reducing costs and improving productivity.
  • Focus on increasing their profitability by improving their net interest margin and net profit margin.
  • Pay attention to the factors that had a significant impact, such as NPM, BOPO, and KAP, to operate more effectively in maximizing future profit potential.

By implementing these recommendations, BPRs in North Sumatra Province can improve their profitability and contribute to the economic development of the region.
Frequently Asked Questions (FAQs) about Determinants of Profit Growth in BPRs in North Sumatra Province 2015-2021 Period

Q: What is the main objective of this study?

A: The main objective of this study is to identify the determinants of profit growth in BPRs in North Sumatra Province during the 2015-2021 period.

Q: What are the independent variables studied in this research?

A: The independent variables studied in this research include:

  • Non-Performing Loans (NPLs)
  • Loan to Deposit Ratio (LDR)
  • Return on Assets (ROA)
  • Return on Equity (ROE)
  • Net Profit Margin (NPM)
  • Gross Profit Margin (GPM)
  • Net Interest Margin (NIM)
  • Operational Efficiency (BOPO)
  • Capital Adequacy Ratio (CAR)
  • Productive Asset Quality (KAP)
  • Debt to Equity Ratio (DER)

Q: What is the dependent variable studied in this research?

A: The dependent variable studied in this research is profit growth.

Q: What are the results of this study?

A: The results of this study show that the NPL and NIM variables have a significant negative impact on earnings growth. On the other hand, the LDR, ROE, CAR, and DER variables show positive but insignificant effects on earnings growth.

Q: What are the implications of this study?

A: The implications of this study are that BPRs in North Sumatra Province need to pay attention to good NPL and NIM management and increase operational efficiency to achieve optimal earnings growth. The results of this study also showed the need for more attention to the factors that had a significant impact, such as NPM, BOPO, and KAP, so that BPRs could operate more effectively in maximizing future profit potential.

Q: What are the recommendations of this study?

A: Based on the findings of this study, we recommend that BPRs in North Sumatra Province focus on improving their operational efficiency, managing their risk exposure, and increasing their profitability. Specifically, BPRs should:

  • Improve their NPL management by reducing the number of non-performing loans and increasing the recovery rate.
  • Increase their operational efficiency by reducing costs and improving productivity.
  • Focus on increasing their profitability by improving their net interest margin and net profit margin.
  • Pay attention to the factors that had a significant impact, such as NPM, BOPO, and KAP, to operate more effectively in maximizing future profit potential.

Q: What are the limitations of this study?

A: The limitations of this study are:

  • The study only focuses on BPRs in North Sumatra Province and may not be generalizable to other regions.
  • The study only uses quantitative data and may not capture the qualitative aspects of the determinants of profit growth.
  • The study only examines the determinants of profit growth and may not consider other factors that may affect the profitability of BPRs.

Q: What are the future research directions?

A: The future research directions are:

  • To conduct a similar study in other regions to see if the findings are generalizable.
  • To use qualitative data to capture the qualitative aspects of the determinants of profit growth.
  • To examine other factors that may affect the profitability of BPRs.

Q: What are the practical implications of this study?

A: The practical implications of this study are that BPRs in North Sumatra Province can use the findings of this study to improve their operational efficiency, manage their risk exposure, and increase their profitability. The study can also be used as a reference for policymakers and regulators to develop policies and regulations that support the growth and development of BPRs in the region.