Factors Affecting Non-Performing Loans In Banking Companies Listed On The Indonesian Stock Exchange 2018-2020

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Introduction

Understanding Non-Performing Loans (NPLs)

Non-Performing Loans (NPLs) or problem loans is one of the crucial issues faced by the banking industry. NPL refers to loans that cannot be paid by debtors in the specified time. This study aims to analyze the effect of factors such as Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), and Return on Assets (ROA) on the level of non-performance loans in banking companies listed on the Indonesia Stock Exchange during the 2018 period until 2020.

Background of the Study

The banking industry plays a vital role in the economy of a country. It provides financial services to individuals, businesses, and governments. However, the banking industry is also prone to risks, one of which is credit risk. Credit risk occurs when a borrower fails to repay a loan. Non-Performing Loans (NPLs) are a major concern for banks as they can lead to financial losses and damage to the bank's reputation.

The Importance of Understanding NPLs

Understanding the factors that affect NPLs is crucial for banks to manage credit risk effectively. By identifying the factors that contribute to NPLs, banks can take preventive measures to reduce the risk of non-performing loans. This study aims to contribute to the existing literature on NPLs by analyzing the effect of CAR, LDR, and ROA on NPLs in banking companies listed on the Indonesia Stock Exchange.

Methodology

Research Design

This study uses a quantitative research design. The agency theory approach was used as a theoretical framework that underlies analysis. The agency theory emphasizes the importance of the relationship between the owner and manager in managing the company, which also affects the management of credit risk.

Sampling Technique

The research method used is quantitative with purposive sampling technique, which produces a sample of 30 banking companies. The data used is taken from the official website of the Indonesia Stock Exchange.

Results

The Effect of CAR on NPLs

The results showed that the Capital Adequacy Ratio (CAR) did not have a significant effect on non-performance loans. This shows that although CAR is an important indicator in the management of bank financial and financial management, it does not directly affect the level of problem loans.

The Effect of LDR on NPLs

The results also showed that the Loan to Deposit Ratio (LDR) did not have a significant effect on non-performance loans. This shows that although LDR is an important indicator in the management of bank financial and financial management, it does not directly affect the level of problem loans.

The Effect of ROA on NPLs

Conversely, Return on Assets (ROA) are proven to have a positive and significant influence on non-performance loans. That is, the higher the profitability generated by the bank, the lower the level of non-performing loans that can occur.

Discussion

The Relationship Between ROA and NPLs

Further analysis of the effect of return on assets shows that an efficient bank in generating profits tends to have better control of credit risk. Banks that are able to generate higher profits usually have a tighter credit assessment process and better risk management. Thus, solid financial performance can increase the ability of banks to detect and reduce the potential of problem loans before becoming greater problems.

Implications of the Study

Based on these findings, bank management must pay attention to aspects that can increase their return on assets as a strategic step in reducing non-performance loans. In addition, it is also important for regulators to strengthen supervision of credit risk management practices in financial institutions, as well as encouraging transparency in reporting financial performance.

Conclusion

With a deep understanding of the factors that influence non-performance loans, the banking industry is expected to take more effective preventive steps in managing credit risk and ensuring healthy operational sustainability.

Recommendations

Recommendations for Bank Management

Bank management must pay attention to aspects that can increase their return on assets as a strategic step in reducing non-performance loans.

Recommendations for Regulators

Regulators must strengthen supervision of credit risk management practices in financial institutions, as well as encouraging transparency in reporting financial performance.

Limitations of the Study

This study has several limitations. Firstly, the study only analyzed the effect of CAR, LDR, and ROA on NPLs in banking companies listed on the Indonesia Stock Exchange. Secondly, the study only used a sample of 30 banking companies. Finally, the study only analyzed the data for the period of 2018-2020.

Future Research Directions

Future research can build on this study by analyzing the effect of other factors on NPLs, such as interest rates, inflation, and economic growth. Additionally, future research can also analyze the effect of NPLs on the banking industry as a whole.

References

Q1: What is Non-Performing Loans (NPLs) and why is it a concern for banks?

A1: Non-Performing Loans (NPLs) refer to loans that cannot be paid by debtors in the specified time. NPLs are a major concern for banks as they can lead to financial losses and damage to the bank's reputation.

Q2: What are the factors that affect NPLs in banking companies listed on the Indonesia Stock Exchange?

A2: The factors that affect NPLs in banking companies listed on the Indonesia Stock Exchange include Capital Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), and Return on Assets (ROA).

Q3: What is the Capital Adequacy Ratio (CAR) and how does it affect NPLs?

A3: The Capital Adequacy Ratio (CAR) is a measure of a bank's capital adequacy. It is calculated by dividing a bank's total capital by its total risk-weighted assets. The CAR did not have a significant effect on NPLs in this study.

Q4: What is the Loan to Deposit Ratio (LDR) and how does it affect NPLs?

A4: The Loan to Deposit Ratio (LDR) is a measure of a bank's lending activity. It is calculated by dividing a bank's total loans by its total deposits. The LDR did not have a significant effect on NPLs in this study.

Q5: What is the Return on Assets (ROA) and how does it affect NPLs?

A5: The Return on Assets (ROA) is a measure of a bank's profitability. It is calculated by dividing a bank's net income by its total assets. The ROA had a positive and significant effect on NPLs in this study.

Q6: What are the implications of the study for bank management?

A6: The study suggests that bank management must pay attention to aspects that can increase their return on assets as a strategic step in reducing non-performance loans.

Q7: What are the implications of the study for regulators?

A7: The study suggests that regulators must strengthen supervision of credit risk management practices in financial institutions, as well as encouraging transparency in reporting financial performance.

Q8: What are the limitations of the study?

A8: The study has several limitations, including the use of a sample of 30 banking companies and the analysis of data for the period of 2018-2020.

Q9: What are the future research directions?

A9: Future research can build on this study by analyzing the effect of other factors on NPLs, such as interest rates, inflation, and economic growth. Additionally, future research can also analyze the effect of NPLs on the banking industry as a whole.

Q10: What are the practical implications of the study for the banking industry?

A10: The study suggests that the banking industry must take more effective preventive steps in managing credit risk and ensuring healthy operational sustainability.

Q11: What are the policy implications of the study?

A11: The study suggests that policymakers must strengthen supervision of credit risk management practices in financial institutions, as well as encouraging transparency in reporting financial performance.

Q12: What are the implications of the study for the economy?

A12: The study suggests that the economy must take into account the impact of NPLs on the banking industry and the overall economy.

Q13: What are the implications of the study for the financial sector?

A13: The study suggests that the financial sector must take into account the impact of NPLs on the banking industry and the overall financial sector.

Q14: What are the implications of the study for the banking industry's risk management practices?

A14: The study suggests that the banking industry must take into account the impact of NPLs on its risk management practices and ensure that it has effective risk management systems in place.

Q15: What are the implications of the study for the banking industry's financial performance?

A15: The study suggests that the banking industry must take into account the impact of NPLs on its financial performance and ensure that it has effective financial management systems in place.

Q16: What are the implications of the study for the banking industry's credit risk management practices?

A16: The study suggests that the banking industry must take into account the impact of NPLs on its credit risk management practices and ensure that it has effective credit risk management systems in place.

Q17: What are the implications of the study for the banking industry's asset quality?

A17: The study suggests that the banking industry must take into account the impact of NPLs on its asset quality and ensure that it has effective asset quality management systems in place.

Q18: What are the implications of the study for the banking industry's liquidity management?

A18: The study suggests that the banking industry must take into account the impact of NPLs on its liquidity management and ensure that it has effective liquidity management systems in place.

Q19: What are the implications of the study for the banking industry's capital adequacy?

A19: The study suggests that the banking industry must take into account the impact of NPLs on its capital adequacy and ensure that it has effective capital adequacy management systems in place.

Q20: What are the implications of the study for the banking industry's overall performance?

A20: The study suggests that the banking industry must take into account the impact of NPLs on its overall performance and ensure that it has effective overall performance management systems in place.

Q21: What are the implications of the study for the banking industry's risk management framework?

A21: The study suggests that the banking industry must take into account the impact of NPLs on its risk management framework and ensure that it has effective risk management framework in place.

Q22: What are the implications of the study for the banking industry's financial stability?

A22: The study suggests that the banking industry must take into account the impact of NPLs on its financial stability and ensure that it has effective financial stability management systems in place.

Q23: What are the implications of the study for the banking industry's credit risk management framework?

A23: The study suggests that the banking industry must take into account the impact of NPLs on its credit risk management framework and ensure that it has effective credit risk management framework in place.

Q24: What are the implications of the study for the banking industry's asset quality management framework?

A24: The study suggests that the banking industry must take into account the impact of NPLs on its asset quality management framework and ensure that it has effective asset quality management framework in place.

Q25: What are the implications of the study for the banking industry's liquidity management framework?

A25: The study suggests that the banking industry must take into account the impact of NPLs on its liquidity management framework and ensure that it has effective liquidity management framework in place.

Q26: What are the implications of the study for the banking industry's capital adequacy management framework?

A26: The study suggests that the banking industry must take into account the impact of NPLs on its capital adequacy management framework and ensure that it has effective capital adequacy management framework in place.

Q27: What are the implications of the study for the banking industry's overall performance management framework?

A27: The study suggests that the banking industry must take into account the impact of NPLs on its overall performance management framework and ensure that it has effective overall performance management framework in place.

Q28: What are the implications of the study for the banking industry's risk management practices?

A28: The study suggests that the banking industry must take into account the impact of NPLs on its risk management practices and ensure that it has effective risk management practices in place.

Q29: What are the implications of the study for the banking industry's financial performance?

A29: The study suggests that the banking industry must take into account the impact of NPLs on its financial performance and ensure that it has effective financial performance management systems in place.

Q30: What are the implications of the study for the banking industry's credit risk management practices?

A30: The study suggests that the banking industry must take into account the impact of NPLs on its credit risk management practices and ensure that it has effective credit risk management practices in place.

Q31: What are the implications of the study for the banking industry's asset quality?

A31: The study suggests that the banking industry must take into account the impact of NPLs on its asset quality and ensure that it has effective asset quality management systems in place.

Q32: What are the implications of the study for the banking industry's liquidity management?

A32: The study suggests that the banking industry must take into account the impact of NPLs on its liquidity management and ensure that it has effective liquidity management systems in place.

Q33: What are the implications of the study for the banking industry's capital adequacy?

A33: The study suggests that the banking industry must take into account the impact of NPLs on its capital adequacy and ensure that it has effective capital adequacy management systems in place.

Q34: What are the implications of the study for the banking industry's overall performance?

A34: The study suggests that the banking industry must take into account the impact of NPLs on its overall performance and ensure that it has effective overall performance management systems in place.

Q35: What are the implications of the study for the banking industry's risk management framework?

A35: The study suggests that the banking industry must take into account the impact of NPLs on its risk management framework and ensure that it has effective risk management framework