Banks should prioritize risk management

Oct 13, 2025 by talynt.org 75 views

The Influence of Non-Performing Loans, Capital Adequacy Ratio, Third Party Funds, and Return on Assets on Lending to Conventional Commercial Banks Listed on the Indonesia Stock Exchange for the Period 2018-2022

Introduction

The banking industry plays a vital role in the economy, providing financial services and facilitating economic growth through lending and credit distribution. However, the decision to provide credit is influenced by various financial indicators, which can either positively or negatively impact the distribution of credit. This study aims to investigate the influence of non-performing loans (NPLs), Capital Adequacy Ratio (CAR), Third Party Funds (DPK), and Return on Assets (ROA) on credit distribution to conventional commercial banks listed on the Indonesia Stock Exchange (IDX) during the 2018-2022 period.

Background

The banking industry in Indonesia has experienced significant growth in recent years, with the number of commercial banks increasing from 143 in 2015 to 155 in 2020 (Bank Indonesia, 2020). However, the industry has also faced challenges, including the rise of non-performing loans (NPLs), which have increased from 2.3% in 2015 to 3.4% in 2020 (Bank Indonesia, 2020). The high level of NPLs poses a significant risk to banks, as it can lead to a decline in credit distribution and ultimately affect economic growth.

Methodology

This study uses a quantitative descriptive method to analyze the influence of NPLs, CAR, DPK, and ROA on credit distribution to conventional commercial banks listed on the IDX during the 2018-2022 period. The population of this study consists of conventional banks listed on the IDX, with a sample of 35 banks and 175 observations. The purposive sampling method was used to select the sample, as it is a non-probability sampling method that involves selecting samples based on specific criteria.

Analysis and Findings

Non-Performing Loans Effects

The results of this study show that non-performing loans have a negative and significant impact on credit distribution. This indicates that the higher the level of NPLs in a bank, the lower the ability to distribute new credit. High NPLs reflect greater risks for banks, which can cause banks to be more careful in providing credit. This is consistent with the findings of previous studies, which have shown that high NPLs can lead to a decline in credit distribution and ultimately affect economic growth (Khan et al., 2019).

Capital Adequacy Ratio

Conversely, Capital Adequacy Ratio has a positive and significant effect on credit distribution. High CAR shows that banks have sufficient capital reserves to cover risks associated with credit granting. With adequate capital reserves, banks feel safer in distributing credit, which supports the growth of credit portfolio. This is consistent with the findings of previous studies, which have shown that high CAR can lead to an increase in credit distribution and ultimately affect economic growth (Santoso et al., 2018).

Third-party funds

Third party funds also show positive and significant effects on credit distribution. DPK is one of the main sources of financing for banks. The greater the funds raised from customers, the more credit that can be distributed. This creates multiplier effects in the economy, where the more credit is channeled, the more economic activities that can be encouraged. This is consistent with the findings of previous studies, which have shown that high DPK can lead to an increase in credit distribution and ultimately affect economic growth (Khan et al., 2019).

Return on Assets

Meanwhile, Return on Assets did not show a significant effect on credit distribution. Although ROA reflects the efficiency of the use of bank assets, this factor may not be a top priority in making credit decisions. This shows that banks consider more risk factors such as NPLs and CARs compared to ROA in the context of credit distribution. This is consistent with the findings of previous studies, which have shown that ROA may not be a significant factor in credit distribution (Santoso et al., 2018).

Conclusion

Overall, this study shows that NPLs, CAR, DPK, and ROA simultaneously affect the distribution of credit in conventional commercial banks listed on the IDX during the 2018-2022 period. These results provide important insights for bank management in decision making related to credit policies and risk management, as well as for investors who want to understand the factors that affect bank credit performance. Taking into account these factors, it is expected that banks can increase credit distribution effectively and sustainably in supporting economic growth.

Recommendations

Based on the findings of this study, the following recommendations are made:

Banks should prioritize risk management: Banks should prioritize risk management by reducing NPLs and increasing CAR to ensure that they have sufficient capital reserves to cover risks associated with credit granting.
Banks should increase DPK: Banks should increase DPK by attracting more customers and increasing the amount of funds raised from customers to increase credit distribution.
Banks should consider ROA: Banks should consider ROA as a factor in credit distribution, but not as a top priority, as it may not be a significant factor in credit distribution.
Regulators should monitor NPLs and CAR: Regulators should monitor NPLs and CAR to ensure that banks have sufficient capital reserves to cover risks associated with credit granting.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is limited to 35 banks and 175 observations, which may not be representative of the entire population of conventional commercial banks listed on the IDX.
Data availability: The data used in this study is limited to the 2018-2022 period, which may not be representative of the entire period of interest.
Methodology: The quantitative descriptive method used in this study may not be able to capture the complexity of the relationships between NPLs, CAR, DPK, and ROA and credit distribution.

Future Research Directions

Future research directions include:

Investigating the impact of NPLs and CAR on credit distribution in other countries: This study only investigated the impact of NPLs and CAR on credit distribution in Indonesia. Future research should investigate the impact of NPLs and CAR on credit distribution in other countries.
Investigating the impact of DPK on credit distribution in other countries: This study only investigated the impact of DPK on credit distribution in Indonesia. Future research should investigate the impact of DPK on credit distribution in other countries.
Investigating the impact of ROA on credit distribution in other countries: This study only investigated the impact of ROA on credit distribution in Indonesia. Future research should investigate the impact of ROA on credit distribution in other countries.

Conclusion

In conclusion, this study shows that NPLs, CAR, DPK, and ROA simultaneously affect the distribution of credit in conventional commercial banks listed on the IDX during the 2018-2022 period. These results provide important insights for bank management in decision making related to credit policies and risk management, as well as for investors who want to understand the factors that affect bank credit performance.
Frequently Asked Questions (FAQs) about the Influence of Non-Performing Loans, Capital Adequacy Ratio, Third Party Funds, and Return on Assets on Lending to Conventional Commercial Banks Listed on the Indonesia Stock Exchange for the Period 2018-2022

Q: What is the main objective of this study? A: The main objective of this study is to investigate the influence of non-performing loans (NPLs), Capital Adequacy Ratio (CAR), Third Party Funds (DPK), and Return on Assets (ROA) on credit distribution to conventional commercial banks listed on the Indonesia Stock Exchange (IDX) during the 2018-2022 period.

Q: What is the significance of this study? A: This study is significant because it provides insights into the factors that affect credit distribution in conventional commercial banks listed on the IDX. The findings of this study can be used by bank management to make informed decisions about credit policies and risk management, as well as by investors who want to understand the factors that affect bank credit performance.

Q: What are the key findings of this study? A: The key findings of this study are that NPLs, CAR, DPK, and ROA simultaneously affect the distribution of credit in conventional commercial banks listed on the IDX during the 2018-2022 period. Specifically, the study found that:

NPLs have a negative and significant impact on credit distribution.
CAR has a positive and significant impact on credit distribution.
DPK has a positive and significant impact on credit distribution.
ROA does not have a significant impact on credit distribution.

Q: What are the implications of this study? A: The implications of this study are that banks should prioritize risk management by reducing NPLs and increasing CAR to ensure that they have sufficient capital reserves to cover risks associated with credit granting. Additionally, banks should increase DPK by attracting more customers and increasing the amount of funds raised from customers to increase credit distribution.

Q: What are the limitations of this study? A: The limitations of this study are that the sample size is limited to 35 banks and 175 observations, which may not be representative of the entire population of conventional commercial banks listed on the IDX. Additionally, the data used in this study is limited to the 2018-2022 period, which may not be representative of the entire period of interest.

Q: What are the future research directions? A: The future research directions include investigating the impact of NPLs and CAR on credit distribution in other countries, investigating the impact of DPK on credit distribution in other countries, and investigating the impact of ROA on credit distribution in other countries.

Q: What are the recommendations for bank management and regulators? A: The recommendations for bank management and regulators are that banks should prioritize risk management by reducing NPLs and increasing CAR to ensure that they have sufficient capital reserves to cover risks associated with credit granting. Additionally, regulators should monitor NPLs and CAR to ensure that banks have sufficient capital reserves to cover risks associated with credit granting.

Q: What are the recommendations for investors? A: The recommendations for investors are that they should consider the factors that affect bank credit performance, including NPLs, CAR, DPK, and ROA, when making investment decisions.

Q: What are the conclusions of this study? A: The conclusions of this study are that NPLs, CAR, DPK, and ROA simultaneously affect the distribution of credit in conventional commercial banks listed on the IDX during the 2018-2022 period. The findings of this study provide insights into the factors that affect credit distribution in conventional commercial banks listed on the IDX and can be used by bank management to make informed decisions about credit policies and risk management, as well as by investors who want to understand the factors that affect bank credit performance.