Operational burden on operating income

Oct 13, 2025 by talynt.org 138 views

Introduction

In the banking world, financial performance is a crucial aspect that maintains public trust and attracts investors. The performance of a bank is often measured through Return on Assets (ROA), which reflects the efficiency of the use of bank assets in generating profits. This study aims to analyze the effect of several financial ratios, including Capital Adequacy Ratio (CAR), operational expenses to operating income, net interest margin (NIM), non-performance loans (NPLs), loans to financial ratios, and required demand deposits to ROA. In addition, this research will also explore the role of third party funds as a moderating variable that can affect the relationship between these ratios and bank financial performance.

Background of the Study

The banking industry in Indonesia has experienced significant growth in recent years, with the number of banks increasing from 143 in 2011 to 137 in 2015. However, this growth has also led to increased competition, making it essential for banks to maintain high financial performance to remain competitive. Financial performance is a critical aspect of a bank's success, as it reflects the bank's ability to generate profits from its assets. ROA is a widely used metric to measure financial performance, and it is essential to understand the factors that affect ROA.

Research Methodology

This study uses a comparative causal approach with a population consisting of banks listed on the Indonesia Stock Exchange during the 2011 to 2015 period. From the population, 20 banks were chosen as samples using systematic random sampling methods. To analyze data, multiple linear regression analysis is used and residual tests to test the effect of moderation of third party funds.

Research Result

Based on the results of the analysis using the F test, it was found that simultaneously, the financial ratios analyzed affected ROA. However, in the T test analysis conducted partially, the results show that:

Capital Adequacy Ratio and Operational burden on operating income, and Non-Performing loans, Loan to Financial Ratio, and Giro must be minimum negative effect on ROA.
Conversely, Net Interest Margin shows a positive effect on ROA.

Interestingly, the residual test results show that third party funds have the ability to moderate the relationship between the financial ratios and ROA. This indicates that the growth of third party funds can strengthen or weaken the impact of financial ratios on bank performance.

Deeper Analysis

The negative influence of several financial ratios to ROA, as seen in the Capital Adequacy Ratio and operational expenses to operational income, could be caused by high operating costs that are not matched by increased income. This shows the need for more efficient cost management so that banks can increase their ROA. On the other hand, the positive influence of the net interest margin shows that the increase in net interest margin has the potential to generate better profits for banks, thereby increasing ROA.

The role of third party funds as a moderating variable also cannot be ignored. With good growth in third party funds, banks can increase their liquidity and capital, which in turn can improve other financial ratios. This underlines the importance of a good third-party fund management strategy for banks, especially in the context of competition in the Indonesian banking market.

Conclusion

This study confirms that financial ratios have a significant impact on banking financial performance measured through ROA. The growth of third party funds functions as a moderating variable that can affect the strength of the relationship between the ratios and bank performance. Therefore, to improve financial performance, banks need to focus on managing financial ratios and optimizing the growth of third party funds.

Recommendations

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

Banks should focus on managing their financial ratios, particularly the Capital Adequacy Ratio and operational expenses to operating income, to improve their ROA.
Banks should also optimize the growth of third party funds to increase their liquidity and capital, which can improve other financial ratios.
Banks should develop a good third-party fund management strategy to remain competitive in the Indonesian banking market.

Limitations of the Study

This study has several limitations, including:

The study only analyzed the financial ratios of 20 banks listed on the Indonesia Stock Exchange during the 2011 to 2015 period.
The study only used multiple linear regression analysis and residual tests to analyze the data.
The study did not consider other factors that may affect ROA, such as interest rates and economic conditions.

Future Research Directions

This study provides several avenues for future research, including:

Analyzing the financial ratios of banks in other countries to compare their performance with Indonesian banks.
Examining the impact of other factors, such as interest rates and economic conditions, on ROA.
Developing a more comprehensive model to analyze the relationship between financial ratios and ROA.

Conclusion

In conclusion, this study confirms that financial ratios have a significant impact on banking financial performance measured through ROA. The growth of third party funds functions as a moderating variable that can affect the strength of the relationship between the ratios and bank performance. Therefore, to improve financial performance, banks need to focus on managing financial ratios and optimizing the growth of third party funds.

Q: What are financial ratios, and why are they important in banking?

A: Financial ratios are mathematical expressions that compare two or more financial variables to assess a bank's financial performance. They are essential in banking because they help banks and regulators evaluate a bank's financial health, efficiency, and profitability.

Q: What are the key financial ratios analyzed in this study?

A: The study analyzed the following key financial ratios:

Capital Adequacy Ratio (CAR)
Operational expenses to operating income
Net interest margin (NIM)
Non-performance loans (NPLs)
Loans to financial ratios
Required demand deposits

Q: What is the significance of Return on Assets (ROA) in banking?

A: ROA is a widely used metric to measure a bank's financial performance. It reflects the bank's ability to generate profits from its assets. A higher ROA indicates better financial performance.

Q: How does the growth of third-party funds affect the relationship between financial ratios and ROA?

A: The study found that the growth of third-party funds can moderate the relationship between financial ratios and ROA. This means that the growth of third-party funds can strengthen or weaken the impact of financial ratios on bank performance.

Q: What are the implications of the study's findings for banks in Indonesia?

A: The study's findings suggest that banks in Indonesia should focus on managing their financial ratios, particularly the Capital Adequacy Ratio and operational expenses to operating income, to improve their ROA. Additionally, banks should optimize the growth of third-party funds to increase their liquidity and capital, which can improve other financial ratios.

Q: What are the limitations of the study?

A: The study has several limitations, including:

The study only analyzed the financial ratios of 20 banks listed on the Indonesia Stock Exchange during the 2011 to 2015 period.
The study only used multiple linear regression analysis and residual tests to analyze the data.
The study did not consider other factors that may affect ROA, such as interest rates and economic conditions.

Q: What are the future research directions based on the study's findings?

A: The study provides several avenues for future research, including:

Analyzing the financial ratios of banks in other countries to compare their performance with Indonesian banks.
Examining the impact of other factors, such as interest rates and economic conditions, on ROA.
Developing a more comprehensive model to analyze the relationship between financial ratios and ROA.

Q: What are the practical implications of the study's findings for bank regulators and policymakers?

A: The study's findings suggest that bank regulators and policymakers should consider the impact of financial ratios on bank performance when evaluating a bank's financial health. Additionally, they should encourage banks to optimize the growth of third-party funds to improve their financial performance.

Q: What are the potential applications of the study's findings in the banking industry?

A: The study's findings can be applied in various ways in the banking industry, including:

Developing more effective risk management strategies
Improving financial reporting and disclosure practices
Enhancing bank regulation and supervision
Encouraging banks to adopt more efficient cost management practices

Q: What are the potential limitations of the study's findings in the banking industry?

A: The study's findings may have limitations in the banking industry, including:

The study's sample size and scope may not be representative of the entire banking industry.
The study's findings may not be generalizable to other countries or regions.
The study's findings may not capture the impact of other factors, such as interest rates and economic conditions, on ROA.