The Ability to Manage Productive Assets

Oct 13, 2025 by talynt.org 79 views

The Effect of Credit Risk, Operational Efficiency, Capital Adequacy, the Ability to Manage Productive Assets, and Liquidity on Profitability in General Banking (Case Study 2020-2023)

Introduction

In the banking industry, profitability is a crucial aspect that determines the continuity and growth of a bank. Several factors can influence a bank's profitability, including credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity. This study aims to determine the impact and influence of these factors on profitability in general banking registered on the Indonesia Stock Exchange during the period 2020 to 2023.

The Importance of Understanding Credit Risk, Operational Efficiency, Capital Adequacy, the Ability to Manage Productive Assets, and Liquidity

Credit risk refers to the risk of default by borrowers, which can lead to losses for the bank. Operational efficiency is the ability of a bank to manage its operations effectively, reducing costs and increasing productivity. Capital adequacy is the amount of capital held by a bank to support its activities, while the ability to manage productive assets is the bank's capacity to manage its assets effectively to generate profits. Liquidity is the bank's ability to meet its obligations and take advantage of investment opportunities.

Research Methodology

This study uses quantitative data sourced from the company's annual financial statements available from 2020 to 2023. The data collection techniques involve gathering annual financial statements published by these banks. The data analysis was carried out using the data panel technique with the help of EViews software. This study aims to find out whether there is a positive or negative relationship between the independent variable and the dependent variable, as well as to estimate the value of the dependent variable that may increase or decrease.

Research Results

Credit Risk: Findings show that credit risk has a negative and significant influence on profitability. This shows that an increase in credit risk, such as the high amount of problem loans, will reduce bank profitability. Banks must be careful in channeling credit so as not to increase risks that can be detrimental.
Operational Efficiency: Operational efficiency also shows negative and significant effects on profitability. This indicates that high operational costs can undermine the profit generated, so it is important for banks to increase efficiency in operations.
Capital Adequacy: Capital adequacy has a negative impact, but is not significant on profitability. This means that although it is important for banks to have sufficient capital to support its activities, it does not always directly affect the profits.
The Ability to Manage Productive Assets: This shows that although good asset management can increase profitability, the effect is not strong enough to be considered significant in this study period.
Liquidity: Liquidity, on the other hand, shows a positive and significant effect on profitability. This illustrates that banks that have good liquidity are able to meet their obligations and have the potential to take advantage of investment opportunities, so as to increase profits.

Conclusion

From this study, it can be concluded that credit risk and operational efficiency have a significant negative impact on the profitability of general banking. Meanwhile, liquidity is proven to be a factor that supports profitability. Bank management is expected to prioritize credit risk management and operational efficiency and maintain liquidity to achieve optimal profitability goals. Through this understanding, banks are expected to improve better strategies in managing resources and risks to maximize future profits.

Recommendations

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

Banks should prioritize credit risk management to reduce the risk of default by borrowers.
Banks should increase operational efficiency to reduce costs and increase productivity.
Banks should maintain sufficient capital to support its activities.
Banks should improve their ability to manage productive assets to increase profitability.
Banks should maintain good liquidity to meet their obligations and take advantage of investment opportunities.

Limitations of the Study

This study has several limitations, including:

The study only focuses on general banking registered on the Indonesia Stock Exchange during the period 2020 to 2023.
The study only uses quantitative data sourced from the company's annual financial statements.
The study does not consider other factors that may influence profitability, such as market conditions and economic trends.

Future Research Directions

Future research should consider the following directions:

Conducting a study on the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability in other types of banks, such as commercial banks and investment banks.
Conducting a study on the impact of other factors, such as market conditions and economic trends, on profitability.
Conducting a study on the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability in other countries.

Conclusion

In conclusion, this study provides valuable insights into the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability in general banking. The findings of this study can be used by bank management to improve their strategies in managing resources and risks to maximize future profits.
Frequently Asked Questions (FAQs) on the Effect of Credit Risk, Operational Efficiency, Capital Adequacy, the Ability to Manage Productive Assets, and Liquidity on Profitability in General Banking

Q: What is credit risk, and how does it affect profitability?

A: Credit risk refers to the risk of default by borrowers, which can lead to losses for the bank. The study found that credit risk has a negative and significant influence on profitability, meaning that an increase in credit risk can reduce bank profitability.

Q: What is operational efficiency, and how does it affect profitability?

A: Operational efficiency is the ability of a bank to manage its operations effectively, reducing costs and increasing productivity. The study found that operational efficiency has a negative and significant effect on profitability, meaning that high operational costs can undermine the profit generated.

Q: What is capital adequacy, and how does it affect profitability?

A: Capital adequacy is the amount of capital held by a bank to support its activities. The study found that capital adequacy has a negative impact, but is not significant on profitability, meaning that although it is important for banks to have sufficient capital, it does not always directly affect the profits.

Q: What is the ability to manage productive assets, and how does it affect profitability?

A: The ability to manage productive assets is the bank's capacity to manage its assets effectively to generate profits. The study found that although good asset management can increase profitability, the effect is not strong enough to be considered significant in this study period.

Q: What is liquidity, and how does it affect profitability?

A: Liquidity is the bank's ability to meet its obligations and take advantage of investment opportunities. The study found that liquidity has a positive and significant effect on profitability, meaning that banks that have good liquidity are able to meet their obligations and have the potential to take advantage of investment opportunities, so as to increase profits.

Q: What are the implications of the study's findings for bank management?

A: The study's findings suggest that bank management should prioritize credit risk management and operational efficiency and maintain liquidity to achieve optimal profitability goals. Through this understanding, banks are expected to improve better strategies in managing resources and risks to maximize future profits.

Q: What are the limitations of the study?

A: The study has several limitations, including:

The study only focuses on general banking registered on the Indonesia Stock Exchange during the period 2020 to 2023.
The study only uses quantitative data sourced from the company's annual financial statements.
The study does not consider other factors that may influence profitability, such as market conditions and economic trends.

Q: What are the future research directions?

A: Future research should consider the following directions:

Conducting a study on the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability in other types of banks, such as commercial banks and investment banks.
Conducting a study on the impact of other factors, such as market conditions and economic trends, on profitability.
Conducting a study on the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability in other countries.

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

A: The study's findings suggest that policymakers and regulators should consider the impact of credit risk, operational efficiency, capital adequacy, the ability to manage productive assets, and liquidity on profitability when designing policies and regulations to support the banking industry.