The Effect of Bank Financial Ratios on Credit Distribution Levels in Banking Companies Listed on the Indonesia Stock Exchange

Oct 13, 2025 by talynt.org 21 views

The Effect of Bank Financial Ratios on Credit Distribution Levels in Banking Companies Listed on the Indonesia Stock Exchange

Introduction

The banking sector plays a vital role in the economic growth of a country, and one of the key functions of banks is to distribute credit to customers. However, the level of credit distribution in banks is influenced by various factors, including financial ratios. This study aims to analyze the effect of bank financial ratios, which include solvency (capital), asset quality, profitability, and liquidity, on the level of lending in banks listed on the Indonesia Stock Exchange.

Background

The banking sector in Indonesia has experienced significant growth in recent years, with the number of banks increasing from 123 in 2009 to 137 in 2011. However, the sector has also faced challenges, including the impact of the global financial crisis and the need to improve the quality of bank assets. In this context, understanding the factors that influence credit distribution in banks is crucial for stakeholders in the banking sector, including bank management and regulators.

Methodology

This study used a sample of the ten largest banking companies in Indonesia, with research data from 2009 to 2011. The sampling method used produced 30 samples. The data used is secondary data sourced from the financial ratio report. This study uses a simple regression model and multiple regression analysis. Before conducting multiple regression analysis, researchers conducted a classic assumption test first.

Results

The results showed that simultaneously, the Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL) ratio, Return on Assets (ROA), and Loan Deposit Ratio (LDR) had an influence on bank credit distribution rates. However, when viewed partially, only Return on Assets (ROA) has a significant effect on the level of credit distribution, while the Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), and Loan Deposit Ratio (LDR) do not show influence means.

Additional Analysis and Explanation

The effect of financial ratios on credit distribution is important to be understood in the context of the health and stability of the bank. Capital Adequacy Ratio (CAR) reflects how well the bank is able to face the risk of loss. Ideally, a higher CAR shows that banks have a strong buffer to accommodate potential losses, but this research shows that CAR does not directly affect bank decisions in lending.

Furthermore, the ratio of non-performance loans (NPL) which shows the quality of bank assets also does not show significant effects. Although high NPLs are usually considered as risk indicators, in the study period, it seems that the banks under study are still able to channel credit despite facing some problem loans.

Conversely, Return on Assets (ROA) shows a significant effect on credit distribution. This can be interpreted that banks that are more efficient in managing their assets tend to be more active in channeling credit. In other words, higher profitability will encourage banks to be more confident in providing credit to customers.

Finally, the Loan Deposit Ratio (LDR) ratio that serves to measure bank liquidity does not show a significant impact on credit distribution. This shows that although banks have enough liquidity, it is not always the main indicator in determining the level of credit distribution.

Conclusion

From this study, it can be concluded that different financial ratios have a variety of effects on credit distribution. This study provides important insights for stakeholders in the banking sector, including bank management and regulators, to better understand the dynamics between financial ratios and credit distribution rates. Given the importance of lending for economic growth, a better understanding of the factors that influence it is very necessary.

Recommendations

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

Bank management should focus on improving the profitability of their banks, as this has a significant impact on credit distribution.
Regulators should pay attention to the liquidity of banks, as this is an important factor in determining the level of credit distribution.
Banks should improve their asset quality by reducing non-performing loans, as this will help to increase their confidence in providing credit to customers.

Limitations

This study has several limitations, including:

The sample size is limited to the ten largest banking companies in Indonesia.
The study period is limited to 2009-2011.
The study only focuses on the effect of financial ratios on credit distribution, and does not consider other factors that may influence credit distribution.

Future Research

Future research should aim to:

Increase the sample size to include more banks in Indonesia.
Expand the study period to include more recent data.
Consider other factors that may influence credit distribution, such as macroeconomic variables and bank-specific variables.

References

[List of references cited in the study]

Appendix

[Appendix includes additional tables and figures that support the findings of the study]
Frequently Asked Questions (FAQs) about the Effect of Bank Financial Ratios on Credit Distribution Levels in Banking Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study? A: The main objective of this study is to analyze the effect of bank financial ratios, which include solvency (capital), asset quality, profitability, and liquidity, on the level of lending in banks listed on the Indonesia Stock Exchange.

Q: What are the financial ratios used in this study? A: The financial ratios used in this study are:

Capital Adequacy Ratio (CAR)
Non-Performing Loan (NPL) ratio
Return on Assets (ROA)
Loan Deposit Ratio (LDR)

Q: What is the significance of this study? A: This study provides important insights for stakeholders in the banking sector, including bank management and regulators, to better understand the dynamics between financial ratios and credit distribution rates. Given the importance of lending for economic growth, a better understanding of the factors that influence it is very necessary.

Q: What are the limitations of this study? A: This study has several limitations, including:

The sample size is limited to the ten largest banking companies in Indonesia.
The study period is limited to 2009-2011.
The study only focuses on the effect of financial ratios on credit distribution, and does not consider other factors that may influence credit distribution.

Q: What are the recommendations of this study? A: Based on the findings of this study, the following recommendations are made:

Bank management should focus on improving the profitability of their banks, as this has a significant impact on credit distribution.
Regulators should pay attention to the liquidity of banks, as this is an important factor in determining the level of credit distribution.
Banks should improve their asset quality by reducing non-performing loans, as this will help to increase their confidence in providing credit to customers.

Q: What are the implications of this study for bank management and regulators? A: This study provides important insights for bank management and regulators to better understand the dynamics between financial ratios and credit distribution rates. Bank management should focus on improving the profitability of their banks, while regulators should pay attention to the liquidity of banks.

Q: What are the implications of this study for the banking sector in Indonesia? A: This study provides important insights for the banking sector in Indonesia to better understand the factors that influence credit distribution. The study suggests that banks should focus on improving their profitability and asset quality, while regulators should pay attention to the liquidity of banks.

Q: What are the future research directions based on this study? A: Future research should aim to:

Increase the sample size to include more banks in Indonesia.
Expand the study period to include more recent data.
Consider other factors that may influence credit distribution, such as macroeconomic variables and bank-specific variables.

Q: What are the practical implications of this study for bank customers? A: This study provides important insights for bank customers to better understand the factors that influence credit distribution. Bank customers should be aware that banks that are more profitable and have better asset quality are more likely to provide credit to them.

Q: What are the policy implications of this study for the government? A: This study provides important insights for the government to better understand the factors that influence credit distribution. The government should consider policies that promote the profitability and asset quality of banks, while also ensuring that banks have sufficient liquidity to meet the credit demands of customers.