The Effect of Risk Based Bank Rating Components towards Earnings on 19 Indonesian Commercial Banks in Period 2005-2014

Yuvizar Putra Pratama Sofyan, Achmad Herlanto Anggono

Abstract


Bank primary products are collecting funds from the third party and providing loans. The third party funds consist of demand deposit, saving deposit and time deposit. On the other hand, loan is a provision of funds based on the agreement between lender and borrower that will be repaid the by borrower after a certain period with interest. From these two products, banks gain income or also called spread based. Spread based is the difference between deposit interest and loan interest. However, the income from spread based is decreasing due to the competition among banks. Moreover, banks are required to assess the level of soundness to maintain the sustainability of the bank by using Risk-Based Bank Rating (RBBR). Risk-based Bank Rating assessment measures based on four factors, namely risk profile, good corporate governance, earnings, and capital. This research aims to reveal the effect of each component of Risk-based Bank Rating towards earnings on 19 Indonesian commercial banks. Therefore, Fixed Effect Regression is used to find out each component of Risk-Based Bank Rating to earnings. The author used bank health ratio that represent each component of Risk-based Bank Rating and earnings. Return On Asset represents earnings. Liquidity Coverage Ratio, Loan Deposit Ratio, and Non-Performing Loan represent risk profile. Net Interest Margin represents good corporate governance. Capital Adequacy Ratio represents capital. The data of the research obtained from the monthly reports of 19 Indonesian commercial banks from 2005 to 2014. The results show that all ratios except Liquidity Coverage Ratio have a significant effect on earnings. Net Interest Margin and Capital Adequacy Ratio have positive significant towards Return On Asset. While Non-Performing Loan and Loan to Deposit Ratio have negative significant to Return On Asset.

Aus. J. Acc. Eco. Fin. Vol 1(1), October 2015, P 56-65


Keywords


Earnings; Risk-based Bank Rating; Effect; Bank

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