Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Analysis the Effect of Fundamental Financial Ratio of

CAR, LDR, LAR, Bank Size, OPE and NIM on Non-
Performing Loans (NPL) of Banking Listed on the
Indonesia Stock Exchange in 2012 - 2018
Bayu Randi Irawan Andam Dewi Syarif
Master of Management Lecturer at Faculty of Business and Economics
Mercu Buana University Mercu Buana University
Jakarta, Indonesia Jakarta, Indonesia

Abstract:- This research aims to find out empirical The banking world is one of the institution which play an
evidences on the effect of Capital Adequacy Ratio (CAR), important role in the economy of a nation, especially in the
Loan to Deposit Ratio (LDR), Loan to Asset Ratio (LAR), field of economic financing. A bank in carrying out its
Size Bank, Operational Efficiency Ratio (OPE), and Net function requires fund to finance banking activities. It can be
Interest Margin (NIM) on Non-Performing Loans (NPL). said as the heart of a country, especially for developing
Population of the study uses banking sector in Indonesia countries. The bank accepts deposits from the public (third
Stock Exchange for the period of 2012-2018. The sampling party funds) through savings, current accounts, and deposits.
method used is purposive sampling. Forty (40) banks meet
the criteria to be the sample. The method of analysis in this Credit disbursement, which is carried out as one of the
study is Pooled Data Regression. The model of Pooled Data main sources of bank revenue, is not merely going to always
used is Fixed Effect Model. The research uses secondary benefit. Credit distribution also does not rule out the
data of annual report ratios with 280 observations. The possibility of experiencing a credit risk which can harm the
results of partial test show that Size Bank and OPE have bank. The large amount of credit granted will result in a large
positive and significant effect on Non-Performing Loans amount of risk by the bank concerned due to the amount of
(NPL). This study also finds that CAR, LDR, LAR, and problem loans which occurs in a bank. The level of occurrence
NIM do not have effect on Non-Performing Loans (NPL). of non-performing loans is usually reflected by the ratio of
The results of simultaneous test show that CAR, LDR, Non-Performing Loans (NPL) which occurs at the bank which
LAR, Size Bank, OPE, and NIM have significant effect on is used to measure the ability of bank to overcome the risk of
Non-Performing Loans (NPL). default on loan by debtor.

Keywords:- CAR, LDR, LAR, Size Bank, OPE, NIM, NPL. The greater the amount of credit granted, the greater the
risk which must be handled by the bank. Non-Performing
I. INTRODUCTION Loans (NPL) is a ratio used to measure the ability of the bank
to cover the risk of failure to repay loan by debtor. NPL
The bank is one of the financial institution which have reflects credit risk, the higher the level of NPL, the greater the
an important role in society. The function of the bank is as a credit risk borne by the bank (Ali, 2004). Bank always faces
financial intermediary which supports related development Non-Performing Loans (NPL) risk because its main function
efforts in various fields. The role of the bank are collecting is as a financial intermediary. Many ways are taken by the
fund from the public and distributing them back to the bank to prevent NPL. Prudent credit policies, strict credit risk
community in credit form. The role of fundraiser is done by management, and competency development or technical
the bank by serving the public who want to save their money training for credit managers are few examples of policies
in the bank. implemented by a bank to reduce NPL to a minimum.

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165

2.93
2.37
2.16 2.57
1.87 2.49

1.77

Fig 1:- Gross Non Performing Loan (%)

Source : www.ojk.go.id

Based on Fig 1. below, the initial non-performing loans a significant decreased in the level of non-performing loans.
is initially declined from 2012 to 2013. Then, in 2013 up to Some of the variables are used to be independent variables are
2016 there is a steadily increased. In 2016 up to 2018 there is as follows:

YEAR
VARIABLE
2012 2013 2014 2015 2016 2017 2018
CAR (%) 17,43 18,13 19,57 21,39 22,93 23,43 22,97
LDR (%) 83,58 89,7 89,42 92,11 90,7 90,07 94,78
LAR (%) 63,11 66,15 65,18 65,95 64,84 64,04 65,70
Size (%) 35,95 36,10 36,22 36,31 36,40 36,50 36,58
OPE (%) 74,10 74,08 76,29 81,49 82,22 78,63 77,86
NIM (%) 5,49 4,89 4,23 5,39 5,63 5,32 3,31
Table 1:- Independent Variabel
Source: www.ojk.go.id (data is reprocessed)

Based on fig 1 and table 1 below, it can be seen in the

CAR of 2012-2018 that there is a difference in trend in NPL
and CAR, namely the CAR value always increase from 2012
to 2017, but decreases in 2018. Besides that, in the LDR, the II. THEORETICAL REVIEW
LDR value of the trend is fluctuated. LAR’s trend fluctuates
from 2013 to 2014 decreased, then from 2014 to 2015 A. Efficiency Theory
increased and from 2015 to 2017 decreased again and Farrell (1957) has suggested that the efficiency of a
increased again in 2018. Then, Size in 2012 up to 2018 is company consists of 2 (two) components, namely: (1)
always increased. In OPE, the trend always increased from technical efficiency and (2) allocative efficiency. Technical
2013 to 2017 but from 2016 up to 2017, it is decreased. At efficiency describes the company's ability to choose the
NIM, it experiences fluctuated trends. The same thing also optimal input combination at a certain price and technology
happens to inflation that experiences a fluctuated trend from level. While allocative efficiency reflects the company's
2013 to 2017. ability to optimize the use of its inputs, with its price structure

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
and production technology. These two measures are then Loan to Asset Ratio (LAR) can be used to measure the
combined into economic efficiency. level of bank liquidity which shows the ability of bank to fill
up credit demand by using total assets owned by bank.
B. Agency Theory (Lukman Dendawijaya, 2009: 117)
Agency theory is described by Jensen and Meckling
(1976). Agency problem arises because of the development of Total Credit
LAR= x100%
a company which is initially only as a private company then Total Asset

change into a public company where the ownership and

G. Bank Size
management of the company are separate. This agency
Firm size is shown or valued by total assets, total sales,
problem arises among interested parties with the company or
total profits, tax expenses and others. (Brigham & Houston,
can also be referred to as stakeholders. Brigham and Houston
2010: 4). According to Hartono (2008: 14) firm size is the
(2014: 184) explain that every investor and manager has the
size of a company which can be measured by the total
same information about a company's prospects. This condition
assets/large assets of the company by using the logarithm
is called symmetric information.
value calculation of total assets. The size of a bank can be
assessed from the total assets owned by the bank. Banks with
C. Non-Performing Loans
large assets possess the possibility to generate greater profits if
The definition of Non-Performing Loans is a condition
it is followed by the results of their activities.
where a customer is no longer able to pay part or all of his/her
obligations to the bank as promised. (Kuncoro and
Size = Ln(Total Asset)
Suhardjono, 2011: 420)
H. Operational Efficiency Ratio (OPE)
According to Selamet Riyadi (2006: 160) Non
According to Kuncoro and Suhardjono (2012: 524),
Performing Loan is a comparison between the amounts of
Bank Indonesia is used to use OPE as a proxy for operational
credit granted with a collectivity level of 3 to 5 compared to
efficiency. It is stated that, Operational Efficiency Ratio
the total loans given by bank, namely: Non-Smooth (NS),
(OPE) is the ratio of operating costs to operating income,
doubtful (D) and bad debt (BD).
which is a proxy for operational efficiency as commonly used
by Bank Indonesia. OPE is a ratio used to measure the ability
NPL = X100%
of bank management in controlling operational costs towards
operating income (Hariyani, 2010: 54). The ratio of operating
D. Capital Adequacy Ratio
costs is used to measure the level of efficiency and the ability
Capital Adequacy Ratio (CAR) is a ratio which shows
of bank to carry out its operations. Considering that the
how far all bank’s assets which contain risks (loans,
principal activities of a bank is acting as intermediaries,
investments, securities, bills at other banks) are also funded
namely collecting and distributing funds, the costs and
from the bank's own capital funds, beside obtaining funds
operating income of bank are dominated by interest costs and
from sources outside the bank , such as funds from the
interest yields (Dendawijaya, 2009: 111).
community, loans and others (Dendawijaya, 2009: 121).
capital
CAR = x 100% operational expenses
ATMR OPE = x 100%
Operational Income

E. Loan to Deposit Ratio

Loan to Deposit Ratio is a ratio to measure the I. Net Interest Margin
composition of the amounts of credit given is compared to the Net Interest Margin is a ratio used to measure the ability
amounts of public funds and self -investment used. (Kasmir, of bank management in managing its productive assets to
2012: 319) generate net interest income. Net interest income is derived
from interest income reduced with interest expense. The
Meanwhile, according to Dendawijaya (2001: 101), greater this ratio, it increases the interest income on productive
interpreting the Loan to Deposit Ratio is how far the bank's assets managed by the bank so that the possibility of the bank
ability to refinance withdrawal of funds by depositors with in a problematic condition is smaller. (Ftrianto and Pandia,
relying on loans provided as a source of liquidity. The number 2012: 71)
of third-party funds raised by a bank is directly proportional to interest income
the amount of credit issued, meaning that the more third-party NIM= X 100%
the average of productive assets
funds, the more credit issued.
This figure shows the relationship that occurs
Credit Total
LDR = x 100% between CAR, LDR, LAR, Bank Size, OPE and NIM to NPL.
Third Party Funds

F. Loan to Asset Ratio

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Data collection is collected by using secondary data by
conducting content analysis Annual Report from 2012 to
2018.

In this study, independent variables used are Capital

Adequacy Ratio (CAR), Loan to Deposit Ratio (LDR), Loan
to Asset Ratio (LAR), Bank Size, Operational Income
Operating Costs (OPE), and Net Interest Margin (NIM).

The dependent variable is variable which is affected or

which is due to the independent variables. The dependent
variable used in this study is the Non-Performing
Loans (NPL).

Fig 2 Method of data analysis in this study uses panel

data, which is a combination of time series data and cross
Based on the framework, the hypothesis on research section data. This study using regression analyst Panel Data
were as follows: with Eviews 10. With this approach, it will be known how
much influence the variables Capital Adequacy
Ratio (CAR), Loan to Deposit Ratio (LDR), Loan to Asset
Ratio (LAR), Bank Size, Operational Income Operating Costs
(OPE), and Net Interest Margin (NIM) on Non-Performing
Loans (NPL) in banking listed on the Indonesia Stock
Exchange (IDX). From 3 model regression panel data :
Common Effect Model (CEM) , Fixed Effect Model (FEM)
and Random Effect model (REM), to estimate right regression
III. RESEARCH METHODOLOGY panel data model is using 2 test : Chow test and Hausman test
while LM test do not need to conduct because with this 2 test
The population in this study that is the object of above has already estimated the right model for this study.
research is the banking listed on the IDX and continuously
publish annual reports for the period 2012 - 2018, which is a The method describes the type or design of the study,
number of 44 banks. Samples that met the purposive variables and measurements, population and sampling
sampling were 40 banks. Where the reporting period from techniques, types of data and ways of data acquisition, and
2012 - 2018 or as many as 7 years, so the number of reports is data analysis techniques.
40 x 7 reports of 280 reports. The sample can be presented as
follows: IV. RESULT AND DISCUSSION

 Descriptive Analysis
Descriptive analysis helps to get a general picture of the
object of research, namely Non Performing Loans (NPL),
Capital Adequacy Ratio (CAR), Loan to Deposit
Ratio (LDR), Loan to Asset Ratio (LAR), Bank Size,
Table 2:- Research Sample Operational Costs Operating Expenses (OPE) and Net Interest
Margin (NIM).

NPL CAR LDR LAR SIZE OPE NIM

The mean 2.823429 19,541 85,08668 65.37357 30,87314 88.19864 5.275464
Median 2,395 18.31 86.18 66.76 30,685 87,225 5.1
Maximum 15.75 66.43 145.26 86.95 34.8 195.7 16.64
Minimum 0.08 8.02 42.02 37.7 26.96 8.97 0.24
Std. Dev 2.076981 6.651567 13,391 8,654388 1.910169 19,56516 2.128399
Skewness 2,091504 2.870995 -0.0766 -0.92241 0.127436 1.493931 1.37732
Kurtosis 10.63618 17.0539 5.859056 3.866605 2,092355 10.28023 7.364689
Jarque-Bera 884.4368 2688,962 95,63945 48,46765 10,3691 722,503 310.7831

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Probability 0.000000 0.000000 0.000000 0.000000 0.005602 0.000000 0.000000
Sum 790.56 5471.48 23824.27 18304.6 8644.48 24695.62 1477.13
Sum Sq. Dev 1203,565 12343.89 50029.98 20896.66 1018 106800 1263,893
Observations 280 280 280 280 280 280 280
Table 3:- Descriptive Statistics
Source : Output Eview 10 (2019)

Standard deviation as a measurement to measure the a negative value, while the other variables, NPL, CAR, SIZE,
distribution of data or shows the data that fluctuates. The OPE and NIM have positive values.
largest value of the standard deviation with the OPE variable
is 19.56516 which means that the OPE variable has a higher  Regression Panel Data Model
level than other variables. While the NPL variable has the The Regression Model and Selecting of Panel Data
lowest quality level, which is 2.076981 . Model, From 3 model regression panel data : Common Effect
Model, Fixed Effect Model and Random Effect model:
This study that used panel regression data for the period
2012-2018 concluded that with α = 0.05, which means that the The regression model selection is taken to choose the
display and data are normally distributed. Skewness is a best panel data model. There are three tests to select the best
measure of the asymmetric distribution of statistical data panel data model for research data, namely: Chow Test,
taught on average (mean). The slope of the signal through Hausman Test, and Langrange Multiplier. From the result of
symmetrically (normal distribution) is zero. The positive slope chow test a probability smaller value of α (5%), 0.0000 <0.05.
indicates that the spread of data has a long tail on the right side Therefore FEM is the right model. From the result of
(right tail length) and negative slope has a long tail on the left Hausman test a probability smaller value of α (5%), 0.001
side (long tail left). For LDR and LAR variables, the score has <0.05. Therefore FEM is the right model.

Table 4:-The Test Result of Data Panel Model

Source: Output Eviews 10 (2019)

Based on the test, it is chosen that Fixed Effect Model is

the best data model.

Description Coefficien Probability Note

Chow Test 147.127918 0.0000 FEM
Hausman Test 22.090410 0.0012 FEM
Table 5:- Test Result of Selected Panel Data Model
Source : Data Eviews 10 (2019)

The Chosen best model in this research is the Fixed

Effect Model with the following result output.

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Description Coefficient t-statistics Prob value seem that they are able to handle the potential risk of
C -45.13315 -3.459683 0.0006 losses caused by bank activity such as non-performing loans.
CAR 0.050968 1.940455 0.0535 The result of this study is related with research by Ali
LDR -0.008273 -0.383602 0.7016 Shingjergji (2013) and Kilugala Malimi (2017) stating that the
LOG(LAR) 1.487079 0.680573 0.4968 CAR has no significant effect on NPL.
SIZE 0.958850 3.128021 0.0020
The effect of Loan to Deposit Ratio (LDR) on Non-
LOG(OPE) 2.793170 4.871650 0.0000
Performing Loans: LDR probability of 0.7016 is greater than
LOG(NIM) -0.368120 -0.854097 0.3939
0.05, so this variable is on area of H0 acceptance. It means
R-squared 0.547997 that the LDR has no significant effect on NPL of the banking
Adjusted R-squared 0.461073 listed in the Indonesia Stock Exchange from 2012 to 2018.
F-statistics 6.304348 According to Bank Indonesia, the lower limit of a bank's LDR
Prob(F-statistik) 0.000000 is around 78%. But the upper limit of the LDR is 92%. It can
Table 6:- The Result Fixed Effect Model be concluded that the LDR explains how far the banks
Source : Output Eview 10 (2019) capability to balance the amount of lending to customers with
the amount of third-party funds. Loan to Deposit Ratio
By choosing the Fixed Effect Model, than a panel data describes how far the bank's capability to refinance the
regression equation is formed that can be formulated as withdrawals fund by depositors with relying on loans provided
follows: as a liquidity source. In this theory, it is explained that the
ability of banks to repay obligations to customer who has
NPLit = -45.13315 + 0.050968 CARit – 0.008273 invested fund by relying on loans provided as a liquidity
LDRit + 1.487079 LOG(LAR)it + 0.958850 SIZEit + source. The result of this study is in line with research by
2.793170 LOG(OPE)it– 0.368120 LOG(NIM)it+ ϵit Daisy Firmansari (2015), Deasy Dwihandayani (2017) and
Vasiliki Makri, Athanasios Tsagkanos & Athanasios Bellas
 Determination Coefficient (R²) (2013) who state that the LDR has no significant effect on
R-Squared (R2) values is 0.547997. It means that the NPL.
variation in dependent variable of Firm Value can be
explained by the variation of the independent variables The Effect of Loan to Asset Ratio (LAR) on Non-
54.79%, while the remaining 45.21% is explained by other Performing Loans: LAR probability of 0.4968 is greater than
factors outside from this research’s. 0.05 so this variable is on area of H0 acceptance. It means that
LAR has no significant effect on NPL of the banking listed in
 F Test the Indonesia Stock Exchange in 2012 – 2018. Loan to Asset
Based on the data in the table F-test, it can be seen that Ratio (LAR) is a comparison the amount of credit given by
the probability (p-value) is equal to 0.0000. This value is bank to the amount of total assets owned by bank. This ratio
smaller than 5%, so it can be concluded that a confidence level measures the level of bank’s liquidity. Loan to Asset Ratio can
of 95% (α = 5%) H0 can be rejected. This means independent be used to measure the bank’s liquidity level. It can show the
variables CAR, LDR, LAR, SIZE, OPE and NIM affect on ability to fulfil the credit demand using the total assets owned
Non -Performing Loans (NPL) simultaneity. by bank. The result of this study is in line with the research of
Septiono Budi Santosa, Sudarto & Bambang Sunarko (2013),
 Test t Deasy Dwihandayani (2017) and Carolina and Madyan (2015)
The t test (partial test) is conducted to show how far each stating that the LAR has no significant effect on NPL.
effects independent variables CAR, LDR, LAR, SIZE, OPE
and NIM individually or partially influence or explain
dependent variable NPL (Non -Performing Loans) The Effect of SIZE on Non-Performing Loans: Size
The effect of Capital Adequacy Ratio (CAR) on Non- probability of 0.0020 is smaller than 0.05 so that this variable
Performing Loans (NPL): CAR probability of 0.0535 is is on the rejection area of H0. It means that Size has a
greater than 0.05, so this variable is on area of H0 acceptance. significant positive effect on NPL of the banking listed in the
It means that CAR has no significant effect on NPL of the Indonesia Stock Exchange in 2012 – 2018. Banking size
banking listed in the Indonesia Stock Exchange from 2012 to describes the size of a bank. Determination of large or small
2018. This research’s result can be correlated with agency scale can be determined based on total assets. Moreover, the
theory that the management can maximize the value of risk is the greater lending of the bank. This loan distribution
company equity, company size, profitability and minimize risk does not effect in problem loans if the composition of fund is
to the invested capital through increasing CAR. CAR sufficient. If the bank’s assets do not managed and used
provisions of at least 8% were used by Bank Indonesia that optimally for the bank's operational activities, the bank will
stipulates the Bank's Minimum Capital Requirements in Bank have potential to spend greater asset management costs. The
Indonesia Number 14/18 / PBI / 2012 about Minimum Capital result of this study is in line with research by Andreas (2016)
Requirements for Commercial Banks. Banks with high CAR

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Volume 4, Issue 10, October – 2019 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
and Barus & Erick (2016) who state that Size has a significant
positive effect on NPL. Based on the results of the discussion and conclusion, the
author tries to convey some suggestions for consideration as
The Effect of Operational Efficiency Ratio (OPE) on follows:
Non-Performing Loans: OPE probability of 0.0000 is less than  For investors who want to invest in banking companies are
0.05, so this variable is on the rejection area of H0. It means advised to choose company with complete disclosure of
that OPE has a significant positive effect on NPL of banking information both business risk information, corporate
listed in the Indonesia Stock Exchange from 2012 to 2018. governance and company sustainability information.
Operational Efficiency Ratio is the ratio that compares  The company should pay attention to the right funding
operating expenses with operating income, with the aim to source to run the business, both the capital costs and risks.
find out how much the banks ability to manage operating So those things can minimize the possibility of risk that
expenses so as not to well. In banking OPE also has big can hamper the process of investment growth and optimize
influence in measuring the level of efficiency and also the corporate profits.
ability of banks to run their operational activities. The banking  Next, researchers can use longer study periods and more
institution that have efficiency, especially cost efficiency will samples to get more valid results.
obtain maximal profit level, additional funds are distributed,
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