The Impact of Non-Performing Loans (NPL) and Loan-to-Deposit Ratio (LDR) on the Profitability of Conventional Commercial Banks Listed on the Indonesia Stock Exchange

Sinta Yulyanti; Poppy Camenia Jamil; Janatri Habillah; Siti Intan Nurdiana Wong Abdullah

Authors

Sinta Yulyanti Universitas Islam Riau
Poppy Camenia Jamil Universitas Islam Riau
Janatri Habillah Universitas Islam Riau
Siti Intan Nurdiana Wong Abdullah Nottingham Trent University

Keywords:

NPL, LDR, ROA, Profitability

Abstract

This study examines the effect of Non-Performing Loans (NPL) and Loan-to-Deposit Ratio (LDR) on Return on Assets (ROA) in the banking sector on the Indonesia Stock Exchange over a period of 10 years, from 2011 to 2020. The analysis uses panel data from 14 conventional commercial banks listed on the IDX, with a total of 138 observations spanning from 2011 to 2021. Static panel data regression is employed for the analysis. The results indicate that the NPL variable has a significant negative effect on ROA, with a probability value of 0.0002, which is smaller than the 5% significance level. The coefficient of -0.253098 suggests that a 1% increase in NPL leads to a 0.253098% decrease in ROA. This finding implies that higher levels of non-performing loans negatively impact bank profitability by slowing down bank operations. In extreme cases, increased bad debts could reduce a bank's ability to guarantee public funds, potentially leading to systemic risk.

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