Determinants of Profitability in Indonesian Commercial Banks: Financial Ratios and Macroeconomic Fluctuations

Chandra Setiawan; Yasmin Audra Zahra

doi:10.32535/ijafap.v9i3.4728

Determinants of Profitability in Indonesian Commercial Banks: Financial Ratios and Macroeconomic Fluctuations

Chandra Setiawan, Yasmin Audra Zahra

Abstract

The COVID-19 pandemic significantly affected the profitability and operational performance of Indonesian commercial banks during changing macroeconomic conditions. This study examines the effects of financial ratios and macroeconomic fluctuations on the profitability of KBMI 3 and KBMI 4 commercial banks (excluding Islamic banks) across the pre-pandemic (2018–2019), pandemic (2020–2021), and post-pandemic (2022–2023) periods. A quantitative approach was employed using balanced panel data from 15 banks, analyzed through panel data regression, Data Envelopment Analysis (DEA), and Difference-in-Differences (DiD). The results indicate that BOPO has a significant negative effect on Return on Assets (b = ?0.077, p < 0.001), whereas Net Interest Margin (b = 0.164, p < 0.001) and exchange rate fluctuations (b = 0.0008, p = 0.013) have significant positive effects. The regression model achieved an R² of 0.857 (Adjusted R² = 0.840), and DEA results indicate an average technical efficiency of 85.5%. DiD analysis further reveals that KBMI 4 banks experienced a larger decline in profitability during the pandemic than KBMI 3 banks. These findings highlight the importance of improving operational efficiency and resilience to enhance banking performance during periods of economic uncertainty

Keywords

Bank profitability; Difference-in-Differences; Financial ratios; Indonesian commercial banks; Macroeconomic fluctuations; Operational Efficiency; Technical efficiency

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References

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DOI: https://doi.org/10.32535/ijafap.v9i3.4728