Assessing Internal and External Determinants of Bank Profitability: A Study on Indonesian Regional Development Banks
Abstract
This study explores what drives profitability in Indonesia’s Regional Development Banks (RDBs), focusing on both internal and external factors. Using financial data from 10 Islamic commercial banks over the 2014–2019 period, the research applies multiple linear regression to assess how capital adequacy, liquidity risk, and financing risk—alongside GDP and inflation—affect bank performance. The results show that strong capital adequacy supports higher profitability, while liquidity and financing risks can significantly reduce it. Notably, financing risk also acts as a bridge between internal factors and profitability outcomes. On the macroeconomic side, GDP growth tends to boost profitability, whereas rising inflation has a negative impact. These findings highlight the importance of solid internal risk management and a stable economic environment. For bank leaders, maintaining sufficient capital and minimizing financial risks is essential. For policymakers, supporting economic growth and keeping inflation under control can directly influence the health of the banking sector
References
Akbar, T. (2019) "The Performance Of Banks In Indonesia Based On Capital Perspective (BUKU), A Case Study In A Period Of Decline In Profitability Performance," , 04(06). Available At: Https://Doi.Org/10.31142/Afmj/V4i6.01.
Al-Harbi, , A. (2019) The Determinants Of Conventional Banks Profitability In Developing And Underdeveloped OIC Countries. Available At: Https://Www.Emerald.Com/Insight/Content/Doi/10.1108/JEFAS-05-2018-0043/Full/Html.
Arifien, Y., Taufik, R. And Sinurat, J. (2020) The Contribution Of Agricultural Sectors On Economic Growth In West Java Province. Available At: Https://Doi.Org/10.2991/Assehr.K.200529.108.
Athari, A, S. And Bahreini, M. (2021) "The Impact Of External Governance And Regulatory Settings On The Profitability Of Islamic Banks: Evidence From Arab Markets," Wiley, 28(2),P. 2124-2147. Available At: Https://Doi.Org/10.1002/Ijfe.2529.
Bolarinwa, T, S., Obembe, B, O. And Olaniyi, O, C. (2019) "Re-Examining The Determinants Of Bank Profitability In Nigeria," Emerald Publishing Limited, 46(3),P. 633-651. Available At: Https://Doi.Org/10.1108/Jes-09-2017-0246.
Bu, Y. (2019) "Research On The Impact Of Financing Liquidity On Risk-Taking Of Commercial Banks," EDP Sciences, 267,P. 04012-04012. Available At: Https://Doi.Org/10.1051/Matecconf/201926704012.
Fibriyanti, V, Y. And Nurcholidah, L. (2021) "Analysis Of Factors That Affect The Financial Performance Of Banks," Atlantis Press. Available At: Https://Doi.Org/10.2991/Aer.K.210825.087.
Growe, G. Et Al. (2014) "The Profitability And Performance Measurement Of U.S. Regional Banks Using The Predictive Focus Of The “Fundamental Analysis Research”," Emerald Publishing Limited,P. 189-237. Available At: Https://Doi.Org/10.1108/S1474-787120140000024006.
Herdhayinta, H. And Supriyono, R. (2019) "Determinants Of Bank Profitability: The Case Of The Regional Development Bank (Bpd Bank) In Indonesia," Gadjah Mada University, 34(1),P. 1-1. Available At: Https://Doi.Org/10.22146/Jieb.17331.
Hosen, Z, M. (2020) "Internal Factors Influencing The Profitability Of Commercial Banks In Bangladesh," ,P. 192-200. Available At: Https://Doi.Org/10.32861/Ijefr.67.192.200.
Hossain, S. And Ahamed, F. (2021) "Comprehensive Analysis On Determinants Of Bank Profitability In Bangladesh," Cornell University. Available At: Https://Doi.Org/10.48550/Arxiv.2105.14198.
Hossain, T. (2020) "Determinants Of Profitability: A Study On Manufacturing Companies Listed On The Dhaka Stock Exchange," , 10(12),P. 1496-1508. Available At: Https://Doi.Org/10.18488/Journal.Aefr.2020.1012.1496.1508.
Ilmiani, A. And Meliza, M. (2022) "The Influence Of Banking Risk On Efficiency: The Moderating Role Of Inflation Rate," , 4(1),P. 73-84. Available At: Https://Doi.Org/10.31258/Ijesh.4.1.73-84.
Jones, S, D. And Mingo, J, J. (1998) "Industry Practices In Credit Risk Modeling And Internal Capital Allocations: Implications For A Models-Based Regulatory Capital Standard: Summary Of Presentation," RELX Group (Netherlands). Available At: Https://Doi.Org/10.2139/Ssrn.1028747.
Jumono, S. (2019) "Determinants Of Profitability In Banking Industry: A Case Study Of Indonesia," , 9(1),P. 91-108. Available At: Https://Doi.Org/10.18488/Journal.Aefr.2019.91.91.108.
Laeven, L., Ratnovski, L. And Tong, H. (2014) "Bank Size And Systemic Risk," RELX Group (Netherlands). Available At: Https://Doi.Org/10.2139/Ssrn.2437729.
Leon, M, F. And Adisty, A. (2017) "Factors That Affect Profitability Of Banks Comparative Study Between Indonesian And Hong Kong," Atma Jaya University, Yogyakarta, 21(1),P. 88-108. Available At: Https://Doi.Org/10.24002/Kinerja.V21i1.1036.
Ludiman, I. And Mutmainah, K. (2020) "Analisis Determinan Market Share Perbankan Syariah Di Indonesia (Studi Empiris Pada Bank Umum Syariah Dan Unit Usaha Syariah Yang Terdaftar Di OJK Periode Maret 2017 Sampai September 2019)," , 3(2),P. 169-181. Available At: Https://Doi.Org/10.32500/Jematech.V3i2.1336.
Malini, H. (2020) "Profitability Condition With Stylized Fact Of Banking Industries In Indonesia, Malaysia And Thailand," , 5(2),P. 15-15. Available At: Https://Doi.Org/10.47312/Ambr.V5i2.308.
Marlina, R. (2022) "DETERMINANTS OF BANK PROFITABILITY IN INDONESIA BASED ON COMMERCIAL BANK BUSINESS ACTIVITIES (BUKU)," , 5(1),P. 31-46. Available At: Https://Doi.Org/10.32770/Jbfem.Vol531-46.
Naili, M. And Lahrichi, Y. (2022) "Banks’ Credit Risk, Systematic Determinants And Specific Factors: Recent Evidence From Emerging Markets," Elsevier BV, 8(2),P. E08960-E08960. Available At: Https://Doi.Org/10.1016/J.Heliyon.2022.E08960.
Nugrohowati, I, N, R., Ahmad, B, S, H, M. And Fakhrunnas, F. (2022) "Investigating The Determinants Of Islamic Bank’s Profitability: A Cross Countries Analysis," Muhammadiyah University Press, 23(2),P. 254-268. Available At: Https://Doi.Org/10.23917/Jep.V23i2.20409.
Pereira, C., Ramalho, J, J. And Silva, D, V, J. (2017) "The Main Determinants Of Banking Crises In OECD Countries," Springer Science+Business Media, 154(1),P. 203-227. Available At: Https://Doi.Org/10.1007/S10290-017-0294-0.
Ratri, M, A. Et Al. (2022) "Comparison Of Indonesian Banking Performance Pre And Post Pandemic Covid-19," Universitas Merdeka Malang, 9(1),P. 109-118. Available At: Https://Doi.Org/10.26905/Jbm.V9i1.7637.
Riyadi, C, S., Choiron, F. And Prayogo, R, E. (2022) "Pengaruh Faktor Permodalan Dan Risiko Likuiditas Terhadap Profitabilitas Yang Dimediasi Risiko Pembiayaan Pada Bank Syariah," , 1(2),P. 226-232. Available At: Https://Doi.Org/10.54259/Akua.V1i2.788.
Roy, S, S. Et Al. (2019) "Interrelationship Among Liquidity, Regulatory Capital And Profitability- A Study On Indian Banks," Cogent OA, 7(1),P. 1664845-1664845. Available At: Https://Doi.Org/10.1080/23322039.2019.1664845.
Salim, C, K. And Setyawan, R, I. (2020) "Determining Factors Of Banking Performance In Indonesia," Blue Eyes Intelligence Engineering And Sciences Publication, 9(5),P. 1507-1512. Available At: Https://Doi.Org/10.35940/Ijitee.A5077.039520.
Sanusi, M. (2019) "The Impact Of Bank-Specific And Macroeconomic Variables On Profitability Of Islamic Rural Bank In Indonesia," , 5(3). Available At: Https://Doi.Org/10.29040/Jiei.V5i3.635.
Singh, D. (2010) "Bank Specific And Macroeconomic Determinants Of Bank Profitability: The Indian Evidence," SAGE Publishing, 14(1),P. 53-64. Available At: Https://Doi.Org/10.1177/0971890720100107.
Sunarya, W, I. (2018) "The Impact Of Internal Performance And Macroeconomic Conditions On Profitability In Indonesian Banking From 2015-2017," Universitas Merdeka Malang, 6(2). Available At: Https://Doi.Org/10.26905/Jmdk.V6i2.2374.
Supiyadi, D. (2021) "The Determinant Of Islamic Bank Profitability And Stability In Indonesia Periods 2010-2017," Atlantis Press. Available At: Https://Doi.Org/10.2991/Aebmr.K.210831.004.
Utomo, L, M. And Anggono, H, A. (2020) "Bank Specific Determinants Of Bank Profitability In Indonesia For The Period 2008-2019," , 3(2),P. 13-21. Available At: Https://Doi.Org/10.36624/Jisora.V3i2.74.
Xu, T., Hu, K. And Das, U. (2019) "Bank Profitability And Financial Stability," International Monetary Fund, 19(5),P. 1-1. Available At: Https://Doi.Org/10.5089/9781484390078.001.
