Financial performance efficiency of Indonesia government banks in improving profitability

Abstract

Macro economic factors are commonly being considered as useful indicators for predicting the trajectories of state-owned banks’ earning. To explore and learn about the relationship between Indonesian state-owned banks’ performance efficiency and their effects on the state of profitability, this study observes and analyses measured and correlated year to year earning changes and financial ratio in the period of 2007–2015. Data sample consisting of four state-owned banks are collected and analysed in this research by incorporating the panel regression approach with fixed effects models. Results of conducted analysis confirm that the net interest margin (NIM) and loan to deposit ratio (LDR) are exposing significant effect to both the earnings changes and the return on equity (ROE), whilst the capital adequacy ratio (CAR), return on asset, the national interest rate and the Indonesian exchange rate against the US dollar was not found to expose any significant effect.