The effect of third-party funds, credit risk, market risk, and operational risk on profitability in banking

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Abstract

The study aimed to investigate the effect of third-party funds, credit risk, market risk, and operational risk on profitability in banking, especially on the banks included in BUKU 2 category simultaneously or partially. The sampling technique used in the study was saturated sampling. Therefore, a number of 54 banks was obtained as samples. The data in the study were quantitative data, namely in form of financial statements of banking companies included in BUKU 2 category for the period 2014–2017. The data were obtained from the websites of the concerned banks. The research method used was multiple linear regression analysis. In the study, to measure the third-party funds variable we used third-party fund (TPF) ratio, to measure the credit risk variable we used non-performing loan (NPL) and non-performing financing (NPF) ratio, to measure the market risk variable we used net interest margin (NIM) ratio, to measure the operational risk variable we used BOPO ratio, and to measure the profitability variable we used return on assets (ROA) ratio. The result of the study showed that partially third-party funds and credit risk had no significant effect on profitability, partially market risk had a significant positive effect on profitability, and partially credit risk had a significant negative effect on profitability. While simultaneously, third-party funds, credit risk, market risk, and operational risk had a significant effect on profitability.

Keywords: Third-Party Funds, Credit Risk, Market Risk, Operational Risk

Authors’ individual contribution: Conceptualization — J.J.S. and J.E.T.; Methodology — J.J.S. and J.E.T.; Investigation — J.J.S. and J.E.T.; Resources — J.J.S. and J.E.T.; Data Curation — J.J.S., J.E.T., and H.K.; Writing — Original Draft — J.J.S., J.E.T., and H.K.; Writing — Review & Editing — J.J.S., J.E.T., and H.K.; Supervision — J.J.S.; Project Administration — J.E.T.; Funding — J.J.S., J.E.T., and H.K.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: This research was financially supported by Sam Ratulangi University internal research funds 2020, RDUU Scheme with number of contract 408/UN12.13/LT/2020.

JEL Classification: G32, G21

Received: 03.03.2021
Accepted: 26.04.2021
Published online: 28.04.2021

How to cite this paper: Sondakh, J. J., Tulung, J. E., & Karamoy, H. (2021). The effect of third-party funds, credit risk, market risk, and operational risk on profitability in banking. Journal of Governance & Regulation, 10(2), 179–185. https://doi.org/10.22495/jgrv10i2art15