Determining Factors of Banking Performance in Indonesia

Motivated by the large number of banking studies in Indonesia that have not included NOP (Net Open Position) in profitability modeling, our research aims to realize this. As for the reason for the importance of the Net Open Position (NOP) variable, it is almost certain that all banks will use foreign currency items in their asset and liability management activities. All commercial banks in the BUKU level 1, 2, 3 and 4 will definitely be involved in demand deposits as a consequence of continuing financial market activities to safeguard the economic activities of a country. By referring to previous research models from Al-Omar, et.al. (2008), Albulescu (2015), Muhmad & Hashim (2015), Menicucci & Paolucci (2016) and Saputri & Oetomo (2016) then identified four determinants of bank profitability variables, namely CAR, NPL, NOP and LDR. These four variables will then be defined conceptually and formulas referring to banking theory applicable in Indonesia, namely CAMEL (Capital, Management, Asset, Earning and Liquidity). Each variable will function as a bank specific factor that will determine the profitability of the bank both grossly as measured by ROA and net measured by ROE. Results of the test with panel data regression show that the NOP variable is always a determining factor in the ROA and the ROE models. This also provides evidence that NOP is indeed very important in determining ROA and ROE for bankers. With the proven NOP as the main determinant, the argument is supported that commercial banks must pay attention to the foreign exchange items in their asset and liability management. In addition to NOP, NPL is also important for determining ROA and ROE of banks.