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Library's collection Library's IT development CancelDespite the deteriorating profitability that was experienced by banks around the world, the Indonesian banking system was resilient, indicated by it’s higher than average profitability. However, such strength was tested as commercial banks in Indonesia found themselves struggling to prevent decreasing their ROAs in recent years. This research focuses on studying the determinants of Indonesian bank’s profitability. The study involves both bank-specific and macroeconomic factors related to the banking industry. This study and report are intended to inform the area of investment that sustain and improve profitability.
The research looked on both pre-tax ROA and post-tax ROA and tested them with eight bank-specific variables and four macroeconomic variables to study such strengths. The research took financial information of 24 commercial banks in Indonesia for the year 2005 to 2014. The 240 observations are structured into panel data, which are then tested with a panel regression model. Out of the variables which are significant against both pre-tax ROA and post-tax ROA, four were bank-specific (loan quality, asset size, capital adequacy and non-interest income) and two were macroeconomic (real GDP growth rate and unemployment rate).