THE ROLE OF MACROECONOMICS, BANK INTERNAL FACTORS, AND MACROPRUDENTIAL FACTORS ON THE NPL PERFORMANCE OF RURAL BANKS AND NPF OF ISLAMIC RURAL BANKS IN INDONESIA 1) Lina Nugraha Rani, 2) Eko Fajar Cahyono, 3) M Fariz Fadillah Mardianto
1,2) : Islamic Economics Department, Faculty of Economics and Business, University of Airlangga
3) Mathematics Department, Faculty Technology and Science, Airlangga University
Abstract
Purposes: To examine the effect of macroeconomic variables (inflation, economic growth and unemployment), bank internal factors (Assets, FDR, Third Party Funds and Total Credit) and macroprudential factors (Loan to Value Ratio and Credit Down Payment Regulation) on the NPL performance of Rural Banks and NPF performance of Islamic Rural Banks in Indonesia.
Methods: This study uses Generalized Method of Moments (GMM) model because it is a form of semiparametric estimation, which the data used has lack of information regarding its distribution. Thus, it does not use the probability density function but the moment equation to estimate the parameters.
Results: The variables of third party funds and total credit are found to have a significant effect on the NPL of Rural Banks. In the Islamic Rural Banks model, it was found that the assets and third party funds affected the NPF performance. In addition to the previously mentioned variables, other variables do not affect the performance of Rural Banks NPL and NPF of Islamic Rural Banks. T-test results show a significant difference between NPL of Rural Banks and NPF of Islamic Rural Banks.
Conclusion and suggestion: Overall, just total credits and third party funds affect significantly on the NPL of rural banks. Meanwhile, in the Islamic rural banks category, only assets and third party funds have a significant effect on the NPF of Islamic rural banks. Therefore, the regulators must strengthen regulations in the microprudential sector because some bank internal factors are important determinants of the risk of NPL or NPF.
Keywords: Internal Bank, Macroeconomics, Macroprudential, Non-Performing Loan, Rural Banks.
Topic: Islamic accounting, auditing, and performance changes
