The relationship between net interest margin and return on asset: empirical study of conventional banking in Indonesia

Abstract

Purpose of this study is to examine the relationship between net interest margin and return on assets by placing the net interest margin as the mediating variables. This study uses a sample of banks listed on the Indonesia Stock Exchange for the period 2015 to 2018. Data used is panel data, with data analysis using path analysis. Results showed that the capital adequacy ratio and non-performing loan do not have effect with NIM. We find a statistically significant negative effect between operating cost/operating income ratio and loan to deposit ratio for the NIM. NPL do not have effect with ROA, while CAR, BOPO, and LDR have a negative effect with ROA. However, NIM is positively related to ROA. The important things from this paper that from sobel test results shown that the NIM mediates the relationship between BOPO and LDR to ROA.