The effect of loan-loss provision, non-performing loans and third-party fund on capital adequacy ratio

Abstract

This study aims to determine the effect of the independent variable of Allowance for Impairment Losses, Non-Performing Loan Ratio (NPL), and the amount of Third Party Funds (TPF) either partially or simultaneously on the dependent variable Capital Adequacy Ratio (CAR). IFRS carries the concept of Expected loss backup, which begins by acknowledging losses if there is a potential for payment failure even though it has not actually occurred, allowing banks to establish a larger allowance for loan losses. It is feared that the increase in the provision for credit losses and NPLs will affect bank capital. In this study, the samples are banks owned by the central government, namely Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, and Bank Tabungan Negara for the period 2011 to 2018. The data taken is time-series data on quarterly financial reports published by each online. The analysis used is multiple linear regression analysis. The results showed that the partial allowance for credit losses did not significantly affect the bank's capital adequacy ratio. Simultaneously, non-performing loans (NPL) and third-party funds (TPF) partially affected the bank's capital adequacy ratio. Simultaneously, the three independent variables significantly affect the dependent variable, namely the capital adequacy ratio (CAR).