Research Paper
Year: 2023 | Month: July | Volume: 10 | Issue: 7 | Pages: 440-452
DOI: https://doi.org/10.52403/ijrr.20230754
The Determinant of Foreign Custodian Bank Profitability in Indonesia (Study in Foreign Custodian Bank Period 2015-2020)
Juli Nur Hidayat1, Anny Ratnawati2, Sahara3
1,2School of Business, IPB University, Jl. Raya Padjadjaran Bogor, Indonesia
3Department of Economics Science, Faculty of Economics and Management, IPB University, Jl. Kamper, Campus of IPB Darmaga Bogor 16680, Indonesia
Corresponding Author: Juli Nur Hidayat
ABSTRACT
This research aims to analyze the factors that affected the profits of foreign custodian banks in Indonesia as measured in return on equity (ROE). The research object was selected through the convenience sampling method with the criterion of being a branch office of a foreign bank that also functions as a custodian bank in Indonesia. It uses panel data regression which has several cross section and time series data with the selected model being the Fixed Effect Model. This research aims to determine the effect of external factors consisting of the JISDOR and the conditions of the covid-19 pandemic, as well as the influence of internal factors consisting of the NIM ratio, the balance sheet NOP ratio, and the LAFCTA ratio on BAK's ROE. The results showed that BAK has applied effectively risk management as outlined in a risk management framework to facilitate the management of all business activities with the aim of maximizing risk-adjusted returns while remaining within risk-appetite limits. Based on the results of the study, BAK profitability as measured in ROE, both simultaneously and partially influenced significantly by the independent variables JISDOR exchange rate, balance sheet NOP ratio, Dummy Covid-19, NIM ratio and LAFCTA ratio with an R2 value of 0.860261 meaning the goodness of fit of the model can be explained by 86.03%, the remaining 13.97% is explained by other factors outside the model. In addition, there is a positive correlation of 0.5374796 between the LAFCTA ratio and the balance sheet PDN ratio where there is a tendency to build position by increasing the LAFCTA ratio thereby increasing the balance sheet PDN ratio. This could have an impact on reducing the supply of USD on the foreign exchange market. The results of this research can be used as input for Bank Indonesia, the Financial Services Authority, and the Deposit Insurance Corporation in establishing policies, particularly those related to financial system stability. In addition, the results of this study can also be used as a reference for commercial banks regarding the implementation of market risk and liquidity risk management in managing bank assets and liabilities.
Keywords: custodian bank, foreign currency, pandemic, profitability
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