THE IMPACT OF LIQUIDITY RISK AND CREDIT RISK ON PROFITABILITY WITH NET INTEREST MARGIN AS AN INTERVENING VARIABLE
Keywords:
Liquidity Risk, Credit Risk, Profitability, Net Interest MarginAbstract
Banks are distinctively disparate from the other business entities for their business nature and essential functions; in serving as a financial intermediary, relying on the community as their main source of funding, assisting government in regard to the monetary policy implementation, and stimulating the economy. This study aims on identifying the influence of Liquidity Risk (LDR) and Credit Risk (NPL) on Profitability (ROA) with Net Interest Margin (NIM) in its mediating role of the Conventional Commercial Banks listed on the Indonesia Stock Exchange (IDX) for the period of 2020 to 2022. The population comprises those listed on the IDX under the Banking sub-sector companies, out of which, 4 banks are selected through the purposive sampling approaches. A total of 32 samples are obtained on an interim basis, from the second quarter of 2020 to the first quarter of 2022. By using the SPSS 25 program, Path Analysis is performed. It is revealed that Liquidity Risk has an insignificant effect on each NIM and Profitability, while Credit Risk has a significant effect on each NIM and Profitability. The results indicate that a one-unit change in Liquidity Risk might cause an insignificant fluctuation in NIM and Profitability and a one-unit change in Credit Risk might lead to a significant fluctuation in NIM and Profitability. Moreover, NIM fails to intervene between the effect of Liquidity Risk on Profitability and is found to intervene only between the effect of Credit Risk on Profitability.
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