The Analysis of Financial Sustainability Ratio on Rural
Banks in Indonesia
Indra Saputra1, Sekar Mayangsari2
{Indra.saputra@trisakti.ac.id1, Sekar_mayangsari@trisakti.ac.id2}
Faculty of Economics and Business, Universitas Trisakti
Abstract. The purpose of this study is to examine and analyze the financial
performance ratios consisting of return on assets, non-performing loans,
mobilization deposits on financial sustainability ratio in rural bank institutions
in Indonesia. Target population of this study was the rural bank Registered and
supervised by the Financial Services Authority (OJK) in 2018-2020. With the
sampling method selected based on the purposive sampling criteria, totaling 71
companies with 213 observations. Data analysis consists of descriptive and
multiple regression linear regression processed using SPSS statistical tools. The
results show that the return on assets has a significant positive effect and nonperforming loan has a significant negative effect on the financial sustainability
ratio. The results illustrate that the greater the company's ability to generate
profits the higher the value of the company's financial sustainability and vice
versa. Whereas non-performing loan describes the company's ability to manage
its financing and the results illustrate that if there is an increase in nonperforming loans it will happen a decrease in the condition of the company's
financial sustainability. Variable mobilization deposit no has an influence on the
company's financial sustainability, this illustrates that the greater the amount of
funds that can be collected by the bank if it cannot be channeled through the
provision of credit to customers it will not have an impact on sustainability
because it is considered that these funds do not contribute to financial
performance such as for the development and return of operating results and
vice versa there are indications that can affect the decline in the company's
financial sustainability condition due to prove to have a negative relationship.
Furthermore, the size of the company cannot determine the company's financial
sustainability.
Keywords: Return On Asset (ROA); Non-Performing Loan (NPL);
Mobilization Deposit (MD); Financial Sustainability Ratio (FSR)
1 Introduction
Economic activities in Indonesia, especially the financial sector, are strongly supported by
financial institutions in Indonesia. Financial institutions are the sector that has the greatest
influence on the economic activities of modern society. Micro-enterprises are one of the
sectors that have an important role in the economy, but so far this sector has been difficult to
LePALISSHE 2021, August 03, Malang, Indonesia
Copyright © 2022 EAI
DOI 10.4108/eai.3-8-2021.2315153
develop, because micro-entrepreneurs who generally come from the lower classes of society
are barely touched (underserved) and are considered to have no potential for funds by formal
financial institutions, especially financial institutions. conventional finance, thus hampering
the pace of its development. Limited access to sources of financing faced by Micro, Small and
Medium Enterprises (MSMEs) to banks, causes them to depend on informal sources and
Micro Finance Institutions (MFIs). MFIs are institutions that provide financial services for
micro-entrepreneurs and low-income communities, both formal, semi-formal and informal.
Based on the United Nations declaration regarding the year of microfinance institutions in
2005 (international year of microfinance) it is highly recommended to realize the research
agenda on the sustainability of MFIs. Several studies on MFIs have focused on assessing the
performance and sustainability of MFIs by evaluating financial indicators that directly affect
the level of independence, outreach and mechanisms of lending. The findings of Chaves and
Vega reveal that the success of MFIs in Indonesia is a result of the organization's design. They
argue that the design of an organization that will intermediary for financial services is very
important because it will determine the performance of the MFI and ultimately determine its
success or failure (Chaves and Vega, 1996). Rural Banks (BPR) as one of the actors in the
microfinance market have their own role in the community and micro, small and medium
enterprises (MSMEs). Based on POJK No. 20/POJK.03/2014 concerning Rural Banks, to
encourage national economic growth and support dynamic business development, a strong
national banking system is needed, including a Rural Bank industry that is healthy, strong,
productive, and competitive in order to be able to serve community, especially micro and
small enterprises.
Microfinance institutions (MFIs) must understand that long-term sustainability can be
achieved only with proper financial conditions. Therefore, rural banks (BPR) that are healthy,
strong, productive, and competitive will have long-term sustainability. Sustainability refers to
the company's ability to meet all costs with its own operating income. According to Rivera
(2003), for microfinance institutions (MFIs), sustainability refers to the MFI's ability to
achieve future goals and maintain them. To achieve financial sustainability, MFIs need to
minimize costs, offer products and services that meet client needs, increase innovation to
reach the unbanked poor and increase income to cover costs. Based on The Consultative
Group to Assist the Poor (CGAP), which is a consultative group to help the poor under the
auspices of the World Bank, the standard value for FSR is above 100%. The greater the FSR
of a bank, the greater the ability of a bank to continue its operations. By using the FSR ratio,
information about the sustainability and growth rate of the bank in the long term can be
obtained.
There are several studies on financial sustainability that show inconsistent findings. The
results of Budiarti's research Return on Assets (ROA) has a positive effect on the financial
sustainability ratio (FSR), but contradicts the results of Wahyuni and Fakhruddin's research
which states that ROA has a negative effect on FSR [1], [2]. The results of research by
Almilia, et al stated that Non-Performing Loans (NPL) had a negative effect on the financial
sustainability ratio (FSR), but contradicted the results of Fadhila's research which stated that
NPL growth had no positive effect on FSR [3], [4]. The results of Nyamsogoro's research
(2009) state that the Cash Ratio has an effect on the financial sustainability ratio (FSR), but
contradicts the results of Mussa's research which states that the Cash Ratio has no effect on
FSR [5]. The results of research by Almilia, et al stated that the Loan to Deposit Ratio (LDR)
had a negative effect on the financial sustainability ratio (FSR), but contradicted the results of
Budiarti's research which stated that the growth of LDR had a positive effect on FSR [1], [3].
The results of Tehulu's research state that Bank Size has a positive effect on the financial
sustainability ratio (FSR), but contradicts the results of Bogan et al research which states that
Bank Size has a negative effect on FSR [6], [7]. The results of Ndambu's research state that
Deposit Mobilization has a positive effect on the financial sustainability ratio (FSR), but
contradicts the results of Marwa and Meshach's research which states that Deposit
Mobilization has a negative effect on FSR [8], [9]. The results of research by Bogan, et al
stated that Bank Age had a positive effect on the financial sustainability ratio (FSR), but
contradicted the results of research by Rahman and Mazlan which stated that Bank Age had a
negative effect on FSR [7], [10].
The results of the research by Nyankomo Marwa and Meshach Aziakpono show that,
about 61 percent of the sample of SACCOs companies are operationally sustainable and 51
percent of the total sample are both operationally and financially sustainable [9]. The average
sustainability score is 127 percent. The average yield for profitability (measured by ROA) is
higher than some reported results for regional and global microfinance standards. In terms of
sustainability, the future forecast results are promising for the financial cooperative business
model as an alternative form of financing. Soheil Kezemian et al (2016) found that the current
research provides some empirical evidence that following customer orientation significantly
affects the sustainability of AIM's management and financial sustainability. However,
competitor orientation does not have a statistically significant impact on the sustainability of
AIM. In contrast, only the continuity of AIM management is significantly affected by interfunctional coordination.
Surprisingly, deposit mobilization affects financial sustainability scores negatively. It is
theoretically expected that high deposit mobilization will lead to a lower cost of capital and
hence a high level of financial sustainability, but empirical evidence suggests otherwise. The
observed differences can be explained by the possibility that SACCOs with high deposit
mobilization may be located in areas where there is a low level of institutional thickness,
which is detrimental to the operating environment and low relationships with other financial
institutions which might lead to high transaction costs. Detailed qualitative follow-up is
needed to understand the main drivers of the observed behavior. As expected, the higher cost
per loan portfolio had a negative effect on financial sustainability. It is important that
SACCOs whose cost per loan portfolio is above 20 percent should design innovative solutions
to cut costs based on their operating environment. Based on the research gap, further research
is needed to analyze the effect of ROA, NPL, Deposit Mobilization on the financial
sustainability ratio (FSR) at Rural Banks in Indonesia during 2018-2020.
2 Literature Review
2.1 Sustainability
Sustainability theory of Microfinance Institutions (MFIs) that has been developed so far
states that MFI sustainability is the MFI's ability to run the system that has been built so that it
can operate sustainably. Likewise, MFIs have the ability as microfinance providers to cover all
costs in achieving financial sustainability. The system in the concept of sustainability of sharia
MFIs is measured based on sharia compliance finance which refers to sufficient income to
cover capital costs and funding costs. Income and capital costs in sharia MFIs are obtained not
from ribawi transactions, tadlis, speculative behavior, gambling and gharar. MFI sustainability
is the MFI's ability to survive, continuously in covering operational costs by using operating
income generated from business activities.
In general, experts examine sustainability with two approaches, namely the welfare
approach and the institutional approach. According to Murdock, in the microfinance
movement in the world in terms of reaching the poor through providing access to financial
services, there are two main approaches, namely the institutional approach (institutionist
approach) and the welfare approach (welfarist approach). Research shows that microfinance
institutions are significantly characterized by an institutional approach to sustainability
(Murdock, 2000). The institutional approach focuses on creating financial institutions to reach
customers who are not served by the formal financial system. The emphasis on institutions lies
in achieving financial self-sufficiency, breadth of outreach, which means the number of
customers served, and the positive client impact. Meanwhile, the welfare approach emphasizes
the depth of outreach, which means the level of the poorest community served. This approach
does not always look at the institutional side, but emphasizes the impact of financial services
on the economically active poor.
2.2 Life Cycle Theory
Based on Mersland and Ludovic, Fehr and Hishigsuren, the application of Life Cycle
Theory is used to understand the capital requirements of MFIs [11], [12]. Life Cycle Theory
can also serve as a framework for understanding the commercialization of microfinance
institutions (MFIs) and the impact of that process on profitability and costs. Phases in Life
Cycle Theory are divided into three namely; growth, youth and mature. In the growth phase of
Microfinance Institutions (MFIs), MFIs try to be financially independent.
MFIs in this phase are at high risk and require capital subsidies in the form of grants and
capital contributions to support the early years of operation because MFIs are not yet able to
attract commercial funds. Donations, subsidies and soft loans are included in the source of
funding for this stage. In the early stages, it can be ascertained that the MFI does not qualify to
receive any source of commercial funding. In the Youth Microfinance Institution (MFI) phase,
efficiency increases, savings and payment services are offered and profitability can be
achieved.
MFIs in this phase must scale up and gain market share while maintaining profits. MFIs
have become financially independent, private capital loans become available. Management
performance is a prerequisite for obtaining external funding. In the mature phase of
Microfinance Institutions (MFIs), MFIs become more profitable and seek to further improve
their efficiency. Often, at this phase the MFI is in a strong competitive environment. At this
stage the traditional sources of bank funds are available. The traditional sources of bank funds
are in the form of savings and time deposits.
2.3 Previous Empirical Studies
The results of the research by Nyankomo Marwa and Meshach Aziakpono show that,
about 61 percent of the sample of SACCOs companies are operationally sustainable and 51
percent of the total sample are both operationally and financially sustainable [9]. The average
sustainability score is 127 percent. The average yield for profitability (measured by ROA) is
higher than some reported results for regional and global microfinance standards. In terms of
sustainability, the future forecast results are promising for the financial cooperative business
model as an alternative form of financing. Soheil Kezemian et al found that the current
research provides some empirical evidence that following customer orientation significantly
affects the sustainability of management and financial sustainability [13]. However,
competitor orientation does not have a statistically significant impact on the sustainability. In
contrast, only the continuity of management is significantly affected by inter-functional
coordination.
The results of Budiarti's research state that Return on Assets (ROA) has a positive effect
on the financial sustainability ratio (FSR), but contradicts the results of Wahyuni and
Fakhruddin's research which states that ROA has a negative effect on FSR [1], [2]. The results
of research by Almilia, et al stated that Non-Performing Loans (NPL) had a negative effect on
the financial sustainability ratio (FSR), but contradicted the results of Fadhila's research which
stated that NPL growth had no positive effect on FSR [3], [4]. The results of Nyamsogoro's
research (2009) state that the Cash Ratio has an effect on the financial sustainability ratio
(FSR), but contradicts the results of Mussa's research which states that the Cash Ratio has no
effect on FSR. The results of research by Almilia, et al stated that the Loan to Deposit Ratio
(LDR) had a negative effect on the financial sustainability ratio (FSR), but contradicted the
results of Budiarti's research which stated that the growth of LDR had a positive effect on FSR
[1], [3], [5]. The results of Tehulu's research state that Bank Size has a positive effect on the
financial sustainability ratio (FSR), but contradicts the results of Bogan et al research which
states that Bank Size has a negative effect on FSR [6], [7]. The results of Ndambu's research
state that Deposit Mobilization has a positive effect on the financial sustainability ratio (FSR),
but contradicts the results of Marwa and Meshach's research which states that Deposit
Mobilization has a negative effect on FSR [8], [9]. The results of research by Bogan, et al
stated that Bank Age had a positive effect on the financial sustainability ratio (FSR), but
contradicted the results of research by Rahman and Mazlan which stated that Bank Age had a
negative effect on FSR [7], [10].
2.4 Conceptual Framework
Crystallization from literature review and empirical studies as described above produces a
conceptual framework as shown in the figure 1.
Fig. 1. Research Conceptual Framework
2.5 Research Hypothesis
2.5.1 The effect of Return on Asset (ROA) on Financial Sustainability Ratio (FSR)
ROA is used to measure the effectiveness of the company in generating profits by utilizing
its assets, so that ROA can show how the company's ability to generate profits from time to
time. The previous year's Return on Assets (ROA) is the previous year's profit before interest
and tax as a percentage of the previous year's total assets. Based on SE BI No. 13/24/DPNP In
2011, the criteria for an adequate ROA assessment is above 1.5%. The greater the ROA of a
bank, the greater the level of profit achieved by the bank and the better the position of the
bank in terms of the use of its assets so that the bank's ability to continue to be a going concern
is higher. The lower the ROA, the greater the probability that the bank is in troubled condition
[3]. The results of research conducted by Budiarti show that ROA has a positive and
significant effect on financial sustainability [1]. In life cycle theory, efforts to increase ROA
will bring banks into phase II (youth) and then move up to phase III (mature). Because in both
phases the efficiency of the bank increases and the bank is considered more profitable. The
greater the ROA value achieved means the bank's profit is also large, the previous year's profit
will increase the bank's funds to be used in lending. In other words, current income is obtained
from the use of the previous year's profit through lending and other investments so that the
hypothesis in this study is:
H1: Return on Assets (ROA) has a significant positive effect on the Financial Sustainability
Ratio (FSR)
2.5.2 The effect of Non Performing Loans (NPL) on Financial Sustainability Ratio (FSR)
The NPL ratio is part of the bank's performance assessment, when the NPL value exceeds
the limit, the bank will be considered problematic. The results of research conducted by
Budiarti show that the direction of the relationship between NPL growth and financial
sustainability shows a negative and significant direction [1]. This shows that there are
indications that if there is an increase in NPL, there will be a decrease in the condition of
financial sustainability. In life cycle theory, a high NPL will bring the bank to a decline stage
and the growth, youth and mature phases cannot be achieved. Because in each phase in life
cycle theory requires conditions that tend to be low NPL. The increase in the NPL value
indicates an increase in the number of non-performing loans experienced, non-performing
loans will make it difficult for banks to withdraw funds that have been issued. Sometimes
banks withdraw their funds from depositors with the help of third parties which of course costs
money. And sometimes the non-return of the loan principal and interest on the loan will make
the cash flow for the new loan disrupted, thus affecting the interest income that should be
obtained. The emergence of collection fees and a decrease in interest income will affect the
decline in the Financial Sustainability Ratio (FSR). Based on this description, the following
hypothesis is:
H2: Non-Performing Loans (NPL) have a significant negative effect on the Financial
Sustainability Ratio (FSR)
2.5.3 The effect of Deposit Mobilization (DM) on Financial Sustainability Ratio (FSR)
The impact of raising funds on income will be seen in the deposit-to-asset ratio, funds from
customers are the main source of funding and may also be the cheapest source of funding for
banks, in general the impact of customer deposits on performance is positive . as long as the
demand for credit tends to be high, if the demand for credit tends to be low, customer funds
will actually reduce profits. The results of research conducted by Ndambu show that the
deposit mobilization variable has a significant positive effect on financial sustainability [8].
This means that an increase in the deposit mobilization variable will also increase its financial
sustainability. In life cycle theory, increased deposit mobilization will bring the bank to phase
II (youth) and then to phase III (mature). Because in both phases, savings services began to be
improved and banks in phase III were characterized as banks with large customer bases. Based
on this description, the following hypothesis is:
H3: Deposit Mobilization (DM) has a significant positive effect on the Financial Sustainability
Ratio (FSR)
3 Research Methodology
3.1 Research Design
The research design used in this study is hypothesis testing, which aims to examine the
effect of return on asset, non-performing loans and deposit mobilization on financial
sustainability ratio and This study uses secondary data obtained from the official website of
the Indonesia Stock Exchange (www.idx.co.id) and the company's website. The unit of
analysis in this research is financial corporation classified as rural bank registered and
supervised by the financial service authority in Indonesia.
3.2 Variable and Measurement
3.2.1 Dependent Variable: Financial Sustainability Ratio (FSR)
Financial Sustainability Ratio (FSR) is a ratio to measure the sustainability of a bank in
terms of bank financial performance. Besides that, it is also a target for increasing own capital.
Financial Sustainability Ratio (FSR) can be used to determine the company's ability to
generate and increase returns in order to achieve and maintain its long-term existence [4].
3.2.2 Independent Variable
ROA is used to measure the effectiveness of the company in generating profits by utilizing
its assets, so that ROA can show how the company's ability to generate profits from time to
time. The previous year's Return on Assets (ROA) is the previous year's profit before interest
and tax as a percentage of the previous year's total assets. NPL can be used to measure the
extent of non-performing loans experienced by a bank. The NPL ratio is a description of nonperforming loans, the cause of which is the customer's inability to pay installments on the
principal and interest charged in accordance with the agreement. The criteria for the NPL ratio
according to the Rural Bank Business Model (2011) is below 5%. The deposit to asset ratio is
used to measure the amount of assets funded by public deposits. This ratio provides an
analysis of information about the role of deposits as a source of funding [14].
3.3 Population and Sample
In this study, the population used were all Conventional Rural Banks in Indonesia during
the 2018-2020, The research sample was taken by purposive sampling, which is where the
sample selection method is based on population characteristics that have been previously
known with the following criteria:
a. Conventional Rural Banks in Indonesia registered with the Financial Services Authority
that are consistent throughout the research period (2018 to 2020).
b. Conventional Rural Banks in Indonesia that present complete financial statement data and
ratios according to the variables to be studied during the research period (2018 to 2020)
and published by the Financial Services Authority.
3.4 Analysis Method
The analytical method used consists of:
a) Research Model
This study employed a multiple regression analysis method. This analysis is used to test
the effect of the independent variable on the dependent variable. The multiple regression
equation model used in this study is as follows.
FSR = α + β1ROA + β2NPL + β3MD + β4Size + e
Notes:
α
β1 – β5
FSR
ROA
NPL
MD
Size
e
(1)
= Constanta
= Koefesien
= Finacial Sustainability Ratio
= Return On Asset
= Non Performing Loan
= Mobilization Deposit
= Size
= Error
b) Analysis Data
1) Descriptive Statistics
Descriptive statistics are used to describe the sample data profile which includes,
among others, the mean, range, and standard deviation. Descriptive statistics are part
of statistics that focus on collecting, presenting, processing, and summarizing data
where this activity does not continue to draw conclusions. Through descriptive
statistics, the preparation of data in lists or tables and visualization in the form of
diagrams or graphs is carried out.
2) Data Normality Test
The normality test used was the Kolmogorov-Smirnov non-parametric statistical test.
This test tool is used to provide more detailed figures in order to confirm whether
there is normality or not from the data used. According to Ghozali normality can occur
if the results of the Kolmogorov-Smirnov test are more than 0.05 [15]. The
significance value of normally distributed residuals if the Asymp.Sig (1-tailed) value
in the One-Sample Kolmogorov-Smirnov Test is greater than 0.05, it can be
concluded that in the ANOVA there are residual or confounding variables that are
normally distributed.
3) Classical Assumption Test
Multiple linear regression model can be referred to a good model if it meets BLUE
criteria (Best Linear Unbiased Estimator). BLUE criteria can be achieved when it
meets classical assumption. The classical assumption that will be tested in this study,
such as multicolinearity test, autocorrelation test, heteroscedasticity test and normality
regression test.
4 Results and Discussion
4.1 Descriptive Statistics of Research Variables
This study uses variables, return on asset, non-performing loan and deposit mobilization as
independent variables and financial sustainability ratio as the dependent variable is presented
in the table 1 below:
FSR
ROA
NPL
DM
SIZE
N
213
213
213
213
213
Table. 1. Descriptive Statistics
Minimum
Maximum
Mean
.28
1.81
1.0854
-.36
.19
.0680
.00
60.42
11.0927
.00
.89
.4713
21.66
27.66
24.3019
Std. Deviation
.23403
.06119
9.75738
.23227
1.20508
From the results of descriptive statistical tests, it can be seen that the Financial
Sustainability Ratio variable has a minimum value of 0.28, with a maximum value of 1.81, the
average Financial Sustainability Ratio of 213 observations is 1.0854 with a standard deviation
of 0.23403. The Return on Assets variable has a minimum value of -0.36, with a maximum
value of 0.19, the average Return on Assets from 213 observations is 0.0680 with a standard
deviation of 0.06119. The Non-Performing Loan variable has a minimum value of 0.00, with a
maximum value of 60.42, the average Non-Performing Loan from 213 observations is 11.0927
with a standard deviation of 9.75738. The Deposit Mobilization variable has a minimum value
of 0.00, with a maximum value of 0.89, the average Deposit Mobilization of 213 observations
is 0.4713 with a standard deviation of 0.23227. Variable Size has a minimum value of 21.66,
with a maximum value of 27.66, the average size of 213 observations is 24.3019 with a
standard deviation of 1.20508.
4.2 Classic assumption test
The purpose of this test is to see whether the regression model used has met the classical
assumption test in analyzing data.
4.2.1 Normality test
The purpose of doing the normality test is to test whether the regression model, the
residual of the dependent variable and the independent variable or both have a normal
distribution or not using the One-Sample Kolmogorov-Smirnov Test and the results of the
normality test of this study are shown in the following table 2:
Information
Multiple Regression
Equation
Table 2. Normality test results
Significance Traffic
Asymp. Sig. (2-tailed)
0.05
0.280
Decision
Normally
distributed data
Based on the One-Sample Kolmogorov-Smirnov Test it can be seen that the Asymp. Sig =
0.280 > 0.05 means that the data is normally distributed.
4.2.2 Multicollinearity Test
Based on the results of the multicollinearity test, the following can be shown:
Table 3. Multicolonierity Test Results
Collinearity Statistics
Conclusion
Tolerance
VIF
Return on Asset
.842
1.188
No Multicollinearity
Non-Performing Loan
.837
1.195
No Multicollinearity
Deposit Mobilization
.674
1.484
No Multicollinearity
Size
.603
1.658
No Multicollinearity
Model
From the table above it is known that each variable has a value Variance Inflation Factor
(VIF) is less than 10, it shows that there is no multicollinearity (there is no strong relationship
between the independent variables).
4.2.3 Autocorrelation Test
Based on the results of the autocorrelation test, the following can be shown:
Table 4. Autocorrelation Test Results
Autocorrelation test shows that the value of dw statistic is in the area where dU < dw < 4dU or dw statistic is where the value of dw is 2.019 which is greater than the upper durbin
value of 1.810 but smaller than the upper 4-durbin's value of 2.190 (1.810 < 2.019 < 2.190).
This value indicates that the dw statistic falls into the criteria of do not reject H0 or there is no
autocorrelation, so the researcher concludes that there is no autocorrelation from the
regression model used in this study.
4.2.4 Heteroscedasticity Test
Based on the scatterplot graph to analyze whether heteroscedasticity occurs or does not
occur heteroscedasticity by observing the distribution of dots in the image below. From Figure
2, it can be seen that the scatter points are random and scattered both above and below the
number 0 on the Y axis, so it can be concluded that there is no heteroscedasticity in the
regression model.
Fig.1. Scatterplot graph
4.3 Analysis and Discussion
Table 5. F Test Results
Information
F
Sig
Multiple Regression Equation 0.05 0.000
Adjusted R Square
0.429
The significance value of return on asset, non-performing loans,deposit mobilization and
size is 0.000 where <0.05, it can be concluded that together the independent variables
significantly influence the dependent variable. Meanwhile, the adjusted R-Square value of
0.429 or 9.4% means that the independent variables return on asset, non-performing
loans,deposit mobilization and size jointly affect financial sustainability ratio.
Variabel
(Constant)
ROAt_1
NPL
DM
SIZE
R-Square
Adjusted R2
F-Statistik
Sig.
Table 6. Hypothesis Testing Results (t test)
Koefisien t-statistik
Sig.
Sig.
2- tailed 1-tailed
0,787
2,609
0,010
1,752
8,094
0,000
0,000
-0,008
-6,117
0,000
0,000
-0,028
-0,434
0,665
0,332
0,012
0,904
0,367
0,440
0,429
40,780
0,000
Sources: data proceed by IBM SPSS 20
Decision
H1 Accepted
H2 Accepted
H3 Rejected
The coefficient of determination of the results of the moderation regression test was 0.429
referring to the adjusted R2 value. This means that the contribution of the influence that can be
given by all independent variables is 42.9% or changes from the Financial Sustainability Ratio
can be explained by all independent variables of 42.9% with the remaining 57.1% explained
by all other independent variables outside this research. Then whether the contribution of
42.9% can have a simultaneous effect or not, it is proven by simultaneous testing of F.
4.4 Discussion Analysis
The research findings show hypothesis 1 which states that Return on Assets (ROA) has a
significant positive effect on the Financial Sustainability Ratio (FSR), based on table 6, known
that the ROA variable has a positive coefficient of 1.752, while the one-tailed significance
value obtained from the t-test results is 0.000 which is smaller than 0.05, so this study can
reject H0 so that the H1 of this study can be supported. the results of this study conclude that
Return on Assets has a significant positive effect on the Financial Sustainability Ratio (FSR).
The greater the Return On Assets (ROA) of a rural bank, the greater the level of profit
achieved by the rural bank and the better the position of the rural bank in terms of the use of
its assets so that the rural bank's ability to continue to be a going concern is higher. This result
consistence with previous research from Almilia et al, Budiarti, Wahyuni and Fakhruddin's,
Nyankomo and Meshach [1]–[3], [9].
The finding of the second hypothesis indicated that Non-Performing Loans (NPL) have a
significant negative effect on the Financial Sustainability Ratio (FSR), based on table 6,
known that the NPL variable has a negative coefficient of -0.008, while the 1-tailed
significance value obtained from the t-test results is 0.000 which is smaller than 0.05, so this
study can reject H0 so that the H2 of this study can be supported. NPL ratio This ratio shows
that the ability of rural bank management to manage non-performing loans provided by rural
banks. So that the result of this study conclude the lower this ratio shows the ability of bank
management to manage non-performing loans provided by banks, the better so that the bank's
ability to go concern is getting better. This result consistence with previous research from such
as Almilia et al, Budiarti, Wahyuni and Fakhruddin's [1]–[3].
Hypothesis 3 indicated that Deposit Mobilization (DM) has a significant positive effect on
the Financial Sustainability Ratio (FSR), based on table 6, known that the DM variable has a
negative coefficient of -0.028, while the one-tailed significance value obtained from the t-test
results is 0.332, which is greater than 0.05, so this study cannot reject H0 so that the H3 of this
study cannot be supported. There are several reasons why DM has no effect on financial
sustainability ratio including: (i) the ability of rural banks to provide financing to customers
(2) The large amount of mobilization deposit raises large costs, so a strategic plan is needed to
manage it well (3) effect of bank liquidity, the lower the liquidity capacity of the bank
concerned (the amount of funds needed to finance credit is getting bigger). This further
worsens the ability of banks to go concern (4) based on life cycle theory the increase in
deposit mobilization will bring the bank into phase II (youth) and then move up to phase III
(mature). Because in both phases, savings services began to be improved and banks in phase
III were characterized as banks with large customer bases. And finally we are looking from
rural bank function in carrying out its business activities, RBs are not allowed to accept
deposits in the form of demand deposits, conduct foreign exchange business activities, make
capital investments using prudent banking principles, and carry out insurance business. So, the
effort carried out by the rural bank’s is to collect funds and distribute them with the aim of
obtaining profits through the spread effect and interest income.
5 Conclusion
From the findings of this study, it was concluded that:
1. Return on Assets has a significant positive effect on the Financial Sustainability Ratio
(FSR). greater the ROA of a bank, the greater the level of profit achieved by the bank
and the better the position of the bank in terms of the use of its assets so that the bank's
ability to continue to be a sustainability financial is higher.
2. Non-Performing Loans (NPL) have a significant negative effect on the Financial
Sustainability Ratio (FSR), the lower NPL ratio shows the ability of bank management
to manage non-performing loans provided by banks, the better so that the bank's ability
to going concern is getting better.
3. Deposit Mobilization (DM) had no significant positive effect on the Financial
Sustainability Ratio (FSR) due to DM variable has a negative coefficient and
significant value greater than 0.05%. there is no effect on the DM variable. The rural
banks are a microfinance institution that serve small business so that liquidity is highly
dependent on the funds raised and distribute of financing to micro entrepreneurs and
rural banks have limited liabilities product only saving and deposit.
Limitations and Suggestion
1. The researcher did not test the effect of BOPO, CAR and Micro economic variable
such as sensitivity of money supply, interest rate, so it is recommended to do the test in
the future.
2. This study only uses a sample of 71 companies Registered and supervised by the
Financial Services Authority (OJK) in 2018-2020. Future research is expected to add a
sample of companies.
3. This research does not classify companies based on core capital so that the further
research performs based on bucket
Implications
The empirical evidence found from the results of this study has several implications as
follows.
1. For companies to consider ROA and NPL that can effect financial sustainability so that
manager required to carry out regular monitoring financial reports to mitigate financial
distress and define strategy funding & financing.
2. For regulators’ always maintenance and monitor financial performing reports and
provide direction to bank management to maintain company liquidity and NPL as well.
3. For user information in the Indonesian capital market the level of financial ration in a
company's annual report is valuable information that deserves to be considered as one
of the criteria for rational investment decision making by investors.
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