Predicting Capital Adequacy Ratio of Islamic Rural Banks Based on FDR, NPF, ROA, and BOPO

Abstract

Several financial ratios have been identified as factors that can determine the capital adequacy ratio (CAR) in a financial institution, including Financing To Deposit Ratio (FDR), Non-Performance Finance (NPF), Return On Asset (ROA), and Operating Expenses and Operating Income (BOPO). In previous studies, it was seen that there were inconsistencies in the results of the analysis when explaining the effect of these financial ratios on the Capital Adequacy Ratio (CAR). This study aims to examine the effect of FDR, NPF, ROA, and BOPO on Capital Adequacy Ratio (CAR), both partially and simultaneously. This research is quantitative research with a panel data regression analysis method. The data was collected through secondary sources in the form of financial statements from 18 BPRS in East Java and consistently published financial statements for the last three years (2020-2022). The results showed that the variables FDR, NPF, ROA, and BOPO together had a significant effect on CAR. This means that the four financial ratios are able to explain and predict any changes in the data on the CAR. However, in the t-test, it is known that of the four X variables, only one is able to have a negative and significant effect on CAR, namely NPF. This means that if the NPF gets smaller, the CAR gets better. At the same time, the other three variables are known to have no significant effect on CAR. The results of this study are limited only to Sharia People's Financing Banks, which, of course, are very different from Sharia Commercial Banks, both in terms of funding sources, financial services, and asset capacity. Therefore, for further researchers, it is essential to also examine financial ratios at Islamic Commercial Banks, which are very likely to obtain different results. The novelty of this study lies in the variables used, whereas previous studies generally used less variable X than this study.