Determinants of Risk Adjusted Return On Capital (RAROC) In Indonesian Banking Companies Listed On The Indonesia Stock Exchange
DOI:
https://doi.org/10.63607/jcmb.v14i2.73Keywords:
RAROC, Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), Loan to Deposit Ratio (LDR), Indonesian Banking IndustryAbstract
Risk Adjusted Return on Capital (RAROC) is a risk-based performance indicator used to assess the effectiveness of banks in generating returns that have been adjusted for the level of risk borne. In the Indonesian banking industry, the importance of risk-based performance measurement has increased in line with the growing complexity of credit risk, liquidity risk, and capital adequacy requirements. This study aims to analyze the influence of the Capital Adequacy Ratio (CAR), Non-Performing Loan (NPL), and Loan to Deposit Ratio (LDR) on RAROC in banking companies listed on the Indonesia Stock Exchange (IDX) during the period 2010–2024. The research applies a quantitative approach using panel data regression analysis. A sample of 16 banking companies was selected with 240 total observations. The results show that: (1) CAR has a negative and significant effect on RAROC; (2) NPL has a negative and significant effect on RAROC; (3) LDR has a positive but non-significant effect on RAROC; and (4) CAR, NPL, and LDR simultaneously have a significant effect on RAROC. The Random Effect Model (REM) was selected as the best model based on the Hausman and Lagrange Multiplier tests. These findings provide empirical evidence that credit quality and capital efficiency are the primary determinants of risk-adjusted financial performance in Indonesian banking.
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