Bank-Specific Determinants and Non-Performing Loans of Indonesian Banks: Does Governance Matter?

Abstract

Research aim: The study aims to analyse the influence of bank-specific determinants
on Indonesian banks’ non-performing loans (NPLs) with the addition of governance
mechanisms.
Design/ Methodology/ Approach: The study uses a fixed-effect panel data regression
model with data from 43 banks listed on the Indonesian Stock Exchange (IDX) over the
period of 2018 to 2023, and from 258 panel data units. Documentation is used as a data
collection technique, and panel data regression analysis is used for analysis.
Research finding: The study results indicate that the loan-to-deposit ratio (LDR)
positively affects NPLs, while bank size has a negative effect. The number of independent
commissioners predicts NPLs in a positive direction, while the composition of independent
commissioners does the opposite.
Theoretical contribution/Originality: This study highlights the diverse findings in prior
research regarding the relationship between bank-specific characteristics and NPLs. It
incorporates good corporate governance (GCG) as a variable to evaluate its influence on
NPLs within the Indonesian banking sector.
Practitioner/Policy implication: The study has implications on the importance of increasing
the role of the independent commissioners, who can oversee a supervisory mechanism that
includes managing NPLs.
Research limitation: This study only examines the NPLs of Indonesian banks from 2018 to
2023, with data sources from financial and annual reports. Future researchers can examine
broader datasets and conduct qualitative analysis. In addition, GCG measurement can be
studied more broadly by analysing the gender diversity, educational background, and
expertise of directors and commissioners, and linking it to ownership structure.