Analysis of the Effect of Financial Ratios on Private Banking Company Stock Prices on the Indonesia Stock Exchange

Oct 13, 2025 by wbrum.org 27 views

Analysis of the Effect of Financial Ratios on Private Banking Company Stock Prices on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a vast array of companies listed on it, including private banking companies. The stock prices of these companies are influenced by various factors, including financial ratios. This study aims to analyze the effect of financial ratios on stock prices in private banking companies listed on the IDX. The financial ratios analyzed include the ratio of liquidity (loan to deposit ratio), ratio of productive assets (non-performance loans), rental ratios (return on assets, returns on equity, operational/operating expenses, and net interest margin), and solvency ratios, and solvency ratios (Capital Adequacy Ratio and Debt Equity Ratio).

Methodology

This study uses a comparative causal approach with multiple regression methods. Of the total 37 private banks in Indonesia, 23 banks were chosen as research samples. Before conducting a regression analysis, a classic assumption test was carried out to ensure the research model used was accurate. Factor test results show that the ratio of productive assets (non-performance loans), rental ratio (return on assets, operating expenses/operating income, and net interest margin) is an independent variable, while stock prices are dependent variables.

Results

The results of the analysis showed that simultaneously and partially, non-performance loans, returns on assets, operational expenses/operating income, and net interest margin affect the share price of private banking companies listed on the IDX. The coefficient of determination shows that the four financial ratios are able to explain 19.9% of their influence on stock prices. The remaining 80.1% is explained by other independent variables that are not included in this research model.

Deeper Analysis

Non-Performing Loan (NPL)

NPL is a ratio that measures the quality of bank assets. The higher the NPL, indicating the more bad credit and has the potential to harm the bank. Investors tend to avoid companies with high NPLs due to a large risk of loss. The results showed that NPLs have a negative influence on stock prices, in line with financial theory which states that poor quality assets will reduce the company's value.

Return on Assets (ROA)

ROA measures the ability of the bank to generate profits from the assets it has. High ROA shows bank efficiency in managing assets and making profits. Investors tend to be more interested in companies with high ROA because they show better capabilities in generating profits. The results showed that ROA had a positive influence on stock prices, which means that companies with high ROA have a higher value in the eyes of investors.

Operational/Operational Revenue Expenses

This ratio measures the bank's operational efficiency. The lower this ratio, it shows that banks are more efficient in managing operational costs. Investors tend to be more interested in companies with high operational efficiency because they indicate better profitability. The results showed that this ratio has a negative influence on stock prices, which means that companies with a higher ratio, tend to have lower stock value.

Net Interest Margin (NIM)

NIM measures the difference between interest income and interest costs, and describes the ability of banks in managing profit margin. High NIM shows that banks are able to get a greater profit than the difference in interest. Investors tend to be interested in companies with high NIM because it shows better profitability. The results showed that NIM had a positive influence on stock prices, which means that a company with a high NIM has a higher value in the eyes of investors.

Recommendation

The results of this study provide several recommendations for market participants and private banking companies:

Improving the Quality of Assets

Private banking companies must focus on improving the quality of assets by suppressing NPL numbers. This can be done through a more selective credit distribution strategy and strict supervision of the debtor.

Increasing Operational Efficiency

Private banking companies must increase operational efficiency by reducing operational costs. This can be achieved through business process optimization and cost savings.

Increased Profitability

Private banking companies must increase profitability by increasing ROA and NIM. This can be done through appropriate business strategies, such as product diversification and innovative financial services development.

Conclusion

This study shows that financial ratios, especially non-performance loans, returns on assets, operational expenses/operating income, and net interest margin, have a significant influence on the stock prices of private banking companies on the IDX. Investors tend to consider the financial ratio as an indicator of company performance and growth potential. Therefore, private banking companies need to pay attention and increase the financial ratio to increase company value and attract investors.

Limitation

This study has several limitations. Firstly, the sample size is limited to 23 private banks in Indonesia. Secondly, the study only analyzed four financial ratios, which may not be comprehensive. Finally, the study only considered the stock prices of private banking companies listed on the IDX, which may not be representative of all private banking companies in Indonesia.

Future Research

This study provides several avenues for future research. Firstly, the study can be replicated with a larger sample size to increase the generalizability of the findings. Secondly, the study can be extended to include other financial ratios, such as the debt-to-equity ratio and the return on equity. Finally, the study can be conducted in other countries to compare the findings with those in Indonesia.

References

[1] Indonesia Stock Exchange. (2022). Annual Report.
[2] Bank Indonesia. (2022). Financial Stability Report.
[3] World Bank. (2022). Indonesia Overview.
[4] International Monetary Fund. (2022). Indonesia: Staff Report for the 2022 Article IV Consultation.

Appendices

Appendix A: List of Private Banks in Indonesia
Appendix B: Financial Ratios Used in the Study
Appendix C: Regression Analysis Results
Appendix D: Coefficient of Determination Results
Frequently Asked Questions (FAQs) about the Effect of Financial Ratios on Private Banking Company Stock Prices on the Indonesia Stock Exchange

Q: What are financial ratios, and how do they affect stock prices?

A: Financial ratios are mathematical expressions that compare a company's financial data to identify trends, patterns, and relationships. They are used to evaluate a company's financial health, performance, and growth potential. In the context of this study, financial ratios such as non-performance loans, returns on assets, operational expenses/operating income, and net interest margin have a significant influence on the stock prices of private banking companies listed on the IDX.

Q: What is the significance of non-performance loans (NPLs) in the context of this study?

A: NPLs are a ratio that measures the quality of bank assets. The higher the NPL, indicating the more bad credit and has the potential to harm the bank. Investors tend to avoid companies with high NPLs due to a large risk of loss. The results of this study showed that NPLs have a negative influence on stock prices, in line with financial theory which states that poor quality assets will reduce the company's value.

Q: How do returns on assets (ROA) affect stock prices?

A: ROA measures the ability of the bank to generate profits from the assets it has. High ROA shows bank efficiency in managing assets and making profits. Investors tend to be more interested in companies with high ROA because they show better capabilities in generating profits. The results of this study showed that ROA had a positive influence on stock prices, which means that companies with high ROA have a higher value in the eyes of investors.

Q: What is the relationship between operational expenses/operating income and stock prices?

A: This ratio measures the bank's operational efficiency. The lower this ratio, it shows that banks are more efficient in managing operational costs. Investors tend to be more interested in companies with high operational efficiency because they indicate better profitability. The results of this study showed that this ratio has a negative influence on stock prices, which means that companies with a higher ratio, tend to have lower stock value.

Q: How does net interest margin (NIM) affect stock prices?

A: NIM measures the difference between interest income and interest costs, and describes the ability of banks in managing profit margin. High NIM shows that banks are able to get a greater profit than the difference in interest. Investors tend to be interested in companies with high NIM because it shows better profitability. The results of this study showed that NIM had a positive influence on stock prices, which means that a company with a high NIM has a higher value in the eyes of investors.

Q: What are the implications of this study for private banking companies?

A: The results of this study provide several implications for private banking companies. Firstly, they must focus on improving the quality of assets by suppressing NPL numbers. Secondly, they must increase operational efficiency by reducing operational costs. Finally, they must increase profitability by increasing ROA and NIM.

Q: What are the limitations of this study?

A: This study has several limitations. Firstly, the sample size is limited to 23 private banks in Indonesia. Secondly, the study only analyzed four financial ratios, which may not be comprehensive. Finally, the study only considered the stock prices of private banking companies listed on the IDX, which may not be representative of all private banking companies in Indonesia.

Q: What are the future research directions based on this study?

A: This study provides several avenues for future research. Firstly, the study can be replicated with a larger sample size to increase the generalizability of the findings. Secondly, the study can be extended to include other financial ratios, such as the debt-to-equity ratio and the return on equity. Finally, the study can be conducted in other countries to compare the findings with those in Indonesia.

Q: What are the practical implications of this study for investors and market participants?

A: The results of this study provide several practical implications for investors and market participants. Firstly, they must consider the financial ratios of private banking companies when making investment decisions. Secondly, they must be aware of the potential risks associated with high NPLs and low operational efficiency. Finally, they must be interested in companies with high ROA and NIM.

Q: What are the policy implications of this study for regulatory bodies?

A: The results of this study provide several policy implications for regulatory bodies. Firstly, they must ensure that private banking companies maintain a high level of asset quality. Secondly, they must encourage private banking companies to increase operational efficiency and profitability. Finally, they must monitor the financial performance of private banking companies and take necessary actions to prevent financial instability.