Bank-Specific and Macroeconomic Determinants of Non-Performing Loan of Regional Development Banks in Indonesia

Regional Development Bank (BPD) is a financial institution which has an important role in community development and regional economy, both as an institution which collects and distributes funds to the community. Credit disbursement by BPD is inseparable with the presence of credit risk in which the debtors fail to pay their obligations both in the form of principal and interest obligation. BPD has a higher loan ratio compared to the other type of commercial banks, with an average loan ratio of 3.01 % throughout 2012 to 2015. This study aims to examine factors influencing Non-Performing Loan (NPL) of BPD in the period of 2012-2015. Bank-specific variables which have an impact on NPL namely Return on Equity (ROE), Ratio of Operating Expenses to Operating Income (BOPO), bank size, and credit growth. ROE, bank size, and credit growth have a negative impact on NPL, while BOPO has a positive impact on NPL. Macroeconomic variables which have an impact on NPL are exchange rate and Gross Regional Domestic Product (PDRB) growth. Exchange rate has a positive impact on NPL while PDRB growth has a negative impact on NPL. BPD should improve its risk management by carefully taking into account the indicators of bad debt and be more selective in disbursing credit.