Abstract:
Bank’s Net Interest Margin (NIM) is a key indicator on how bank performs its intermediary function and necessary
for the financial system stability. NIM is influenced by both internal and external determinants. This study aims
to analyze these internal and external determinants of NIM for Indonesia’s Category-IV banks in the period of
2014 to 2017. The internal determinants used as independent variables are Loan to Deposit Ratio (LDR),
Operating Efficiency Ratio (OER), and Capital Adequacy Ratio (CAR). Meanwhile, the external determinants used
as independent variables are Interest Rate volatility and Inflation. This study uses four Indonesia’s Category-IV
banks which were chosen by purposive sampling methodology based on criteria set with quarterly time horizon.
These 4 commercial banks are those listed as ‘Category-IV’ or BUKU 4 during the study’s time frame. The
statistical approach being used is panel least square fixed effect model. This study reveals that Loan to Deposit
Ratio (LDR), Operating Efficiency Ratio (OER), and Inflation have positive significant influence toward NIM. In
contrast, Capital Adequacy Ratio (CAR) shows negative significant influence, while Interest Rate volatility
contributes insignificantly to NIM. The overall findings underlined that contribution of internal factors are
consistent in influencing the value of NIM in a significant way.
