Abstract:
In carrying out their business operations, commercial banks in Indonesia are
exposed to various uncertainties that can pose as financial risks. Based on
Indonesian Banking Statistics, non-performing loans have increased annually in
Indonesian commercial banks from 2012 to 2021, which is only one source of risk.
Additionally, fluctuations in external variables can result in uncertainties which
cannot be controlled by the relevant institutions. In line with this problem, the
following research is aimed at analyzing the relationship between internal risks
(such as: credit, liquidity, and operational risk) along with external risks (such as:
interest rate, inflation, and foreign exchange) with Indonesian commercial bank’s
profitability in period 2012 to 2021. In this research, 10 commercial banks in
Indonesia which categorized into BUKU 4 will be used as samples. Multiple linear
regression and descriptive statistics were implemented in this study to obtain
accurate hypothesis test results. This research established a result that in the period
used, selected independent variables simultaneously have a significant relationship
to the profitability of commercial banks. In addition, operational and liquidity risks
are internal financial risk that were shown to have partial significant relationship.
As for external risks, the result shows that the inflation rate has a partial significant
relationship with the profitability of commercial banks.
