THE CORRELATION BETWEEN PROFITABILITY (ROA, NIM) AND LIQUIDITY (LDR, QR) TO THE CAPITAL ADEQUACY (CAR) OF PUBLIC LISTED BANKS IN INDONESIA STOCK EXCHANGE DURING PERIOD 2006-2009

Abstract

This study elaborates the measurement to strengthen the banking system which includes bank regulations and supervision of capital sufficiency for the sound and safe banking industry. The capital account is the most important line of defense against failure, giving bank time to respond to the risk it faces in liquidity and return to profitability again. This research is aimed to examine whether or not return on asset (ROA), net interest margin (NIM), loan to deposit ratio (LDR), and quick ratio (QR) either partially or simultaneously affect the capital adequacy ratio of 18 banks chosen as sample which are listed in Indonesia Stock Exchange (IDX) during period 2006 to 2009. There are four independent variables selected from profitability and liquidity as factors of the determinant of bank’s capital. The CAR was used as a measurement of banks capital because due to its ability as prudential banking supervision in order to make the banking sectors stronger to face any kind of difficulties, create a healthy capital with high quality assets to create profits, and good liquidity management. This research use secondary data with the multiple regression analysis since there are more than two variables are used. The type of sampling used in this research is a pooled data which combines the cross section and time series data. The hypothesis is tested by using multiple regression analysis including F-test and T-test on 5% level of significant (α=0,05). This research will used Microsoft Excel and SPSS (16.0) as the statistical tools to generate an objective result efficient and effectively. The research result shows that ROA, NIM, LDR, and QR have simultaneously effects to the change of banks capital adequacy (CAR) of public listed banks in Indonesia during period 2006 to 2009. On partially basis, ROA, LDR, and QR have significant effect with positive correlation to CAR meanwhile NIM does not have significant effect with negative correlation to CAR. Keywords: Capital Adequacy Ratio (CAR), Return on Asset (ROA), Net Interest Margin (NIM), Loan to Deposit Ratio (LDR), and Quick Ratio (QR)