2.3.2. The Effect of Macroeconomic Determinants toward Bank Profitability
2.3.2.1. Effect of NIM Sensitivity on GDP towards ROA
NIM sensitivity on GDP used for proxies of macroeconomic variable as data variabilities, because when using only research data of GDP,
those data become the same and do not vary on each bank, given the macroeconomic variables are variables the same for every cross section.
Sensitivity is proxied with macroeconomic variables according to Financial Note and RAPBN 2014, due to partial sensitivity analysis used to see the
difference effect
of macro assumption
variable, with assuming
macroeconomic variables other assumptions unchanged ceteris paribus. Effect of changes in the sensitivity of Net Interest Margin NIM to GDP
reflects how the percentage change in Net Interest Margin NIM is affected caused by the percentage change in the level of GDP.
According to Roman and Tomuleasa 2012, if GDP growth is high, the loan request increases and thus the banks can obtain bigger interest
margin. Increasing and decreasing in Gross Domestic Product is also affecting clients saving their money in banks, in other words has a positive
effect on consumers because it can increase the earnings and savings patterns of the banking company Anggraini, 2013. On the contrary, if the GDP
growth slows, the banks are confronted with an increased credit risk, increasing provisions and subsequently the profitability is reduced.
Furthermore, as cited by Garza 2010, Bernanke and Gentler 1990 suggest
that an increase in economic activity showed by economic growthGDP, increases the net worth of borrowers, thus, reducing the interest rate spread.
With regards to the interest spread, the main method is by charging interest on the amounts of money the bank lends out to customers. The bank profits
from the difference between the level of interest pays for deposits and other sources of funds, and the level of interest charges in its lending activities. The
more interest income generated relative to the interest expense, the more profit the bank eventually makes Lartey et al., 2013.
H
6
:NIM Sensitivity on GDP has a positive and significant effect on
profitability ROA of bank
2.3.2.2. Effect of NIM Sensitivity on Inflation towards ROA
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