Credit Risk, Operational Risk, and Third-Party Funds Effects on Profitability in Book IV Banks

Abstract

This research examines credit risk, operational risk, and third-party fund influences on profitability levels in Book IV banks. Utilizing purposive sampling, 9 banks from the 10 Book IV banks population were analyzed over a five-year observation period. Independent variables comprise credit risk, operational risk, and third-party funds, while profitability serves as the dependent variable. Findings reveal credit risk exerts a positive significant impact on profitability. Operational risk demonstrates a negative significant influence on profitability, whereas third-party funds exhibit positive significant effects on profitability. These three variables simultaneously contribute significantly toward profitability. The determination coefficient (R²) value reaches 0.907, or 90.7%, indicating credit risk, operational risk, and third-party funds explain the profitability variable (ROA) by 90.7%, while the remaining 9.3% receives influence from unexplored factors.