CONCEPTUALIZATION OF THE INDONESIAN BANKS' PROFITABILITY DETERMINANTS AND THE INFLUENCE OF THE GLOBAL FINANCIAL CRISIS

Abstract

Profits in the banking sectors have plummeted due to a series of global crises, urging them to focus on improving the efficiency of operations. As both internal and external determinants can undermine the banks' efficiency in generating profits, the ability of banks to anticipate and identify potential downsides is crucial. In the vent of the global financial crisis (GFC), the ability of many banks around the world to increase profits efficiently is hampered by the fact that interest rates are lower and capital levels are higher. Similarly, banks in Indonesia had difficulty improving their financial positions, but past researchers argued that the effects of the GFC were less severe than those of previous crises. With those arguments, through a narrative literature review, this study discusses internal and external determinants influencing Indonesian banking profitability, including GFC impacts. The study then proposes an empirical methodology for examination based on variables identified in preceding profitability analyses.