Analysis of Asset Quality and Capital Adequacy on Bank Profitability

Abstract

This study aims to analyze the effect of asset quality and capital adequacy on the profitability of Mandiri Bank for the period 2017-2023. The analysis was carried out using multiple linear regression methods. Asset quality is measured by Non-Performing Loan (NPL) and capital adequacy by Capital Adequacy Ratio (CAR), while profitability is measured using Return on Assets (ROA). The results of the analysis show that NPL has a negative and insignificant effect on ROA, with t-test results showing a coefficient of -0.145 and a significance value of 0.409. In contrast, CAR has a positive and significant effect on ROA with a coefficient of 0.515 and a significance of 0.006. Simultaneously, the F-test shows that both variables, NPL and CAR, together have a significant effect on profitability, with an F count of 4.556 and a significance of 0.021. The urgency of this study lies in the importance of maintaining asset quality and capital adequacy in increasing profitability. Poor asset quality can reduce profitability, while good capital adequacy can increase bank resilience and profitability. This study provides practical implications for banking management in optimizing asset and capital management to achieve higher profitability, and can be the basis for internal bank policies to minimize risk and maximize financial performance.