THE EFFECT OF INFLATION, BI RATE AND LPS GUARANTEE INTEREST ON INTEREST EXPENSE RATIO AND NET INTEREST MARGIN OF RURAL BANKS IN INDONESIA

  • Naufal Wicaksono Universitas Jember
  • Hesti Budiwati STIE Widya Gama Lumajang
Keywords: Inflation, BI Rate, LPS Interest Guarantee, IER, NIM.

Abstract

The objective of this research is to test the effect of inflation, BI Rate and LPS interest guarantee
on Interest Expense Ratio and Net Interest Margin. The research was conducted on Rural Banks in
Indonesia. The samples were 100 banks that using quarterly financial reports of 4 quarterly periods
for each bank. By using purposive sampling technique, it was obtained 400 samples of Rural
Banks financial reports. The analysis technique used is multiple linear regression with the classical
assumption test previously and followed by hypothesis test. The multiple linear regression was
done in two stages, the first stage is testing the effect of BI Rate and LPS interest guarantee on
Interest Expense Ratio and the second stage is testing the effect of inflation, BI Rate, LPS interest
guarantee and Interest Expense Ratio on Net Interest Margin. The research result states that
inflation, BI Rate and LPS interest guarantee have significant on Interest Expense Ratio and Net
Interest Margin partially. Meanwhile, the Interest Expense Ratio has significant effect on Net
Interest Margin. Overall, 8.9% of Interest Expense Ratio on Rural Banks in Indonesia can be
explained by inflation, BI Rate and LPS interest guarantee. In addition, 67.1% of Net Interest
Margin on Rural Banks in Indonesia can be explained by inflation, BI Rate, LPS interest guarantee
and Interest Expense Ratio. The further research is expected to study other variables that affect
bank profits.

Published
2021-09-19