Latent structure of banking risk: An exploratory factor analysis of financial ratios in Indonesian commercial banks, 2021–2024
DOI:
https://doi.org/10.58784/ramp.473Keywords:
banking risk, enterprise risk management, exploratory factor analysis, financial ratiosAbstract
Banking risks consist of various types of interrelated risks that must be managed in an integrated manner in accordance with the Enterprise Risk Management (ERM) framework. However, most previous studies have relied on regression approaches that test the relationships between variables separately, resulting in limited examination of the structural relationships among these risks. This study identifies the structure of banking risk factors based on the financial ratios of conventional commercial banks listed on the Indonesia Stock Exchange for the period 2021–2024. The study sample consists of 26 banks, selected using purposive sampling, yielding 104 firm-year observations; following the removal of one outlier observation, the final analysis was conducted on 103 observations. The study employed Exploratory Factor Analysis (EFA) on eight financial ratios, namely the Capital Adequacy Ratio (CAR), Loan-to-Deposit Ratio (LDR), Non-Performing Loan (NPL), Operating Expenses to Operating Income Ratio (BOPO), Net Open Position (PDN), Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). The results, based on the final 103-observation model, indicate that the data are suitable for analysis using EFA, with a KMO value of 0.712, a significant Bartlett's Test of Sphericity (Sig. = 0.000), and all MSA values ≥ 0.50. Based on the factor analysis results, two main factors emerged that explain 63.65% of the total data variance. The first factor is the Profitability-Efficiency-Credit Quality Factor, comprising BOPO, NPL, ROA, and ROE, which accounts for 39.39% of the variance. The second factor is the Capital-Liquidity-Market Risk Factor, comprising CAR, LDR, NIM, and PDN, which accounts for 24.26% of the variance. The most dominant indicator in the first factor is BOPO, with a rotated loading of −0.937, while in the second factor it is CAR, with a rotated loading of 0.808.
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