EFFECT OF LIQUIDITY, CAPITAL ADEQUACY AND NET INTEREST MARGIN ON CREDIT RISK WITH ITS IMPACT ON PROFITABILITY

Prior literature had distinguished between bank specific variables, which is also known as internal factors, and macro variables or what is known as external factors. Several prior studies examine different bank specific variables and provide mixed findings. The diversity of research results is due to geographical differences, banking systems and differences in research period which are influenced by macro conditions. The purpose of this research is to examine the effect of liquidity, capital adequacy and net interest margin on credit risk and how credit risk able to influence profitability. Data collection uses secondary data based on purposive sampling technique of conventional commercial banks listed on the Indonesia Stock Exchange for the period 2016 – 2020 with 43 samples obtained. The results show that bank profitability is influenced by the amount of credit risk measured by NPL where NPL is influenced by several factors including capital adequacy and Net Interest Margin with significant negative effect. Meanwhile liquidity did not show any significant effect but has positive direction with on credit risk. Furthermore, credit risk has significant negative effect on profitability. Keywords: Loan to Deposit Ratio, Capital Adequacy Ratio, Non Performing Loan, Return on Asset, Bank Specific Variable