Manajemen Risiko - Kapita Selekta

THE IMPACT OF THE IMPLEMENTATION OF RISK
MANAGEMENT ON THE FINANCIAL PERFORMANCE OF

CONVENTIONAL RURAL BANK IN RIAU PROVINCE
AHMAD AFANDI
INTRODUCTION
Figure 1 The
Development of Financial
Performance of
Conventional Rural Bank
in Riau Province year
2020-2022
One of the way to acknowledge whether Rural Bank performs based on the
objectives that have been stated is by knowing the profitability. If the profitability
increased, can be shown by massive company activities in order to gain the biggest
profit. Based on the graph above, it is showed that Rural Bank financial performance
which indicated from profitability. The escalation of financial performance can be
caused by several factors within risk management which applied in Rural Bank.
• There are several management risk applied in Rural Banks among them are credit risk,
operational risk, submission risk, liquidity risk and reputation risk.
Rural Bank credit risk indicated from Non Performing Loan (NPL). NPL is ratio to measure the
capability of bank to cover debitur risk who are incapable of submit their loan. NPL reflects bank
credit risk. The higher the NPL, bank should perform elimination which took place by productive
active value, in order so the capital will not be carried out to CKPN load. The value of NPL
becomes one of the reason why bank has hardship to distribute credit.
In the other hand, efficacy indicator used BOPO factor. BOPO showed the
ability of bank management to control operational cost to operational
income. The higher the BOPO the lower the possibility for the company to
gain profit.Otherwise, the lower the BOPO the higher the profit that bank
could gain because the company able to apply efficiency to the cost that
appears and will lower the income.
The implementation of liquidity risk based on Loan to Deposit Ratio (LDR).

This has been used to acknowledge the level of liquidity in determining the
capability to pay short term loan. The higher LDR level, the higher the profit
of the Rural bank, as this will determine as the assets for the loan.
The Influence of Risk
Management and Financial Performance
According to Financial Services Authority Regulation no. POJK NO 13/POJK.03/2016

credit risk is the risk resulting from the failure of the debtor and/or other parties to
fulfill their obligations to the bank.
Credit risk originates from fund distribution activities and other commitments. This
risk arises because the borrower is unable to fulfill his financial obligations to the bank
when they are due. In this research, credit risk is measured by Non-Performing Loans
(NPL).
Nabilah's research (2016) shows the results that NPL has a significant effect on
company performance as measured by ROA.
H1: Credit risk influences Rural Banks financial performance

The Influence of Risk Management and
Financial Performance
Operational risk according to POJK No.13/POJK.03/2016 is risk resulting from
inadequate and/or non-functioning internal processes, human error, system failure,
and/or external events that affect bank operations.
The greater the risk experienced by the bank, the greater the monitoring costs that
will be incurred by the bank so that a company's opportunity to gain profits is smaller
(Nabilah, 2016). Operational risk in this research is proxied by Operating Expenses and
Operating Income (BOPO). A high BOPO ratio indicates high bank operational risk,
conversely if the BOPO ratio is low then the operational ratio is also low.
A high BOPO ratio will cause a decline in financial performance. The research results
are in line with Attar (2014) and Purnomo et al (2018).
H2: Operational risk influences Rural Banks financial performance

The Influence of Risk
Management and Financial Performance
Liquidity risk is the risk resulting from the bank's inability to meet maturing obligations from
cash flow funding sources and/or from high quality liquid assets that can be used, without
disrupting the bank's activities and financial condition (POJK No.13/POJK.03/2016).
Liquidity management is one of the complex problems in bank operations because
the funds managed by banks are mostly funds from the public which are short term
in nature and can be withdrawn at any time. The bank's ability to repay funds
withdrawn by relying on the credit provided as a source of liquidity is shown by the
Loan to Deposit Ratio (LDR).
If the amount of credit disbursed is large but credit payments are not smooth or
problematic, it will burden the bank itself so that the bank's ability to fulfill its
obligations to third parties will be problematic. A high LDR will indicate poor bank
liquidity conditions and can cause the company's financial performance to decline.
Nurintan's (2016) research shows that LDR influences company performance as
measured by ROA.
H3: Liquidity risk influences Rural Banks financial performance

RESEARCH METHOD
This research uses the dependent variable, namely ROA. The formula for
calculating ROA is to measure the ROA ratio as follows (SEOJK
No.14/SEOJK.03/2017). The ROA variable is calculated by comparing profit
before tax with total assets. In this study, three pivot variables are used, namely
credit risk, operational risk and liquidity risk, where these three risks are
proxied into Non-Performing Loans, calculated by comparing the total non-
performing loans with the total loans given, the ratio of Operational Costs to
Operational Income is calculated by comparing operational costs with
operational income of bank i in year k t and Loan to Deposit Ratio.
RESULTS AND DISCUSSIO
The regression model used in this research is:

Y = 12,203 -0,068X1 -0,130X2 + 0,032 X3 + e
Table 3 F Test Results and Adjust R Square
The coefficient of determination aims to measure how far the model's ability to explain variations in the
dependent variable. The greater the coefficient of determination, the greater the variation in the independent
variable explaining the dependent variable. Based on the results of the coefficient of determination test, the
Adjusted R square value is 0.597 or 59.7%, so it can be stated that 59.7% of the variation in ROA as the
dependent variable of the model is explained by variables namely NPL, BOPO, LDR. While 40.30 is explained by
other variables which is not included in the regression model.
Table 4.3 shows the results of the t statistical test which looks at the
influence of each independent variable. The results of the t test for the model
show that of the three independent variables used in this research, NPL, BOPO
and LDR have a significant effect on financial performance which is proxied by
ROA. This can be seen from the small significance value of 0.05.
The Effect of Risk Management on Financial Performance
The NPL ratio reflects credit risk. A high NPL value indicates poor bank credit
quality due to the large number of non performing loans which can cause a decrease in
profits (Nabilah, 2016). If you look at the direction of the negative regression
coefficient, credit risk as measured by the NPL ratio shows that the higher the credit risk
will cause a decline in financial performance. On the other hand, reducing credit risk
will improve financial performance. The results of this research support Maryani's
(2016) research and Azwan's (2016) research showing that NPL has a statistically
significant effect on ROA.
Meanwhile, the research results show that the operational ratio as measured by the
BOPO ratio has an effect on financial performance as measured by ROA. The negative
influence shown by BOPO indicates that the higher the operational expenses that
almost equal or exceed operational income, the lower the bank's profits, which will
ultimately have an impact on reducing the bank's financial performance in both the
short and long term. The research results are in line with research by Attar (2014) and
Purnomo et al (2018).
The results of subsequent research show that LDR has an effect on
ROA. In this case, funders consider that high liquidity in the long term
is important because it shows that the company is able to finance its
operations with its own capital and is able to repay its obligations with
the assets it owns. High liquidity will increase funder confidence so
that it will increase capital and will have an impact on improving
financial performance in the long term. The results of this research are
in line with research by Srihayati et al (2015).
CONCLUSION
This research aims to examine the effect of implementing risk management on

financial performance. Risk management in this research uses three ratios NPL, BOPO and LDR.
Financial performance as the dependent variable is measured by ROA. The research results
show that NPL, BOPO and LDR influence financial performance as proxied by ROA.
This research has several limitations, including a three year observation period, namely 2020-
2022, so it has a relatively short time frame for observing variable behavior. Apart from that, risk
management only uses three indicators out of six risks according to POJK NO
13/POJK.03/2015, such as compliance risk, reputation risk and strategic risk.
Based on the conclusions and limitations of this research, further research will use a longer time
span and use the six risks specified in POJK NO 13/POJK.03/2016, as well as using other
measurements for financial performance.

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THE IMPACT OF THE IMPLEMENTATION OF RISK

MANAGEMENT ON THE FINANCIAL PERFORMANCE OF

The implementation of liquidity risk based on Loan to Deposit Ratio (LDR).

According to Financial Services Authority Regulation no. POJK NO 13/POJK.03/2016

H1: Credit risk influences Rural Banks financial performance

H2: Operational risk influences Rural Banks financial performance

H3: Liquidity risk influences Rural Banks financial performance

The regression model used in this research is:

This research aims to examine the effect of implementing risk management on

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