Abstract:
This report analyzes the impact of credit risk, liquidity, and capital adequacy on bank profitability. The study focuses on evaluating how key financial indicators influence the performance of banks, where profitability is measured by Return on Assets (ROA0. The independent variables used in this analysis include Loan-to-Deposit Ratio (LDR) as a proxy for liquidity, Capital Adequacy ratio (CAR) as a measure of capital strength, Non- Performing Loans (NPL) as an indicator of credit risk, and bank size as a control variable. The study is based on secondary data collected from the annual reports of banks over the period 2015-2024. To ensure a comprehensive analysis, several statistical and econometric techniques have been applied. These include descriptive statistics to summarize the data, correlation analysis to examine the relationship among variables, regression analysis to measure the impact of independent variables on profitability, and the variance Inflation Factor (VIF) test to identify multicollinearity issues. Furthermore, the Hausman test has been conducted to determine the most appropriate model between Fixed Effects and random Effects. Based on the Hausman test results, the Fixed Effects model has been selected as the suitable method for this study. The findings of the regression analysis indicate that liquidity (LDR) and Capital Adequacy Ratio (CAR) have a statistically significant impact on bank profitability. On the other hand, Credit Risk (NPL) and Bank Size do not show a significant influence on ROA during the study period. Overall, the study provides useful insights into the key determinants of bank profitability and offers practical implications for bank management and policymakers. Effective management of liquidity and capital can improve financial stability and operational efficiency, ultimately contributing to better performance in the banking sector. In conclusion, this report emphasizes the need for sound financial management practices in banks to ensure sustainable profitability and long-term growth
