The influence of macroeconomic indicators on profitability: a case study of regional development banks in Indonesia

Regional banks are said to be the backbone of any economy as it has a direct bearing with financial and economic development. Profitability of the banks, especially in regional banks, is imperative, since it leads to the financial stability of a nation. This study investigates factors affecting the profitability of 189 Regional Development Banks with research information from 2012 to 2020. The results of the study show that external factors have a positive and very significant effect on profitability, meaning that economic growth, inflation, and bank certification are important in increasing the profitability of Regional Development Banks (RDBs). Internal factors give a large negative value when a large bank provides minimal profitability. Government intervention will reduce the profitability value. The Policies of Bank Indonesia and the Financial Services Authority (FSA) have a positive effect on RDBs' profitability but are not a major factor. The findings of this study suggest banks receive a major part of their net income from interest income but they can also earn income from non-interest income that makes a big contribution to bank profitability. The study results however show that banks non-interest income does not have an optimal effect on the banks' profitability although interest income optimally impact banks' profitability.