ipmi businessstudies vol.5|no.1(february2021)

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Fongnawati Budhijono / Main Effects and Interaction Effects of Bank Ownership Types and Bank CoreCapital Category to The Bank Npl Performance / 39 - 50

e-ISSN: 2622-4585 | p-ISSN: 2580-0132INTERNATIONALJOURNALOFBUSINESS STUDIESipmi Vol. 5 | No. 1 (February 2021)

Keywords:

Bank

Core Capital

Non-performing Loan

Ownership Type

*Corresponding Author E-mail:

[email protected]

Article History:

Received : 08-10-2020

Revised : 22-01-2021

Accepted : 05-02-2021

Published : 15-02-2021

A R T I C L E I N F OA B S T R A C T

Credit management capability is seen as a crucial aspect for bankssustainability. The variable that is directly related to bank creditrisk is a non-performing loan (NPL) which is commonly used to assessthe asset quality of a bank. The purpose of this research is to analyzemain effects and interaction effects of bank ownership types andbank core capital category (BUKU) to the bank NPL performance.The study was conducted using secondary data obtained frombank quarterly reports from the Financial Services Authority (OJK)through the website ojk.go.id, bank �inancial reports, and infobankmagazine. Bank’s performance in the classi�ication of bank ownershiptypes and bank core capital category were evaluated with respectto bank’s NPL which in this case is used as indicator of the bank’sperformance. Tests were performed using TWO WAY ANOVA andPost Hoc Test. The �indings of this study found that the main effecttype of bank ownership had a signi�icant effect on the performanceof NPLmanagement, themain effect of banks’ BUKU had no signi�icanteffect on the performance of NPL management and the interactioneffect of bank type and banks’ BUKU had a signi�icant effect on theperformance of NPL management.

INTRODUCTIONAs a developing country, Indonesia needs banksas facilitators in channeling funds. The role ofbanks as �inancial intermediaries is very importantso that credit distribution grows stably (Gurley,Shaw & Enthoven, 1960; Diamond D, 1984)).Banks are crucial institutions for turning the

wheels of the economy (Global Association of RiskProfessionals, 2005; Global Association of RiskProfessionals, 2006).

Indonesian credit distribution grew by an averageof 7.09% for Commercial Banks with the latest

Main Effects and Interaction Effects of Bank OwnershipTypes and Bank Core Capital Category to The Bank

NPL Performance

Fongnawati BudhijonoUniversitas Prasetiya Mulya, DKI Jakarta 12430, Indonesia

Copyright © 2021 Authors. This is an open access article distributed under the Creative Commons Attribution License (CC-BY-SA 4.0)which permits use, distribution and reproduction in anymedium, provided the original work is properly cited & ShareAlike terms followed.

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International Journal of Business Studies Vol. 5 No. 1 (February 2021)

record showing that credit was disbursed atIDR 7,667.803 billion (Otoritas Jasa Keuangan,2019c). The provision of credit by banks has alsoexperienced an even development in terms ofthe proportion of credit disbursed. As much46.48% of the total credit was used for workingcapital, 27.64% for consumption, and the restfor investment (Otoritas Jasa Keuangan, 2019c).The proportion of credit used has also experiencedmixed growth over the last 5 years, but it hascontinued to score growth of above 10% andshows the rise of aggregate credit growth since2018. Credit growth of 10% on average in the last5 years is a glimpse of the potential of Indonesianpeople who are not all familiar with bankinstitutional instruments (Otoritas Jasa Keuangan,2019e).

With the strategic role of the bank, in orderto maintain its survival banks must have a goodperformance (SE BI No. 13/24/DPNP). Thesurvival of the bank has received serious attentionfrom all stakeholders, especially because mostof the fund assets in the bank come from thirdparty funds or funds originating from the depositsof their customers. Bank failure could affectdepositors, and cause spillovers both domestic andinternational markets (Sugiarto, 2016; Sugiarto,Nursiana Adinoto, Budhijono Fongnawati, 2018).

As an industry that inherently carries risks thatcannot be eliminated as a whole, banks operatingin Indonesia are closely monitored by BankIndonesia (BI) and the Indonesian FinancialServices Authority (OJK), which are the agenciesappointed by the Indonesian government tomaintain the stability of the banking industry.In relation to its function as an intermediaryinstitution, the survival of a bank is highlydependent on its risk management performance(SE BI No.13/23/DPNP/2011). Based on BankIndonesia Circular 6/23 / DPNP of CommercialBank Soundness Rating System and attachments,a bank's Risk Pro�ile can be further classi�iedinto: credit risk, market risk, liquidity risk,operational risk, legal risk, strategic risk,compliance risk, and reputation risk (SE BINo.13/23/DPNP/2011; Global Association of Risk

Professionals, 2005; Global Association of RiskProfessionals, 2006).However, the quantitativerisk pro�ile only covers credit risk, liquidity riskand market risk, so the risk pro�ile assessmentsection contains aspects of asset quality, liquidityaspects , and aspects of economic risk factors.Credit risk is undeniably getting serious attentionbecause weak credit management will result inthe emergence of liquidity risk and market risk.Poor credit management will impact on the lowability of banks to generate pro�its. Thus, creditmanagement capability is seen as a crucial aspectfor bank sustainability (Diamond, D., & Rajan, R.(2001).

The variable that is directly related to creditrisk is a non-performing loan (NPL) which iscommonly used to assess the asset quality of abank (Sugiarto, 2016; Sugiarto, 2017a; Sugiarto,2018). NPL can be used as a proxy for asset qualityto be a variable that affects pro�itability becauseit shows the risk of �inancing, where the highvalue of the NPL indicates that there is a lot ofbad �inancing that affects the pro�itability of thebank (Sugiarto, 2018; Sugiarto & Karnadi Suryadi,2018; Kohlscheen, Et.al, 2018). A bank will beindicated as a bank with a lot of non-performingloans if it has a high NPL ratio. This needs to bea concern because of the potential for default bycredit customers. Asset quality measurement canassess the collectability level of the bank, current,doubtful, or loss. The three levels of collectabilityare used to measure and prepare the lower limitof reserves that need to be prepared by the bankto be responsible for losses from credit risk.

The Indonesian banking industry records �ivetypes of bank ownership, namely foreign bank,mixed bank, regional development banks (BPDBank), state-owned commercial banks (BUMNBank) and private bank (Undang-undang RepublikIndonesia Nomor 10 Tahun 1998). The ownershipstructure of a bank can simply be done by lookingat the composition of the parties who have rightsover the ownership of the bank. The presence offoreign banks can increase competitive behaviorbased on the capabilities of foreign banks incarrying out their operating costs which are much

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more ef�icient than local banks (Crystal, J.S., DagesG., Goldberg, L.S., 2001; Claessens, S., Demirguc, -Kunt, A., & Huiinga, H., 2001; Manlagnit, MariaChelo V., 2011; Lardy, N. R., 2001). With muchlower operating costs, foreign banks have beenshown to provide lower spreads compared to localbanks. Pressure caused by low spreads andoperating costs caused local banks to be corneredto seek new sources of income that did not comefrom lending activities. Capital loans in foreigncurrencies made through foreign banks give thecountry a big advantage (Crystal, Dages, &Goldberg, 2001). This indirectly allows countriesto obtain foreign exchange capital frominternational markets (Claessens, S., Demirguc, -Kunt, A., & Huiinga, H., 2001). The presence offoreign banks can add product variety to the�inancial system and banking transactions withincreased competition. Banks that are classi�ied asforeign bank, mixed bank, regional developmentbanks (BPD Bank), state-owned commercial banks(BUMN Bank) and private bank also have theirrespective characteristics with advantages anddisadvantages as well as operating complexitiesthat differ from one another (PBI No. 14/26/PBI/2012). The difference in the types of bankownership will allegedly affect their performancein managing NPL (PBI No. 5/8/PBI/2003; PBINo.13/1/PBI/2011).

In addition to the classi�ication of banks basedon ownership types, there is also a classi�icationof Commercial Banks based on Business Activitieswhat is known as BUKU (Bank Umum KegiatanUsaha, Commercial Bank Business Activities).There are 4 types of BUKU which are known byIndonesian Banking (POJK No. 6/POJK.03/2016;Boby, 2019). It is in its own interest to discussbecause each level of BUKU has limitations onbanking activities that can be carried out. Thishas an impact on the performance of banksoperating in Indonesia as well as their competitiveposition (Sugiarto, 2017a; Sugiarto, 2017b). Thepublic perception declared that major banks ismore dif�icult to bankrupt than smaller banks,implicitly imply that big banks should have betterperformance than smaller banks, including intheir ability to manage non-performing loans

(Sugiarto. 2016).

Variations in types of bank ownership andvariations in the classi�ication of CommercialBanks based on Business Activities (BUKU) mayinteract to bring about speci�ic performanceincluding in the management of banks’ NPL.Analysis of the interaction of the variable typesof bank ownership and the variable classi�icationof commercial banks based on business activitieswill be novelty in this research.

In the Indonesian laws and regulations governingbanking, namely article 5 of Law No. 10 of 1998(Undang-undang Republik Indonesia Nomor 10Tahun 1998), there are two types of banks, namelyCommercial Banks and Rural Banks (BPR). Thisresearch focuses on commercial banks and doesnot discuss BPR. Related to the �ive types of bankownership, in this study the researcher used fourcategories in which banks with foreign and mixedownership were classi�ied into one category.

The purpose of this research is to analyze theeffect of bank classi�ication based on types ofbank ownership, the effect of bank classi�icationbased on core capital category (BUKU), and theeffect of the interaction of types of bank ownershipand the category of core capital (BUKU) to thebank NPL performance. This research problemformulation are as follows:1. Does the classi�ication of the bank based

on types of bank ownership affect theperformance of the bank's NPL?

2. Does the classi�ication of the bank basedon the category of core capital (BUKU) affectthe banks NPL performance?

3. Does the interaction of types of bankownership and the category of core capital(BUKU) affect the bank NPL performance?

LITERATURE REVIEWFinancial IntermediaryThe main function of a bank is as a �inancialintermediary (Gurley, Shaw & Enthoven, 1960).As a �inancial intermediary, a bank can act asa licensed agent to deposit funds in order toachieve better economies of scale (Leland &

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Pyle, 1977; Diamond, 1984). Gurley, Shaw &Enthoven (1960) say that this theory was borndue to high transaction costs, lack of informationwhen needed, and regulatory methods. Thetheory deviation from the perfect market as wellas the difference in objectives and informationbetween the agent (the person who carries out)and the principal (the person who owns it) canexplain transactions that are more expensivethan what is triggered in the perfect markettheory so that the formation of this intermediary�inancial theory helps at least to explain hightransaction costs. The existence of this FinancialIntermediary theory produces a solution byestablishing an intermediary institution that canprovide relevant information when needed withclear regulations and relatively cheaper costs.

In resolving information imbalances, banks canmediate between depositors and borrowers toensure that the principal deposit is safe and canmake a pro�it, while the borrower can receiverelatively cheap and fast �inancing against liquidityrisk (Leland H., & D. Pyle, 1977); Diamond D. 1984;Otoritas Jasa Keuangan, 2019a). This can reduceliquidity risk based on the selection process forborrowers who have the ability and willingness torepay.

Based on the high transaction cost approach,Fama (1980) argues that in the description ofhigh transaction costs, it is not only transfer costsfor other countries' currencies, but there areresearch and development efforts in changingthe nature of assets into opportunities for assetdiversi�ication. The approach questions theexistence of a method to regulate the circulationof money in economic storage and �inancing thataffects the health of the bank, its ability to extendcredit and make provisions (Diamond & Rajan,2001).

Non Performing LoanA healthy bank is not only measured bypro�itability indicators because the bank itself isa medium facility for people who want to borrowand save so that they have the obligation tohandle third party funds responsibly. For the

same reason, the banking industry is bound bymany regulations. In the banking world, there areseveral ratios that are commonly used in thebanking world, including CAR, NPL, NIM, COR,and LDR (Hutagalung, E.N. Djumahir. & Ratnawati,K.,2013) which comes from published �inancialreports so that management can make judgmentsrelated to decision making ( Jonathan Batten &Xuan Vinh Vo.,2019; Kohlscheen, et.al. , 2018).

Non Performing Loan (NPL) is a bank indicatorthat is useful for assessing the asset quality ofa bank. Non Performing Loans (NPL) is the ratioof total non-performing loans to total loansextended by banks. A bank will be indicated asa bank with a lot of non-performing loans if ithas a high NPL ratio. This needs to be a concernbecause of the potential for default by creditcustomers. Asset quality measurement can assessthe collectability level of the bank, current,doubtful, or loss. The three levels of collectabilityare used to measure and prepare a lower limitof reserves that the bank needs to prepare to beresponsible for losses from credit risk. NPL isa credit channeled that is said to be problematicif the repayment is late compared to the plannedschedule, or not even at all. The bad impact ofthis NPL is supported by the �inding that largeamounts of non-performing loans can have anunfavorable impact both for the lending bank,the banking industry in general, as well as on theeconomic life or the country's monetary condition(Prasetyo, W, 2015). NPL is one of the keyindicators to assess whether a bank is performingwell or not. High NPL on the bank indicatesa problem in the bank that if they do notimmediately get a solution would jeopardizethe bank's condition. With the higher NPL ratioof banks, the level of bank liquidity againstthird party funds will be lower. Regardless ofany factors that cause high NPLs, the bank'sinability to manage the NPL indicates the abilityof bank management is not promising (Sugiarto,2016; Sugiarto. 2018; Sugiarto & Karnadi Suryadi.2018).

Bank Ownership in IndonesiaThe Indonesian banking industry classi�ies the

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existence of �ive types of ownership, that is:foreign banks, mixed banks, regional developmentbanks (BPD Bank), state-owned commercial banks(BUMN Bank) and private banks. Determinationof ownership of a bank is recorded in Act number7 of 1992 as amended by Act number 10 of 1998(Undang-undang Republik Indonesia Nomor 10Tahun 1998). To determine the ownershipstructure of a bank, it can simply be done bylooking at the composition of the parties whohave rights over ownership of the bank. Basedon the ownership of the banking institution,banks can also be divided according to whichparty has the largest proportion of the bank.Banks that are classi�ied as foreign bank, mixedbanks, regional development banks (BPD Bank),state-owned commercial banks (BUMN Bank)and private bank, also have their respectivecharacteristics with advantages and disadvantagesas well as operating complexities that differfrom one another. Unite and Sullivan (2003) statedthat the presence of foreign banks was able toincrease banking competitive behavior. Thedifference in the types of bank ownership willallegedly affect their performance in managingNPL (Anbar, A., & Alper, D., 2011; Yuksel, S.;Mukhtarov, S.; Mammadov, E.; O� zsarı, M,2018).Foreign competition compels domestic banks tobe more ef�icient to focus operations due toincreased risk, thereby affecting the NPLperformance of banks (Unite and Sullivan, 2003).Foreign bank is proven to be superior compareto domestic banks in terms of pro�itability andcost-ef�iciency. The presence of foreign banksincreases competition and risk managementperformance (Susanto, Anindya Pradipta &Rokhim Ro�ikoh, 2011).

Bank's core capitalOne of the indicators related to bank size is thebank's core capital. In banking operationalactivities in Indonesia, the bank's core capital(Tier 1 capital) is the basis of the BUKU banking(Bank Umum Kegiatan Usaha, Commercial BankBusiness Activities). BUKU banks are divided into4 major groups, where the differentiating factoris the core capital of each bank (PBI No.14/26/PBI/2012; PBI No. 14/18/PBI/2012; POJK No. 6/

POJK.03/2016), This grouping applies to all typesof banks, both for Islamic and conventional banks(Otoritas Jasa Keuangan, 2019b; Otoritas JasaKeuangan, 2019d).

Indonesia recognizes four categories of BUKUBanks, namely BUKU 1, BUKU 2, BUKU 3, and buku4. A bank categorized as a BUKU 1 is a bank witha core capital of up to IDR 1 trillion, or in otherwords a bank categorized as a BUKU 1 is a bankwith a minimum core capital. A bank that iscategorized as a BUKU 2 is a bank that has a corecapital of between IDR 1 trillion and IDR 5 trillion.Bank BUKU 3 has a core capital of between IDR5 trillion and IDR 30 trillion. Bank BUKU 4 hasa core capital of over IDR 30 trillion (SE BI No.14/37/DPNP/2012). With higher amount of corecapital or BUKU classi�ication, a bank will get theright to carry out more business activities, thuscreating new opportunities for banks to generatepro�itability (PBI No. 14/26/PBI/2012).Damayanti, P., & Savitri, D. A. M. (2018) found thatthe bank size and capital adequacy ratio (CAR)has positive effect on the bank pro�itabilityperformance, the higher the capital adequacyratio (CAR), the better the bank's pro�itabilityperformance. However, the capital adequacy undertheir study has not been classi�ied into banksBUKU. Growing perception in the communitythat the large banks go bankrupt more dif�icultthan smaller banks, implicitly imply the viewthat big banks should have better performancethan smaller banks, included in the NPLmanagement capacity (Sugiarto. 2016). HoweverSugiarto (2016) found not enough evidence toconclude that bigger banks with higher corecapital classi�ication have better performancethan smaller banks with lower core capitalclassi�ication after the bank's core capital hasbeen classi�ied in banks BUKU.

Hypothesis DevelopmentIn this study, three hypotheses were developedto be tested.1. The classi�ication of the bank based on types

of bank ownership affect the performance ofthe bank's NPL

2. The classi�ication of the bank based on the

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category of core capital (BUKU) affect thebanks’ NPL performance

3. The interaction of types of bank ownershipand the category of core capital (BUKU) affectthe banks’ NPL performance

RESEARCHMETHODThe study was conducted using secondary dataobtained from bank quarterly reports from theFinancial Services Authority (OJK) through thewebsite ojk.go.id, bank �inancial reports, andinfobank magazine. As the research variable isNPL which in this case is used as indicators ofthe bank’s performance. Bank’s performance inthe classi�ication of bank ownership types andbank core capital category were evaluated withrespect to bank’s NPL. Tests were performedusing Two Way ANOVA and Post Hoc Test.Thebank prerequisites being considered are asfollows:1. Registered in OJK2. Attach a complete quarterly �inancial report

to the OJK for the period 2014-20193. Grouping of banks has done according to the

rules of BI on commercial banks businessactivities (BUKU)

In this research, there are four classi�icationsrelated bank ownership types, namely:• Foreign bank and mixed banks code 1• Regional development banks (BPD Bank)

code 2• State-owned commercial banks (BUMN Bank)

code 3• Private banks code 4

In this research, there are four classi�icationsrelated bank core capital (BUKU), namely:• Core capital of less than IDR 1 trillion (BUKU

1) code 1• Core capital of IDR 1 trillion up to below IDR

5 trillion (BUKU 2) code 2• Core capital IDR 5 trillion up to below IDR

30 trillion (BUKU 3) code 3• Core capital more than IDR 30 trillion (BUKU

4) code 4

In this research, there are 13 classi�ications

related to interaction of bank ownership typesand bank core capital (BUKU), as shown in Table1 below.

RESULTS AND DISCUSSIONSThe test results have gone through ful�illing theassumptions of the analytical tools used. Table 2below presents descriptive statistics of bankownership types and bank BUKU.

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In Table 3, the results of Two Way ANOVA arepresented.

From the results of the two way ANOVA test, itwas found that at a signi�icant level of 0.10 themain effect of bank ownership types had asigni�icant effect on the performance of NPLmanagement. From Table 3, it was found thatthe main effect of banks’ BUKU had nosigni�icant effect on the performance of NPLmanagement. This �inding is in line with the�indings of Sugiarto who found not enoughevidence to conclude that bigger banks withhigher core capital classi�ication has betterperformance than smaller banks with lower corecapital classi�ication (Sugiarto. 2016).

In contrast to the �indings of Damayanti, P.,& Savitri, D. A. M. (2018) who found that thebank size and capital adequacy ratio (CAR) hasa positive effect on the bank pro�itabilityperformance, the �indings of this study after corecapital were classi�ied into banks BUKU did not�ind signi�icant effect of banks BUKU on NPLperformance. As an explanation, it can be arguedthat in the same class of banks BUKU there arevariations in the amount of core capital andvariations in the type of bank ownership thatcause a mutual effect on the NPL performance.

The effect of mutual closure can be brokendown through an analysis of the interaction effectof the amount of core capital and the type ofbank ownership. Another argument that can beput forward is that banking industry inherentlycarries risks that cannot be eliminated as awhole. Banks operating in Indonesia are closelymonitored by BI and OJK. The supervisoryauthority enforces a uniform level of rigoroussupervision of all banks operating in Indonesia,especially on the performance of banks’ NPL whichplay a major role in the stability of the bankingindustry.

The results in Table 3 also show that at asigni�icant level of 0.10 the interaction effect ofbank ownership type and banks’ BUKU had asigni�icant effect on the performance of NPLmanagement.

For NPL performance, a lower NPL value indicatesa better NPL management ability. From thedescriptive statistics, it was found that the highestNPL management performance was foreign andmixed banks with a mean NPL of 0.01254201.Besides showing the lowest mean NPL, theperformance of NPL management of foreign andmixed banks was more stable than banksbelonging to other types. The standard deviationof NPL of 0.011260081 is the smallest comparedto the standard deviation of NPLs of banksbelonging to other types.

The post hoc test results using the level ofsigni�icance 0.1 with LSD test as shown in Table5 show that the performance of NPL managementof foreign and mixed banks is signi�icantlydifferent from private banks, but not signi�icantly

456

1128

528

168

2280

1

2

3

4

Total

.275861464

.044647503

.010895022

.109704680

.131286368

.04801162

.01951667

.01459148

.01882500

.02402412

Total

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different from banks classi�ied as BPD and BUMN.Further investigation of the post hoc test foundthat the performance of banks classi�ied as BPDbanks was also signi�icantly different from privatebanks. In the conditions of the rigor of testingenhanced by Tukey HSD test, there was nosigni�icant difference in the NPL managementability of the four bank ownership types of banksstudied.

Descriptive statistics of the interaction of bankownership types and banks' BUKU are presentedin Table 6 below.

Descriptive statistics of the interaction of bankownership types and banks’ BUKU that have beensorted on the basis of the mean NPL from thesmallest to the largest values are shown in Table 7.

The results of the NPL management performanceranking for the interaction of bank ownershiptype and banks’ BUKU show that the interaction

with code 3, namely foreign and mixed banks inthe classi�ication of BUKU 3 has the best rating.However, not all banks classi�ied as foreign andmixed types have a signi�icantly better NPLperformance than the interaction of other banktypes and banks’ BUKU. The types of foreign andmixed banks in the buku classi�ication 1 (code 1)and 2 (code 2) have no better performance evenwhen compared to banks classi�ied as BPD andBUMN types. The lowest NPL managementperformance is found in private-type banksclassi�ied in Buku 1.

More detailed search results using the post hoctest using both the Tukey test and the LSD test ascan be seen in Table 8 strengthen the indicationsobtained from descriptive statistics. Althoughnot all Tukey and LSD test results show the sameresults, there are many similarities in the resultsof the two tests which generally indicate thatthe interaction performance with Code 10, whichin this case is a private bank in the classi�icationof BUKU 1, is worse than other interactions withcodes 2,3,4,5 and 6 for Tukey's test and worsethan other interactions with codes 2,3,4,5, 6,7,8,9,11,12 and 13 for LSD test. The performanceof banks which are included in the interactionwith code 10 is only not signi�icantly differentfrom banks with code 1, namely foreign and mixedbanks which are classi�ied in the classi�ication ofBUKU 1. Although the performance of foreign andmixed banks NPL management, those classi�iedin the classi�ication of BUKU 1 are better thaninteraction performance with code 10 but thedifference in performance shown has not beenable to show a signi�icant difference at the levelof con�idence 0.1. Thus, the status as a foreignand mixed bank does not guarantee that it willhave a better NPL management capabilitycompared to banks of other ownership types. Oncloser inspection, it seems that the role of corecapital in the ability to manage bank NPLs isevident. However, an increase in core capital isindicated to increase the ability of banks tomanage their NPLs. Foreign and mixed bankswith higher core capital are better able to managetheir NPL than those with lower core capital,even though the difference in NPL management

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capabilities between foreign and mixed banksin various classi�ications of core capital has notshown a signi�icant difference at the level ofcon�idence 0.1. Descriptive statistics of the interactions of bank

ownership types and banks’ BUKU which havebeen sorted on the basis of Std. Deviation of NPLfrom the smallest value to the largest value isshown in the Table 9.

From Table 9, It is known that banks classi�iedas having large core capital for each type ofbank, except for private banks have better NPLmanagement stability than those with smallercore capital. The �irst rank that shows the bestNPL management stability are banks classi�iedas state-owned banks with core capital classi�iedin BUKU 4. The next rank is banks classi�ied asforeign and mixed with BUKU 3 which in thiscase is the highest BUKU for the category offoreign and mixed banks. The third rank isoccupied by BPD banks with core capitalclassi�ied in BUKU 3 which in this case is thehighest book for the BPD bank category. Anunexpected condition was found in banksclassi�ied as private bank with BUKU 4 in facthaving an unsatisfactory performance in NPLmanagement stability because they were onlybetter than private banks with BUKU 1 whichshowing the worst risk management performancestability.

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CONCLUSION1. The main effect of bank ownership types had

a signi�icant effect on the performance of NPLmanagement. Besides showing the lowestmean NPL, the performance of NPLmanagement of foreign and mixed banks wasmore stable than banks belonging to othertypes.

2. The main effect of banks’ BUKU had nosigni�icant effect on the performance of NPLmanagement.

3. The interaction effect of bank ownershiptype and banks’ BUKU had a signi�icant effecton the performance of NPL management. Theresults of the NPL management performance

ranking for the interaction of bank ownershiptype and banks’ BUKU show that foreignand mixed banks in the classi�ication of BUKU3 has the best rating. Banks classi�ied ashaving large core capital for each type ofbank, except for private banks have betterNPL management stability than those withsmaller core capital. The status as a foreignand mixed bank does not guarantee that itwill have a better NPL management capabilitycompared to banks of other types. On closerinspection, it seems that the role of corecapital in the ability to manage bank NPLs isevident.

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