IMPACT OF DERIVATIVES AND STRUCTURED PRODUCTS ON RISK AND PROFITABILITY IN INDONESIA BANKING COMPANIES
Abstract
ABSTRACT
In this study, the primary purpose is to know the impact of derivatives and structure products on the risk and profitability of banking companies listed for the data period from 2017 to 2022 using logistic regression analysis techniques. The factors examined in this study are ROA (return on assets), the logarithm of the fair value of the bank's financial derivatives-structure products, the logarithm of bank product structure, the natural logarithm of the bank's total assets, non-performing loans, Loan Deposit Ratio, the debt -asset ratios, and the debt-equity ratio.The impact of using derivatives and structure products in this study will be measured in 2 regression equations. The research results on the first equation, the debt ratio, loan-to-deposit ratio, and derivatives-structure products, positively correlate with profitability proxied by return on assets (ROA). For total assets negatively correlated with profitability (ROA). In terms of profitability, conventional banks' use of financial derivatives-structure products positively affects profitability. For the second equation, profitability, debt to assets, loans to deposits, and derivatives-structure products are positively correlated. In contrast, debt to equity and total assets are negatively correlated with the level of risk proxied by non-performing loans. The results show that risk prevention, financial derivatives, and structure products can help hedge risks for conventional banks in Indonesia.
Keywords: banks, derivatives, structured product, risk, profitability
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