THE EFFECT OF NON-INTEREST INCOME DIVERSIFICATION ON THE PROFITABILITY OF THREE MAJOR INDONESIAN PRIVATE BANKS: A PRE- AND POST-2020 COMPARISON OF BCA, CIMB NIAGA, AND OCBC

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Priscila, Gabriella (2026) THE EFFECT OF NON-INTEREST INCOME DIVERSIFICATION ON THE PROFITABILITY OF THREE MAJOR INDONESIAN PRIVATE BANKS: A PRE- AND POST-2020 COMPARISON OF BCA, CIMB NIAGA, AND OCBC. Masters thesis, IPMI Institute.

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Abstract

Indonesian banks have progressively shifted part of their revenue away from traditional interest income towards fee- and commission-based sources, yet the relationship between this shift and core profitability indicators such as return on assets is not consistently established in the Indonesian context. This study examines how income diversification, measured by the Non-Interest Income Ratio (NIIR), is associated with the return on assets (ROA) of three of Indonesia's largest private commercial banks: Bank Central Asia, CIMB Niaga, and OCBC. The analysis draws on the income diversification literature and Financial Intermediation Theory, applying CAMEL based financial ratios alongside macroeconomic variables. Quarterly panel data from 2015 to 2025, excluding 2020 as a transition year, yield 120 balanced observations. Panel regression is estimated in EViews, with the Random Effect Model selected through Chow, Hausman, and Lagrange Multiplier tests and estimated using the Wallace-Hussain variance component estimator. NIIR is positively associated with ROA, although the result is marginal, reaching significance only on a one-tailed test. Among the CAMEL-based variables, non-performing loans and the ratio of operating expenses to operating income are both negatively associated with ROA, while net interest margin and the loan to deposit ratio are positively associated with it; capital adequacy shows no significant association. Among the macroeconomic variables, only economic growth is significant, and only in the baseline specification. The interaction between NIIR and the period dummy is positive and highly significant, and a Wald test confirms that the marginal effect of NIIR in the 2021–2025 period is positive and significant. The association between non-interest income and profitability therefore differs meaningfully between the two periods observed among these three banks, a pattern that holds across common effect, random effect, and fixed effect specifications.

Keywords: Income Diversification; Non-interest Income; Bank Profitability; Return on Assets; Indonesian Banking

Item Type: Thesis (Masters)
Subjects: H Social Sciences > H Social Sciences (General)
Divisions: Thesis > Master of Business Administration
Depositing User: sandra margaretha
Date Deposited: 03 Nov 2026 06:37
Last Modified: 03 Nov 2026 06:37
URI: http://repository.ipmi.ac.id/id/eprint/3104

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