Optimal Composition of the Indonesian Listed Banks’ Earning Assets and the Effects on Their Market Capitalization Does It Matter?

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Eric J. Nasution
Margaretha Lingga


Even though it is beneficial for banks to generate the highest net interest margin at the lowest risk for optimality sake, in reality bankers and finance professionals have varied in their management style for earning assets. The general aim of the banking sectors is to generate the best net interest margins that lead to a satisfactory market capitalization level, particularly in compliance with the risk mitigation instructions issued by Bank Indonesia. Non-parametric statistical analysis was applied to secondary data obtained from the Financial Services Authority and Bank Indonesia (2012–2014). It was concluded that the loan-to-deposit ratio was not dependent on the optimal earning assets composition, even though the latter correlated with the listed Indonesian banks’ market capitalization. Market capitalization is the ultimate achievement goal for all listed banks. As a result of this study, it is recommended that the Financial Service Authority and Bank Indonesia should further regulate optimal earning assets composition, in addition to prudent management of the banking system’s assets and liabilities.


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