The Effect of Fulfillment of Governance Structure on Rural Bank’s Performance and Financial Risk
Study on Rural Banks (BPR) in the Working Area of the Financial Services Authority (OJK) Kediri
Abstract
This research aimed to evaluate the effect of the fulfillment of governance structure on Rural Bank’s (BPR) performance and financial risk in the working area of the Financial Services Authority (OJK) Kediri before and after the implementation of Financial Services Authority Regulation (POJK) No. 4/POJK.03/2015. Using a counterfactual approach and difference-in-differences analysis method, this research measured the financial performance indicators of Return on Assets (ROA), Capital Adequacy Ratio (CAR), and Non-Performing Loans (NPL). The present research used a saturated sampling technique in which all members of the population were sampled, which then obtained a total of 630 research samples. The results of the research indicated that the fulfillment of governance structure had a significant negative effect on BPR profitability as measured by ROA, it did not have a significant effect on capital as measured by CAR, and it did not have a significant effect on credit quality as measured by NPL. These findings indicated that the implementation of governance structure, which aimed to improve compliance, had not provided the expected positive effect on BPR financial performance and risk. This research underlined the need to improve human resource competency and more effective operational cost management to achieve optimal benefits from implementing good governance.
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