DATA ANALYSIS. ratio as a measurement of bank s growth. (further details can bee seen in appendix A) 1. Permata Bank (BNLI) Central Asia Bank (BCA)

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1 Chapter 4 DATA ANALYSIS This chapter discusses the capital structure in each groups and the effect of that differences which reflect on their debt, equity, debt to equity ratio and capital adequacy ratio as a measurement of bank s growth. 4.1 Ownership of Private Banks Based on the ownership, private banking sector can be divided into two groups: international private banking sector and local private banking sector. The table below shows the list of local and international that has been categorized based on its ownership (further details can bee seen in appendix A) Table 4.1 List of Local and International Private Banks No. Local Private Banking Sector International Private Banking Sector 1. Permata Bank (BNLI) Central Asia Bank (BCA) 2. Artha Niaga Kencana Bank (ANKB) Buana Indonesia Bank (BBIA) 3. Victoria Bank (BVIC) Danamon Bank (BDMN) 4. Kesawan Bank (BKSW) Lippo Bak (LPBN) 5. Eksekutif Int. Ind. (BEKS) Niaga Bank (BNIG) 6. Bank Swadesi (BSWD) NISP 7. Mayapada Bank (MAYA) Indonesian Panin Bank (PNBN) 8. Mega Bank (MEGA) Bumiputera Indonesian Bank (BABP) 9. Artha Graha International (INPC) International Indonesian Bank (BNII) There are 9 banks on each sector, with different characteristics of vision, mission, strategy and regulation. Owner has rights to determine company regulation, regulate company s rules and decide the step that should be taken in order to improve company s performance, as well as the decision in funding. This chapter will find the difference between local and international private banking sector, especially from their capital structure by measuring its debt, equity and debt to equity ratio. The relation

2 between capital structure and bank s growth will also being explained in the last part. 4.2 Total Debt Total debt in this chapter is the amount which reported in financial statement, consists of: borrowings, savings, time deposits, certificates deposit, etc. The total debt for each bank could be seen from its financial statement (Appendix B). Table 4.2 Growth of Total Debt (in million Rupiahs) Year Local private Growth International private Growth banking sector banking sector ,836, ,512, ,282,481 15,445, ,943,890 4,431, ,621,097 2,338, ,694,726 27,750, ,447,663 13,826, ,132,356 35,437, ,803,730 13,356, ,155,405 43,023,049 Figure 4.1 Growth of Total Debt in Private Banks (in million Rupiahs) The total debt is always increasing in both sectors. International private banking sector has a higher growth rate than local private sector. International private banking sector increase in amount of 110,642,790 million rupiahs and the increase in local private banking sector is in amount of 44,966,933 million rupiahs. But international private banking sector perform better growth, because the growth rate in each year is also increasing. Source of debt in bank might be comes from deposits, bonds, borrowings and other current liabilities.

3 Table 4.3 Structure of Debt on Permata Bank in Year 2005 (in million Rupiah) Current Accounts Rupiah Percentage a. Rupiah i. Related Parties 270, % ii. Third Parties 3,289, % b. Foreign Currencies i. Related Parties 94, % ii. Third Parties 1,997, % Other current Liabilities 1,036, % Savings i. Related Parties 14, % ii. Third Parties 4,745, % Time Deposits a. Rupiah i. Related Parties 777, % ii. Third Parties 15,692, % b. Foreign Currencies i. Related Parties 167, % ii. Third Parties 1,312, % Certificates of Deposits a. Rupiah % b. Foreign Currencies - Deposits from Other banks i. Related Parties % ii. Third Parties 668, % Securities sold under repurchase agreements - Derivatives payables i. Related Parties % ii. Third Parties 12, % Acceptance Payables i. Related Parties 18, % ii. Third Parties 386, % Securities Issued a. Rupiah - b. Foreign Currencies - Borrowings a. Short Term Funding Facilities from Bank Indonesia - b. Others i. Rupiah - Related Parties - - Third Parties 616, %

4 Table 4.3 Structure of Debt on Permata Bank in Year 2005 (in million Rupiah) (Cont.) Rupiah Percentage b. Foreign Currencies - Related Parties % - Third Parties 134, % Estimated Allowances for Possible Losses on commitments and contingencies i. Related Parties % ii. Third Parties 17, % Lease Payables - Accruals 97, % Estimated Tax payables 1, % Deferred Tax Liabilities - Other Liabilities 804, % Subordinated Loans a. Related Parties - b. Third Parties - Loan Capital a. Related Parties - b. Third Parties - Minority Interest 55, % TOTAL LIABILITIES 32,210,555 Total liabilities in Permata Bank is Rp 32,210,555 million Rupiahs and the biggest source of their debt is from time deposits of third parties (48,719%). Bank Permata offer this product with interest rate 5-8%. Table 4.4 Debt Structure of Central Asia Bank (BCA) in Year 2005 (in million Rupiah) LIABILITIES Rupiah Percentage Current Accounts a. Rupiah 21,764, % b. Foreign Currencies 7,201, % Other current Liabilities 720, % Savings 63,559, % Time Deposits a. Rupiah i. Related Parties % ii. Third Parties 33,108, % b. Foreign Currencies i. Related Parties 2, %

5 Table 4.4 Debt Structure of Central Asia Bank (BCA) in Year 2005 (in million Rupiah) (Contd.) ii. Third Parties 3,918, % Certificates of Deposits a. Rupiah % b. Foreign Currencies - Deposits from Other banks 305, % Securities sold under repurchase agreements % Derivatives payables 87, % Acceptance Payables 1,435, % Securities Issued a. Rupiah 199, % b. Foreign Currencies 453, % Borrowings a. Short Term Funding Facilities from Bank Indonesia - b. Rupiah - Related Parties - - Third Parties 315, % b. Foreign Currencies - Related Parties - - Third Parties 209, % Estimated Allowances for Possible Losses on commitments and contingencies 24, % Lease Payables - Accruals 140, % Estimated Tax Payables 142, % Deferred Tax Liabilities - Other Liabilities 743, % Subordinated Loans a. Related Parties - b. Third Parties - Loan Capital a. Related Parties - b. Third Parties - Minority Interest 1, % TOTAL LIABILITIES 134,333,598 Table 4.4 shows debt structure of Central Asia Bank (BCA) in year Compared to the Permata Bank, central Asia Bank has the biggest source of debt is from their savings ( %) with their offering on interest rate is 6.63 %. 4.3 Total Equity Total debt in this chapter is the amount which reported in financial statement and called as core capital in bank. The total

6 equity for each bank could be seen from its financial statement (appendix C). Table 4.5 Growth of Total Equity (in million Rupiahs) Year Local Private Growth International Private Growth Banking Sector Banking Sector ,591,944-21,051, ,753,175 1,161,231 28,929,767 7,878, ,638, ,332 33,330,956 4,401, ,986,891 1,348,384 39,065,218 5,734, ,364, ,116 44,683,982 5,618,764 Figure 4.2 Growth of Total Equity in Private Banks (in million Rupiahs) Both sectors has similar pattern on growth of equity. It shows the increasing of total equity in each year, but the growth is volatile. International private banking sector has increase significantly period year , it might caused by the increasing on net income. 4.4 Assets Asset is the sum of debt and equity and determined by management of company itself. The increasing in one factor will affect the amount of asset, the different is just the pay off if the assets dominated by debt or by equity.

7 Figure 4.3 Portion of Debt and Equity on Local Private Banking Sector Figure 4.4 Portion of Debt and Equity on International Private Banking Sector As can be seen on these two figures above, more than 85 % of total assets are financed by debt. Therefore, bank should well manage its assets in order to avoid bankruptcy. 4.6 Debt to Equity Ratio The portion of debt and equity have been analyzed, the next analysis will measure the bank s equity ability to cover its debt through the measurement of debt to equity ratio.

8 Table 4.6 Debt to Equity Ratio of Local Private Banking Sector Year LOCAL BANKS BNLI ANKB BVIC BKSW BEKS BSWD MAYA MEGA INPC Table 4.7 Debt to Equity Ratio of International Private Banking Sector Year INTERNATIONAL BANKS BCA BBIA BDMN LPBN BNIG NISP PNBN BABP BNII Figure 4.5 Scatter Graph of Average Debt to Equity Ratio on Local and International Private banking Sector

9 From table 4.6, 4.7 and figure 4.5, show the debt to equity ratio of each sector and the pattern on average of debt to total equity ratio on each sectors. The average of debt to equity ratio on local private banking sector shows the decreasing number on year then increase for the next two years, but in the contrary international private banking sector shows the increasing number on year of average debt to equity ratio then decrease. To analyze the equality between debt to equity ratio in local private banking sector and debt to equity ratio in international private banking sector, the analysis will continue by using independent sample T-test and proof the hypothesis below: H0 : µ1 = µ2 H1 : µ1 µ2 Where: µ1 = Means of local private banks µ2 = Means of international private banks Table 4.8 Descriptive Statistics of Debt to Equity Ratio in Local Private Banking Sector and International Private Banking Sector Type of Bank N Mean Std. Deviation Debt to Local Private Banking Equity Ratio International Private Banking Table 4.8 is a result of means in 2 sectors of private banking, which consist of 45 samples of debt to equity ratio for each groups. Value of mean in local private banking sector is bigger than value of mean in international private banking sector. As shown in the

10 table, mean of debt to equity ration in local private banking sector is and mean of debt to equity ratio in international bank is This table also describes the standard deviation in each sector. Standard deviation for local private banking sector is and for international private banking sector, means the interval from one data to other data is for local private banking sector and for international private banking sector. After the number of mean in each group has been recognized, the next analysis is to test the hypothesis. Even though the amount of mean in the two groups is different, the decision to reject or accept null hypothesis (H0) was decided by the result of independent sample t-test, which shows in the table below. Table 4.9 Result of Independent Sample t-test Debt to Equity Ratio in Local and International Private Banking Sector Levene's Test for Equality of Variances t-test for Equality of Means F Sig. T Df Sig. (2- tailed) 95% Confidence Interval Mean of the Difference Difference Upper Lower Equal variances assumed Equal variances not assumed Table 4.9 shows these two groups assumed has unequal variances because the significance level of the two groups is (less than 0.05). This test is using 2-tailed test with 95% confidence interval and H0 will be rejected if the rate of 2-tailed significance level As revealed in the table, the value of 2-tailed significant level

11 is (less than 0.05), so H0 is rejected and the final conclusion is µ1 µ2 with the mean difference between two groups is Equity in local private banking sector has ability to cover 0.08 of its debt while equity in international private banking sector might cover 0.10 of its debt. The increasing number of debt in international private banking structure followed with the increasing number of total equity in this sector, as a result international private banking sector has greater ability on equity to cover its total debt The Importance of Determining Debt to Equity Ratio in Banking Sector The difference of debt to equity ratio will give impact to the other elements in firm, especially the performance of its firm. Capital adequacy ratio (CAR) is one of methods to measure bank s performance. Higher rate of CAR indicates less risk on bank. In the 2 nd chapter stated that debt to equity ratio is comparable inversed with capital to adequacy ratio, then higher debt to equity ratio will result less amount of capital adequacy ratio. Actually, this explanation is also related with financial distress of company. The increasing on debt if not followed by the increasing on equity will threat the bank itself because the capability of bank to cover the debt. If the customers withdraw their accounts in the same time and banks do not have sufficient equity, the banks will get collapse then declare bankruptcy. The next hypothesis will test the correlation between debt to equity ratio and capital adequacy ratio in private banking sector; test whether DER and CAR correlated or not, and how sensitive debt to equity ratio affected capital adequacy ratio.

12 4.7 Capital Adequacy Ratio (CAR) Capital adequacy ratio is the ability of equity on bank to cover their risk assets. Banks try to maintain their level of CAR in the secure level to avoid bankruptcy. This chapter will find, the relation between CAR and debt to equity ratio. Table 4.10 Capital Adequacy Ratio of Local Private Banking Sector in Year LOCAL BANKS BNLI 8.90% 10.42% 10.79% 11.44% - ANKB 31.05% 23.98% 21.82% 20.99% 18.57% BVIC 15.31% 8.99% 11.52% 20.28% 21.92% BKSW 27.20% 16.31% 16.99% 12.84% 14.34% BEKS 8.74% 9.96% 10.40% 14.69% 11.30% BSWD 30.34% 29.37% 27.07% 25.95% 24.06% MAYA 12.18% 10.93% 13.68% 14.43% 14.24% MEGA 9.70% 13.10% 14.00% 13.53% 11.13% INPC 11.44% 25.30% 35.86% 12.13% 11.14% Table 4.11 Capital Adequacy Ratio of International Private Banking Sector in Year INTERNATIONAL BANKS BCA 32.64% 32.19% 28.65% 23.95% 21.66% BBIA 23.71% 22.34% 22.32% 22.12% 20.20% BDMN 35.49% 25.33% 26.84% 27.00% 23.48% LPBN 23.87% 21.08% 17.86% 20.87% 21.38% BNIG 16.58% 12.72% 11.58% 10.43% 17.31% NISP 9.02% 12.57% 13.78% 10.07% 14.75% PNBN 36.07% 32.91% 36.74% 24.02% 18.83% BABP 12.75% 12.94% 9.46% 9.04% 9.46% BNII % 33.21% 22.02% 20.89% 22.41%

13 Table 4.10 and 4.11 shows the data of capital adequacy ratio (CAR) on local and international private banking sector. Based on the regulation of Bank Indonesia, the minimum requirement of CAR is 8%. Exclude Bank International Indonesia (BNII) in year 2001, all banks has fulfilled the requirement of minimum CAR. Figure 4.6 Average of CAR Growth on Private Banking Sector in Year From figure 4.6, the average of CAR in international private banking sector has increase significantly period but decrease in the next two years and in 2005 start increase, while the average of CAR in local private banking sector increase period and decrease in next following years. The significant increasing in average CAR of international private banking sector might caused by the significant increase in total equity. (Has explained in chapter 4.3). The correlation between debt to equity ratio and capital adequacy ratio can be explained from their equation itself.

14 If the total equity increase, the number of debt to equity ratio will decrease (comparable inversed) but the increasing of total equity will increase the number of CAR (congruence comparable). The relationship between debt to equity ratio and car adequacy ratio is exactly comparable inversed and to convince the statement, the next step is using SPSS method, linear regression. Table 4.12 Linear Regression Between Debt to Equity Ratio and Capital Adequacy Ratio on Private Banking Sector Model R R Square Adjusted R Square Std. Error of the Estimate 1.84(a) Table 4.12 shows the correlation between debt to equity ratio and capital adequacy ratio in private banking sector. There are two variables in this linear regression, dependent and independent variable. Capital adequacy ratio is a dependent variable, where debt to equity ratio is independent variable. From the R square value in the table above, entail that debt to equity ratio affected the number of capital adequacy ratio by 71%. Table 4.13 ANOVA Model Sum of Squares df Mean Square F Sig. 1 Regression (a) Residual Total Table 4.13 evaluates the homogeneity of this regression. The significance level for this model is (below 0.05) mean this regression can be used to predict the number of capital adequacy ratio (CAR).

15 Table 4.14 Coefficients of Linier Regression Between Debt to Equity Ratio and Capital Adequacy Ratio on Private Banking Sector Unstandardized Coefficients Standardized Coefficients Model Std. B Error Beta T Sig. 1 (Constant) Debt to Equity Ratio of Private Banking Sector The value of B constant is 0.39, imply if debt to equity ratio is being ignored so the number of capital adequacy ratio is 0.39 units. The value of B for debt to equity ratio of private banking sector is -0.01, means for the increasing 1 unit in debt to equity ratio will declining 0.01 units in capital adequacy ratio. Based on the value of B constant and B of debt to equity ratio of private banking sector, the equation for this linear regression model is: Where: Y X = Capital Adequacy Ratio (CAR) = Debt to Equity Ratio The test above shows negatively relation between debt to equity ratio and capital adequacy ratio. To ensure this conclusion, the next discussion on this chapter will describe about average of capital adequacy ratio in the two groups of private banking sector by using independent sample t-test method and proof the hypothesis below:

16 H2 : µ1 = µ2 H3 : µ1 µ2 Where: µ1 = Means of local private banks µ2 = Means of international private banks Table 4.15 Descriptive Statistics of Capital Adequacy Ratio in Local Private Banking Sector and International Private Banking Sector Type of Banks N Mean Std. Deviation Std. Error Mean Capital Local Private Banking Sector Adequacy Ratio International Private Banking Sector Table 4.15 is a result of means in two sectors of private banking, which consist of 44 samples of capital adequacy ratio for each groups. Value of mean in local private banking sector is 0.17 where the value of mean in international private banking sector is This table also describes the standard deviation in each sector. Standard deviation for local private banking sector is 0.07 and 0.08 for international private banking sector, means the average interval from one data to other data is 0.07 for local private banking sector and 0.08 for international private banking sector. The next step of independent sample T-test is to decide whether to reject or accept the null hypothesis.

17 Table 4.16 Result of Independent Sample t-test Capital Adequacy Ratio in Local and International Private Banking Sector Equal variances assumed Equal variances not assumed Levene's Test for Equality of Variances F Sig. T Df t-test for Equality of Means Sig. (2- tailed) 95% Confidence Interval of the Mean Difference Difference Upper Lower From the table 4.16 shows the 2 groups assumed have unequal variances because the value of significance level is 0.77 (above 0.05). This test is using 2-tailed test with 95% confidence interval and H0 will be rejected if the rate of 2-tailed significance level As revealed in the table, the value of 2-tailed significance level is 0.01 (less than 0.05), then H0 has been rejected. The conclusion is µ1 µ2 with the mean difference between two groups is In the previous table, average of capital adequacy ratio for local private banking sector is 0.17, indicates total equity in capital can cover 17% of total risk weighted assets in local private bank while total equity in international private banking sector can cover 21% of total risk weighted assets in international private banking sector. From the score, indicates that international private banking sector has greater ability to cover their total risk weighted assets by their total of equity. International private banking sector more

18 prepared to avoid its banks from default, collapse or bankrupt as the worst. Higher value of CAR indicates greater capability of its bank to maintain their minimum equity, in order to avoid the bank in a threat condition. Banks with greater value of CAR is more prepared to cover the total risk of weighted assets, and the key is manages the capital into the assets with less risk. The main reason why management allocates the capital into the assets with high risk is because they will get high return if we put the big portion the capital in assets which has big risk.