The Contribution of Productive Asset Quality (PAQ) and Non-Performing Loans (NPL) of Conventional Rural Banks (BPRK) During the COVID-19 Era to Capital Adequacy Ratio (CAR) Through Profitability (ROA)

Abstract

This study aims to analyze the effect of Productive Asset Quality (KAP) and Non-Performing Loans (NPL) on the Capital Adequacy Ratio (CAR), with profitability measured by Return on Assets (ROA) as an intervening variable at Conventional Rural Banks (BPRK) under the supervision of the Regional Financial Services Authority Office (KOJK). The study uses quantitative data from 30 BPRK during the period from the second quarter of 2020 to the third quarter of 2021, resulting in 180 observations collected through cluster sampling. Data analysis was conducted using path analysis techniques. The results indicate that Productive Asset Quality (KAP) has a positive but insignificant effect on the Capital Adequacy Ratio (CAR), while Non-Performing Loans (NPL) have a negative but insignificant effect on CAR. Furthermore, KAP has a positive and significant effect on profitability (ROA), whereas NPL has a negative and significant effect on ROA. Profitability (ROA) is found to have a positive and significant effect on CAR. However, ROA does not significantly mediate the relationship between KAP and NPL on the Capital Adequacy Ratio (CAR). These findings suggest that profitability contributes directly to strengthening bank capital adequacy, while the indirect influence of asset quality and credit risk through profitability remains insignificant.