Health Indicators of Banks and Financial Ratios

Financial ratios that are indicators of the soundness of a bank that could affect the growth rate of shares retun. Among its capital adequacy ratio (CAR), non-perfoming loans (NPLs), return on equity (ROE) and loan to deposit ratio (LDR). Here's his explanation.
 
1. Capital Adequacy Ratio (CAR)CAR is one of the health indicators of bank capital. Assessment is an assessment of capital adequacy of bank capital to cover risk exposure of current and anticipated future risk exposure.
 
CAR shows how much the bank has adequate capital to support its needs and as a basis for assessing the prospects for the continuation of the relevant bank's business.The greater the CAR, the greater durability of the bank concerned in the face of shrinking value of bank assets that arise because of the troubled property.
 
In accordance with Bank Indonesia Regulation No. 6/10/PBI/2004 dated 12 April 2004 on the Rating System for Commercial Banks, the higher the value of CAR showed that the more healthy banks. If the CAR of a bank is high, public confidence in the banks will be even greater, increasing the value of the company's stock.Increasing the value of shares will increase the growth of stock returns will be accepted investors.


2. Non-performing Loans (NPL)
NPL is one of the bank's asset quality indicators of health. NPL NPL used is net of NPLs that have been adjusted. Asset quality rating is the rating of the condition of bank assets and the adequacy of credit risk management.

According to Bank Indonesia Regulation No. 6/10/PBI/2004 dated 12 April 2004 on the Rating System for Commercial Banks, the higher NPL values (above 5%), the bank is not healthy. High NPLs have resulted in profits to be received by the bank. The decrease resulted in dividend income also decreases so that the growth rate retun bank stocks will decline.

3. Return on Equity (ROE)
Analysis of Return on Equity (ROE in financial analysis has particular significance as one of the techniques of financial analysis. Analysis of ROE is digunakam common analytical techniques to measure the ability of firms to obtain profits. By using ROE ability to obtain bank profits are not measured by size the amount of profit that would be achieved but the amount of profit should be compared with the amount of funds that have been used in generating profits. ROE is a measurement of the effectiveness of the company to gain advantage by using the company's capital has.

ROE by C. Higgins (1990:59)
"The strong positive relationship Between ROE and stock prices suggest That high ROE firms tend to have high stock price relative to book value and vice versa. Hence, working to increase of ROE in these industries is largely consistent with working to increase is stock price. "

Opinions C. Higgins is acceptable that the ROE has a positive relationship with stock prices, meaning that when ROE increases, stock prices also increased. Increase in ROE, the company generated net income also increased when compared with their own capital is used to generate net profit. Due to the increase in net profit, the public will judge that the company has a good performance so as to increase the amount of net income earned, this will affect the stock price.

4. Loan to Deposit Ratio (LDR)
LDR is one health indicator bank liquidity. Liquidity rating is the rating of the ability of banks to maintain adequate liquidity and the adequacy of liquidity risk management. LDR most commonly used by financial analysts in assessing a bank's performance, especially of the total loans granted by banks and the funds received by the bank.

The reason for choosing these variables is by the consideration that the greater the amount of loans granted by banks the lower the level of bank liquidity is concerned, but on the other hand the greater the amount of loans banks are expected to get a high return as well. This will affect the valuation investors in making investment decisions that simultaneously affect the demand and supply of shares in the capital market which in turn affects the stock price which ultimately berdanpak retun to the growth rate of bank shares.