Analyzing Banking Firms: Impacts of Credit, Currency Conversion
Rates, Mortgage Rates on Equity Yields with Profit Margins
FAHRUDIN ZAIN OLILINGO1, RITA ALFIN2, LISTIYANA2, SONNY LEKSONO3
1Development Economics Study Program,
Universitas Negeri Gorontalo,
St. Gen. Sudirman No.6, Dulalowo Tim., Gorontalo 96128,
INDONESIA
2Department of Management,
Sekolah Tinggi Ilmu Ekonomi Gempol,
Raya Pasar No.9, Paste Team. Gg. I, Bandaran, Gempol, Pasuruan, East Java 67155,
INDONESIA
3Department of Management,
Universitas Wisnuwardhana Malang,
St. Danau Sentani Raya No.99, Madyopuro, Kedungkandang, Malang, East Java 65139,
INDONESIA
Abstract: - Using profit margins as an intermediate variable, this research examines the effects of credit risk
(X1), exchange rate risk (X2), and mortgage rates (X3) on equity yields in the context of banking businesses
listed between 2020 and 2022 on the Bursa Efek Indonesia (BEI). A purposive sampling approach was used to
determine the sample size, which was 43 firms. Path analysis and the Sobel Z test were applied to the data. The
findings of the investigation may be summed up as follows: (1) The statistical significance of credit risk's
impact on profit margins is shown by its p-value of 0.001, which is below the 0.05 cutoff. With a p-value more
than 0.05, mortgage rates, however, do not show a statistically significant impact on profit margins. Moreover,
a p-value greater than 0.05 indicates that profit margins do not substantially impact equity yields. (4) With a p-
value >ccr0.05, credit risk has no discernible effect on equity yields. (5) In contrast, with a p-value smaller than
0.05, mortgage rates have a substantial impact on equity yields. (6) The Z-Sobel result drops below 1.96 at -
0.87363822, indicating that credit risk does not directly influence equity yields via profit margins after doing an
indirect impact analysis using Sobel's Z test route analysis. (7) In a similar vein, the Z-Sobel result of
0.35789034 stays below 1.96, indicating that mortgage rates do not directly affect equity yields via profit
margins in the indirect impact study conducted using Sobel's Z-test route analysis.
Key-Words: - Rates of Interest, Profit margins, Risk of Credit, Returns on Stocks, Exchange Rate Risk,
Banking Businesses, Path Analysis, Sobel Z Test.
Received: March 16, 2023. Revised: October 23, 2023. Accepted: December 23, 2023. Published: February 21, 2024.
1 Introduction
There is now a strong demand from the public for
investment activity. The Investment Coordinating
Board (BKPM) notes a consistent and favorable
trend in investment growth over the last four years.
Investing involves allocating funds to one or more
assets for a defined period, aiming to generate
income or increase the original capital investment.
The objective is to optimize the anticipated yield
(return) while adhering to the risk tolerance level of
each investor. The source used is, [1]. An
investor's primary goal is to get a high return while
minimizing risk. However, it is important to
recognize that return and risk are inherently linked.
According to the idea, as the rate of return increases,
so does the degree of risk involved. The citation is
from, [2].
Return refers to the measure of profit margins
on an investment, [3]. Potential investors should
assess the company's performance prior to making
any investments. Stock return is the most effective
metric for assessing the generation of value for
shareholders' money, [4]. The return on investment
typically consists of two components: dividends and
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capital gains (or losses). The calculation of return
in this research is based on capital gains (losses),
namely the profits or losses derived from
fluctuations in stock prices, [3].
[5], Profit margins refer to a business's capacity
to generate a financial gain. Investors are likely to
be attracted to firms that generate significant profits.
The potential gain grows in proportion to the
company's profit margin. Investors would
undoubtedly allocate their funds to lucrative
enterprises to get a return on their investment.
Profit margins are a crucial metric for banks
operating in the banking sector. The profit margins
of a bank are crucial in safeguarding it against
unexpected losses by strengthening its capital
position and enhancing future profit margins via
investments funded by retained profits. The bank's
probability of survival is directly proportional to its
degree of profit margins. Hence, banks must
enhance their profit margins to excel. Banking profit
margins are measured by the yield on assets (YOA).
[6], supported, [7]. His study showed
that YOA positively affected stock performance.
However, [8], found that YOA did not affect
returns.
The capital market returns on banking equities
are impacted by several variables, including both
internal and external elements inside the banking
organization. Credit risk is an outcome of the
bank's internal operations. The probability of a
bank facing a financial crisis rises in proportion to
the bank's level of exposure to credit risk. As loans
generate interest that decreases bank income, credit
risk plays a vital role in determining bank profit
margins. Each loan granted by a bank incurs a
payment deferment, resulting in a reduction of the
bank's profit margins and equity. In the event that
the bank is unable to fulfill its responsibilities, it
might eventually lead to the collapse of the bank.
Credit risk is assessed by using non-performing
loans (NPL) as a proxy, which involves comparing
the total amount of NPL to the whole credit
extended by banks to debtors, [9].
The non-performing Loans (NPL) metric is used
to assess the proficiency of bank management in
handling NPLs issued by banks. A rising NPL ratio
indicates a deteriorating quality of bank credit,
leading to a rise in the number of NPLs and
resulting in financial losses. In contrast, a decrease
in NPL levels would increase the bank's profit or
profit margins. [10], and, [11], argue that credit risk
does not significantly harm equity yields, but it does
have a significant adverse effect on profit margins.
In contrast, [12], research suggests that non-
performing loans (NPL) do not have a significant
influence on stock gains.
The bank's performance is influenced by
external factors such as the exchange rate of the
rupiah and the KPR rates in Indonesia. According
to, [13], the Rupiah conversion rate is the value of
one currency compared to another currency, or the
amount of one currency that may be traded for each
unit of another currency. According to, [14], the
exchange rate is the agreed-upon price level at
which people from two different countries do
business. The exchange rate is the ratio at which
one country's currency may be exchanged for
another country's currencies, as defined by, [15]. It
is of paramount significance for capital market
participants in Indonesia to ascertain the conversion
rate of the rupiah relative to foreign currencies. The
foreign exchange rate significantly impacts the costs
and profits related to stock and securities
transactions on the capital market exchange.
The volatility of currency rates will diminish
international investors' trust in the Indonesian
economy. This will negatively impact stock trading
on the capital market, leading to a withdrawal of
money by foreign investors. According to, [16], the
establishment of Capital of Flow will lead to a
reduction in stock prices. [4], [7], and, [17],
discovered in their research that exchange rate risk
had a notable and favorable impact on profit
margins. Conversely, Recent research on the
influence of Currency conversion rates and currency
rate risk on financial variables has presented varying
conclusions. [5], reported that Currency conversion
rates do not have a significant detrimental effect on
profit margins. In contrast, [18], study in 2021
suggested that currency rate risk has a notable
adverse impact on equity yields. On the other hand,
[11], research proposed that exchange rate risk
could have a considerable beneficial influence on
returns. These mixed findings highlight the
complexity of understanding the relationship
between Currency conversion rates, currency rate
risk, and financial outcomes.
Most firms are now unable to repay their bank
loans as a result of the depreciation of the Rupiah
against the US currency. To mitigate currency rate
volatility, the government has implemented a
mechanism of raising mortgage rates via the
Securities and Money Market (SBPU) and Bank
Indonesia Certificates (SBI). Mortgage rates are
the second factor that affects equity yields.
Investors are motivated to invest in firms that align
with their investing goals, and similarly, attractive
deposit rates will encourage consumers to invest in
financial institutions.
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A substantially elevated interest rate can
negatively impact the present value of a firm's cash
flow, diminishing the appeal of investments and
reducing investors' willingness to lend their funds.
Higher mortgage rates result in increased capital
expenses for the company, necessitating a higher
return on investment expected by investors. As per
findings by, [19], empirical research highlights that
the influence of mortgage rates on equity yields
yields mixed results. [20], research in 2018 reveals
that mortgage rates do not exert a statistically
significant influence on equity yields. Conversely,
[1], study indicates a substantial impact of mortgage
rates on equity yields. Furthermore, [21],
investigation suggests that mortgage rates do not
sway equity yields. These differing conclusions
emphasize the intricate nature of the relationship
between mortgage rates and stock market
performance.
2 Literature Review
2.1 Effect of Credit Stress on Revenue
An excessively high-interest rate will have an
impact on the company's cash flow's present value,
which will make investments less appealing and
cause investors' interest in lending their money to
decline. Elevated mortgage rates will also result in
higher capital costs for the business and a higher
return on investment needed by investors.
According to, [9], An excessively high interest rate
will have an impact on the company's cash flow's
present value, which will make investments less
appealing and cause investors' interest in lending
their money to decline. Elevated mortgage rates will
also result in higher capital costs for the business
and a higher return on investment needed by
investors. [10], state that credit risk has a significant
effect on profit margins, the resulting hypothesis is
as follows:
H1: Credit risk has a significant effect on profit
margins.
2.2 Effect of Currency Conversion Rates
on Profit Margins
The exchange rate refers to the valuation of a certain
currency in relation to the currency of another
nation. The economy is impacted by currency
conversion rates when there is a depreciation in the
exchange rate. A depreciated exchange rate leads
to an increase in the inflation rate, thereby resulting
in a decline in profit margins. The influence of
currency conversion rates on bank profit margins
suggests that fluctuations in Currency conversion
rates, whether appreciating or depreciating, will
affect the bank's foreign currency commitments at
maturity. [18], suggest that bank profit margins are
influenced by fluctuations in currency value, namely
appreciation and depreciation, and are further
impacted by the absence of hedging strategies. In
their study, [17], stated that the exchange rate has a
considerable impact on profit margins. The
resultant hypothesis is as follows:
H2: The exchange rate has a significant effect on
profit margins.
2.3 The Effect of Mortgage Rates on Profit
Margins
Before investing, investors need to be aware of how
mortgage rates fluctuate. Because they will directly
lower the company's earnings, high mortgage rates
will make things more difficult for it. Overly high
mortgage rates will have an impact on the cash flow
of the business. Conversely, a drop in mortgage
rates will result in an increase in loan credit, which
will directly boost business earnings. Keynes's
theory states that household income determines how
much money households save, not the magnitude of
the interest rate, which would ultimately affect the
bank's profit margins. The household will save
money in the bank, which will also be large if the
income is substantial. [22], in their research, said
that mortgage rates significantly affect profit
margins. From the description, the results of the
hypothesis are as follows:
H3: Mortgage rates have a significant effect on
profit margins.
2.4 Effect of Profit margins on Return
Profit margins are the ability of the business to turn
a profit. In the long run, this profit margin study will
be crucial for investors. Investors will get gains, for
instance, in the form of dividends. Returns on
investment are another name for profits. A
business's profit margins can be calculated by
summing up the profits from its primary operations
and the wealth or assets it has (operational assets)
that are used to produce those profits. Investor
returns increase in proportion to improved (higher)
YOA (Edusaham.com). [23], in their research, said
that profit margins have a significant effect on
equity yields. From this description, the resulting
hypothesis is as follows:
H4: Profit margins have a significant effect on
returns.
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2.5 Effect of Credit Risk on Return
Bad loans or NPLs can reduce banking revenues and
profits, and bank performance will generate a
negative response from investors. Banks must
improve the management of credit risk or NPL not
exceeding the provisions given by Bank Indonesia.
If the bank's credit risk is high, investors are less
interested in buying shares owned by the bank
because it will hurt profit margins if the credit risk is
high. This risk causes investors' hopes of getting a
return on their investment to decrease to the point
where it becomes a loss if the bank goes bankrupt if
stock/bond prices fall. [11], in his research stated
that credit risk has a significant positive effect on
equity yields. From this description, the resulting
hypothesis is as follows:
H5: Credit risk has a significant effect on equity
yields.
2.6 Effect of Exchange Rate on Return
The depreciation of the rupiah will diminish public
enthusiasm for investment due to its impact on
investment yields. [24], state that the exchange rate
is determined by the equilibrium between the supply
and demand of local and foreign currency. The
depreciation of the rupiah currency exemplifies a
situation where the public's inclination to use it has
diminished, and they choose to transact in foreign
currency owing to the waning influence of the
domestic market economy. Simultaneously, the
government will establish a fixed exchange rate that
will remain constant indefinitely. The exchange rate
serves as a significant determinant that impacts the
performance of both the stock market and the
money market. This is due to the fact that investors
prefer to exercise caution and prudence when
making investment decisions. In their study, [10]
found that exchange rate risk had a significant and
favorable impact on equity yields. The theory that
has been derived is as follows:
H6: The exchange rate has a significant effect on
equity yields.
2.7 The Effect of Mortgage Rates on
Return
Keynesian theory posits that fluctuations in
mortgage rates may influence stock prices.
Specifically, an increase in mortgage rates is
associated with a decline in stock prices. In
contrast, a decrease in mortgage rates will increase
stock prices, leading to a subsequent rise in equity
yields. The company's cash flows will be
significantly impacted by the high mortgage rates,
resulting in a decrease in the present value of the
investment and making it less appealing. The lack
of investor participation in investment operations
due to their perceived unattractiveness would
eventually impact equity yields. The decline in
investor interest is the primary cause of this
situation, leading to a subsequent decrease in equity
yields as a result of elevated mortgage rates.
According to, [8], mortgage rates have a major
impact on equity yields. Therefore, whether
mortgage rates are high or low, they will influence
the produced equity yields. Based on the above
description, the resultant hypothesis may be
summarised as:
H7: Mortgage rates have a significant effect on
equity yields.
2.8 The Effect of Profit Margins as an
Intervening Variable between Credit
Risk on Equity yields
Profit margins are a crucial metric in banking that
investors prioritize when making investments since
they reflect a company's capacity to generate returns
for its owners. [25], argue that non-performing loans
arise from irregular principal and interest payments,
leading to a direct decline in bank performance and
inefficiency. Credit risk has a direct effect on profit
margins since it stems from the occurrence of NPL,
which in turn may diminish the revenue generated
from interest on bank credit. According to, [24],
their study demonstrates that profit margins might
act as a mediator between credit risk and equity
yields. Based on the above description, the
resultant hypothesis may be stated as:
H8: The relationship between credit risk and equity
returns through profit margins.
2.9 The Effect of Profit Margins as an
Intervening Variable of Currency
Conversion Rates on Equity Yields
Currency conversion rates affect the economy if the
exchange rate depreciates. A weak exchange rate
causes the inflation rate to rise. This causes a
decrease in profit margins. According to, [26], bank
profit margins will change if the bank experiences
appreciation and depreciation and does not carry out
bank headings which will decrease. If profit margins
decrease where the return earned by investors will
decrease, this will cause investment interest to
decrease. [27], in their research, said that profit
margins could mediate Currency conversion rates on
equity yields. From this description, the resulting
hypothesis is as follows:
H9: The exchange rate affects equity yields through
profit margins.
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2.10 The Effect of Profit Margins as an
Intervening Variable of Mortgage
Rates on Equity yields
Share prices are inversely correlated with mortgage
rates, meaning that when mortgage rates rise, share
prices tend to fall. The probability of losing money
then increases significantly. Excessive mortgage
rates will also affect the company's cash flow.
Elevated mortgage rates have a direct negative
impact on credit quality and profit margins, which
in turn have a negative impact on equity returns.
According to Keynes' theory, the level of family
savings is determined by household income rather
than the level of interest rates. This could potentially
affect banks' profit margins in the future, [24]. In
their study, [28], found that mortgage interest rates
have a significant impact on returns by influencing
profit margins. Based on the results of this
analysis, the resulting hypothesis could be stated as
follows:
H10: Mortgage rates affect equity yields through
profit margins.
The conceptual framework of this research is
presented in Figure 1.
Fig. 1: Conceptual Framework
3 Method, Data and Analysis
This study was initiated to address current issues in
the field by integrating theoretical reinforcement,
resulting in the use of a quantitative research
strategy. The research population consists of banks
listed on the Bursa Efek Indonesia (BEI) from 2020
to 2022. When collecting research samples, it is
important to examine many factors, especially
Banking companies listed on the Bursa Efek
Indonesia (BEI) publish financial statements for the
years 2020 to 2022 and remain listed. To
substantiate the research findings, data gathering
was conducted through library research. This
involved obtaining a theoretical perspective by
reading and studying books relevant to the research
problem, as well as collecting and analyzing
relevant data about the company, particularly its
financial reports. The methodology used is path
analysis, facilitated by the use of AMOS 2018
software. The efficiency of mediating factors in
this study was assessed using the Sobel Z test. [29].
4 Result and Discussion
4.1 Descriptive Statistical Analysis
A statistical analysis method called descriptive
statistics gives a summary of the data and the
correlation between the research variables. This
study's intervening variable is profit margins,
whereas the study's independent variables are
mortgage rates, currency rates, and credit risk. On
the other hand, equity yields serve as the study's
dependent variable. The statistical data findings for
all research variables from 2020 to 2022 display the
values of the minimum, maximum, mean, and
standard deviation.
Table 1. Descriptive Research Variables
Variable
Amount
smallest
value
Mean
Standard
Deviation
Credit risk
129
0,02
1,8933
1,46902
Exchange
rate
129
13538,00
13976,6667
386,23474
Interest rate
129
4,24
5,0833
0,7166
Profit
margins
129
-9,24
0,7158
2,06363
Return
Stock
129
-69,82
14,7879
84,57531
Source: Output SPSS, 2022
Based on Table 1 with a total of 129 data, the
lowest value for the variable (X1), namely credit
risk, is 0.02, the average value is 1.89, and the
highest value is 7.89, with a standard deviation of
1.47. The currency risk variable (X2) has a stdr
value. dev of 386.23 with an average of 13.98. The
interest rate variable (X3) with the smallest value is
4.24 and the highest is 6.10, where the stdr value is
the dev of 0.72. The profit margin variable (Z) has a
range value of 0.89, namely from -9.24 to 9.10,
while the standard error value is 2.06. The
endogenous variable, namely stock returns (Y), has
values ranging from -69.82 to 820 with a value
range of 14.79 and a standard deviation value of
84.57.
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4.2 Classical Assumption Test Results
4.2.1 Normality Test Result
The normal test is used to test for whether or not the
dependence and independent variables are normally
distributed, using the one-sample Monte Carlo test
with the condition that if the significance value is
above 5% or 0.05, then the data are normally
distributed. Conversely, if the probability of
significance is less than 5% or 0.05, the data is not
normally distributed.
Table 2. Results of the Normality Test
Number of
Data (N)
Significance
Level (α)
Asymp. Sig,
(2-tailed)
109
5% (0,05)
0,451
Source: Processed primary data, 2022
They conducted an outlier data analysis on the
129 data that were initially collected for the first test
using SPSS. The findings showed that the data was
not normally distributed or that the Kolmogorov-
Smirnov test scores were less than 0.05. Table 2's
109 data points were used for the normality test
using SPSS after outliers, and the findings indicate a
significance value of 0.451 > 0.05. In summary,
research data is often dispersed, or what is referred
to as average assumed data.
4.2.2 Multi-Collinierity Test Result
The purpose of the multi-collinearity test is to
evaluate a regression model to ascertain if multi-
collinearity exists within the model or whether
correlations exist across independent variables that
shouldn't be inside the regression model. There are
many strategies to get around the model's multi-
collinearity: High correlation factors should be
changed or eliminated, more observations should be
made, or the data should be transformed into a
different format.
Table 3. Results of the Multi-collinearity Test
Variable
VIF
Tolerance
Information
Credit
Risk
1,273
0,785
There are no symptoms of
multi-collinearity
Interest
Rate
1,002
0,998
There are no symptoms of
multi-collinearity
Profit
margins
1,275
0,784
There are no symptoms of
multi-collinearity
Source: Processed primary data, 2022.
The multi-collinearity of the regression model is
shown by the results of the multi-collinearity test,
which was carried out with 109 data points using
SPSS. To avoid the occurrence of multi-collinearity
in the regression model, I followed a number of
specified steps. I was able to achieve this by
eliminating factors that occur frequently or have
strong relationships. The exchange rate risk variable
(X2), which has the highest correlation with 109
data points as the independent variable in the
regression model, is the one removed from this
analysis to prevent multi-collinearity.
With 109 data points, the results of the multi-
collinearity test indicate that there is no correlation
between the variables or that there is no multi-
collinearity because the value of profit margins is
1.275 < 10, the value of interest rate is 1.002 < 10
and the value of VIF credit risk is 1.273 < 10.
Meanwhile, there is no multi-collinearity or
correlation between the variables as indicated by the
credit risk tolerance values of 0.785 > 0.10, 0.998 >
0.10, and the profit margins tolerance values of
0.784 > 0.10.
4.2.3 Heteroscedasticity Test Results
The non-squared test looks for an inequality of
variance in the regression model using the residuals
of a single observation. The regression model does
not exhibit homogeneity if the significance value is
greater than 0.05, and vice versa, according to the
standards for decision testing. If the value of
significance of the regression model is less than
0.05, heteroscedasticity is present.
Table 4. Result of the Heteroscedasticity Test
Variable
Sig.
Information
Credit Risk
0,703
There were no symptoms of
heteroscedasticity
Interest Rate
0,061
There were no symptoms of
heteroscedasticity
Profit margins
0,549
There were no symptoms of
heteroscedasticity
Source: Processed primary data, 2022
The foreign exchange risk variable (X2), which
has a high correlation in the multi-collinearity test,
is included in the heteroscedasticity test if the results
of the test, which includes a total of 109 data points,
indicate that heteroscedasticity also occurs in the
regression model. To avoid the model that causes
heteroscedasticity in the multi-collinearity test, I
continue to remove the exchange of the value risk
variable (X2). The results of the heteroskedasticity
test in Table 3 show that there is no
heteroskedasticity in the exchange rate variable
(X2). This is indicated by the fact that the profit
margin variable has a significance value of 0.549 >
0.05, the interest rate variable has a significant value
of 0.061 > 0.05, and the credit risk variable has a
significant value of 0.703 > 0.05, all of which
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indicate that the regression model is not
heteroscedastic.
4.2.4 Coefficient of Determination (Goodness of
Fit)
The capacity of the independent factor to explain the
dependent variable is measured using the coefficient
of determination (R2). We need to examine the R
Square value to ascertain the value of determination.
The test results for the Coefficient of Determination
(R Square) are presented in Table 5.
Table 5. Test Results for the Coefficient of
Determination (R Square)
Model
R2 (R Square)
1 (Profitability)
0,251
2 (Stock Return)
0,254
Source: Processed primary data, 2022
Based on the results of the regression analysis
with profit margins as the dependent variable with
credit risk and mortgage rates as the independent
predictors from Table 4, the adjusted R-squared
value is 0.251 or 20.1%. This shows that the
contribution of credit risk and mortgage rates to the
explanation of profit margins is 25.1% and the
remaining 79.9% is explained by other variables or
variables not examined. At the same time, the value
of the adjusted R-squared for credit risk and
mortgage rates is the dependent variable, while the
independent variable has a value of 0.254 or 25.4%.
This shows that credit risk and mortgage rates can
explain 25.4% of the return and the remaining
74.6% is explained by other or untested variables.
4.2.5 Path Analysis
[30], of North Carolina State University defines path
analysis as an extension of the baseline regression
model used to test the alignment of the correlation
matrix with two or more models of causal
relationships that researchers are comparing. The
Diagram AMOS is presented in Figure 2.
Fig. 2: Diagram AMOS
4.2.6 Hypothesis Testing
To determine the effect of the independent variable
on the dependent variable, hypothesis testing was
carried out by looking at the size of the significant
value and the Z-Sobel test value. If the significance
value is < 0.05 and the Z-Sobel value is > 1.96, then
there is a directional effect, or it can be said that
there is a significance between the dependent
variable and the independent variable.
Table 6. Path Analysis Results Regression Weights:
(Group number 1 - Default model)
Estimat
e
S.E
.
C.R
.
P
Labe
l
Z
<--
-
X
1
-,370
,068
-5,420
***
Par-3
Z
<--
-
X
3
,045
,115
,396
,69
2
Par-4
Y
<--
-
X
1
-1,412
2,433
-,580
,56
2
Par-1
Y
<--
Z
2,689
3.038
0.885
,37
6
Par-2
Y
<--
X
3
-9,939
3,621
-2.745
,00
6
Par-5
Source: Amos, 2022
Table 7. Z-Sobel Test Results
Indirect Effect
Z- Sobel
Information

-0,99493
-0.87363822
< 1,96

0,121005
0.35789034
< 1,96
Source: Uji Z-Sobel, 2021
Effect of Credit Risk (X1) on Profit margins (Z)
The impact of credit risk (X1) on profit margins (Z)
has a probability value of 0.001 <0.05, according to
the path estimation utilizing AMOS findings in
Table 6. This indicates that the effect of credit stress
on revenue is considered important since the value
of the probability is less than 0.05. Profit margins
are unaffected by the degree of credit risk when H1
is approved and H0 is denied. Because the
probability value is smaller than 0.05, the route
analysis testing findings using AMOS demonstrate
that credit risk significantly affects profit margins.
The first hypothesis, or H1, is accepted based on the
study's findings. The study's findings show that
banks' profit margins decrease when credit risk
exposure increases. The findings of this research
support the idea of, [27], which contends that
because credit risk entails the possibility of losing
all or part of interest or loans, it might have an
adverse effect on bank profit margins.
According to data released by the Financial
Services Authority (OJK), the percentage of non-
performing loans (NPLs), or banking NPLs, rose to
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3.1% in January 2020. Loan growth was seen in
2020, hitting 8.24%, and continued to expand to
8.5% through March 2018. During this time,
declining commodity prices and a weakening of the
currency rate presented banks with the challenge of
growing non-performing loans (NPLs). Since the
price of imported goods and raw materials may rise
as a result of the rupiah's depreciation, producers
will need to raise prices to maintain profits, which
will lower consumer purchasing power and
ultimately lower producer profits. Bank credit
payments are hindered by the fall in producer
earnings, which raises non-performing loans (NPLs)
and affects bank credit quality and profit margins
for banks.
Effect of Mortgage rates (X3) on Profit margins
(Z)
Mortgage rates have no impact on profit margins or
are not significant since the findings of path analysis
or probability values are more significant than 0.05.
This is shown by the effects of path analysis using
AMOS in Table 6 on profit margins (X3) of 0.629 >
0.05. to state that H0 is accepted and H3 is denied.
The AMOS analysis test findings demonstrate that
profit margins are unaffected by mortgage rates. The
third hypothesis (H3) in this investigation, which
claimed that it had no significant impact since the
probability value was higher than 0.05, was shown
to be false. The study's findings support the idea put
out by Keynes in, [31]. Keynes argues that the
amount of consumer savings is dependent on
household income rather than interest rate size,
which will ultimately affect bank profit margins.
The household will save money in the bank, which
will also be large if the income is substantial. We
might infer that just as a rise or fall in mortgage
rates has no effect on other increases or decreases in
mortgage rates, neither does it have an impact on
investors who choose to invest in banks.
Effect of Profit margins (Z) on Stock Return (Y)
Mortgage rates have no impact on profit margins or
are not significant since the findings of path analysis
or likelihood values are greater significant than
0.05. This is shown by the effects of path analysis
using AMOS in Table 6 on profit margins (X3) of
0.629 > 0.05. to state that H0 is accepted and H3 is
denied. The AMOS analysis test findings
demonstrate that profit margins are unaffected by
mortgage rates. The third hypothesis (H3) in this
investigation, which claimed that it had no
significant impact since the probability value was
higher than 0.05, was shown to be false. The study's
findings support the idea put out by Keynes in, [31].
Keynes argues that the amount of consumer savings
is dependent on household income rather than
interest rate size, which will ultimately affect bank
profit margins. The household will save money in
the bank, which will also be large if the income is
substantial. We might infer that just as a rise or fall
in mortgage rates has no effect on other increases or
decreases in mortgage rates, neither does it have an
impact on investors who opt for investments in
banks.
Effect of Credit Risk (X1) on Stock Return (Y)
Table 6 presents the path analysis findings using the
AMOS analysis tool. The influence of credit risk on
equity yields is shown with a probability value of
0.562 > 0.05, indicating that there is no meaningful
relationship between credit risk and equity yields
since the probability value is high or low. Credit has
no bearing on the reward investors will get. It is
possible to view this as rejecting H5 and accepting
H0. Credit risk has little impact on stock returns,
according to the route analysis findings performed
using the AMOS analytic tool. Because the
probability outcomes in this research are more than
0.05, it may be argued that the fifth hypothesis (H5)
should be rejected or that it has no significant
impact. One internal factor that affects bank
performance is credit risk. The likelihood of a bank
experiencing a financial crisis increases with the
firm's exposure to credit risk. Banks are now very
cautious when granting loans to potential borrowers
due to Bank Indonesia's increasingly strict risk
management standards. By lowering the number of
non-performing loans (NPL) ratios at banks, Bank
Indonesia hopes to maintain bank profit margins and
send a good message to investors. Because of this,
credit vulnerability does not affect equity yields.
The Effect of Mortgage rates (X3) on Equity
yields (Y)
Table 6 presents the findings of a path analysis
using the AMOS research tool. The influence of
mortgage rates on equity yields is shown with a
probability value of 0.006 <0.05, indicating a
substantial effect of mortgage rates on equity yields
due to the probability value being less than 0.05.
After that, H0 is rejected and H7 is approved. The
hypothesis derived from research on the impact of
mortgage rates on equity yields is to accept the sixth
hypothesis (H7) and reject H0 since the probability
findings are less than 0.05. The regression analysis
using AMOS demonstrates that mortgage rates
affect equity yields. This research adheres to, [25],
hypothesis. The variety of returns on investment
may be impacted by changes in mortgage rates.
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Stock prices will decrease if mortgage rates rise, and
vice versa. The price of stocks will increase when
mortgage rates decline. This is due to the fact that
rising mortgage rates will also increase the return on
investment linked to mortgage rates. The present
value of the business's revenue will be impacted by
high mortgage rates, making the investment less
appealing. When investing activities are seen as
unappealing, investors will choose not to participate
in them, which will eventually lower equity returns.
Therefore, equity yields will be impacted by both
high and low mortgage rates.
Effect of Profit margins (Z) as Intervening
Variable Between Credit Risk (X1) on Stock
Return (Y)
Table 7 explains the results of data analysis using
the Sobel test, which will explain the influence of
exogenous variables (profit margin) on endogenous
variables (credit risk) with the result of a z-Sobel
value of -0.87363822 < 1.96, where the calculation
process uses the following formula:

󰇛

󰇜
It might be understood that credit risk does not
have a direct influence on stock yields via profit
margins, or it can alternatively be deemed route
analysis not significant since the z-Sobel value is
lower than 1.96. Therefore, we must exclude H8 and
accept H0. Path analysis using the Sobel Test
demonstrates that credit risk does not significantly
impact equity yields via profit margins. Specifically,
the z-Sobel value is less than 1.96, indicating that
the relationship between the two variables is not
statistically significant. This research suggests that
the null hypothesis (H0) is the correct one.
The Effect of Profit margins (Z) as an
Intervening Variable Between Mortgage rates
(X3) on Equity yields (Y)
The results of the Sobel test to determine the z-
Sobel value are 0.35789034 < 1.96, to explain the
relationship between variables (mortgage interest
rate --> profit margin --> return on equity) the
calculation is carried out as follows:
 󰇛

󰇜
Equity yields are not directly related to
mortgage rates because of how profit margins work.
Since 1.96 is smaller than the z-Sobel value, we
may conclude that H0 is correct and H10 is
incorrect. The Sobel test's findings on the
relationship between mortgage rates and equity
yields via profit margins demonstrate that there is no
meaningful relationship between the two variables.
The hypothesis gained from this investigation is to
reject the tenth hypothesis (H10).
4.2.7 Implications of Research Results
Credit risk has an essential effect on profit margins
with a probability value of 0.001 0.05, as shown by
the discussion and results of the research entitled
Effects of credit risk, exchange rate risk, and interest
rate risk on equity yields with profit margins as an
intervening variable in banking companies listed on
the IDX in 2020-2022, leading to acceptance of the
first hypothesis (H1). [10], found that credit risk
significantly reduces profit margins, and our
findings are consistent with their findings.
Mortgage rates have no significant influence on
profit margins since the probability value is bigger
than 0.05, 0.692 > 0.05. The hypothesis gained is to
reject the third hypothesis (H3). Contrast these
findings with those of, [32], whose study "The
Influence of Currency Conversion Rates and
Mortgage Rates on Equity Yields with Profit
Margin as an Intervening Variable in Manufacturing
Companies Registered on the Indonesia Stock
Exchange in 2015-2017" found that interest rates on
mortgages have a "significant effect" on businesses'
profit margins. [33], in a study titled "The Influence
of Rupiah Currency Conversion Rates, Bank
Indonesia Mortgage Rates, and Inflation on Equity
Yields with Profit margins as Intervening Variables
in Banking Companies on the Indonesia Stock
Exchange (IDX) in 2012-2015," found that
mortgage rates did not affect profit margins.
Since the probability value is more than 0.05
(0.562 > 0.05), the relationship between profit
margins and equity yields is not statistically
significant. This research suggests that the null
hypothesis (H0) is the most likely explanation.
Profit margins are shown to have a considerable
impact on stock yields, contrary to the findings of a
study by, [28] titled "The Effect of Currency
Conversion Rates on Equity Yields with Profit
Margin as an Intervening Variable" (2021). Profit
margins were shown to have no impact on equity
returns, contrary to claims made by, [26].
Since the probability value is more than 0.05
(0.376 > 0.05), credit risk has no appreciable impact
on stock returns. As a result, the result of this
investigation suggests that the fifth hypothesis (H5)
is false. Other studies, such as "The Effects of
Credit Risk and Exchange Rate Risk on Profit
Margins and Return of Banking Stocks on the IDX"
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by, [10], and, [11], find that credit risk has a
significant positive effect on equity yields.
The results of this research provide support for
the seventh hypothesis (H7), which states that
mortgage rates have a considerable impact on equity
returns (P=0.006 > 0.05). In line with the findings of
this study, [33], whose study was titled "The Effect
of Rupiah Currency Conversion Rates, Bank
Indonesia Mortgage Rates, and Inflation on Equity
Yields With Profit Margins as an Intervening
Variable in Banking Companies on the Indonesia
Stock Exchange (IDX) 2012-2015," found that
mortgage rates have a substantial impact on equity
yields.
Since profit margins are not a direct determinant
of stock rates, the effect of credit risk on equity
yields is not moderated by profit margins. This
study's hypothesis is to reject the eighth hypothesis
(H8), as shown by the study's Z-Sobel value of -
0.87363822 1.96. [10], found that profit margins
may moderate the effect of credit risk on stock
returns, although these findings contradict their
findings.
Since the relationship between mortgage rates
and equity yields cannot be mediated by profit
margins, the latter does not affect the former. This
study's Z-Sobel score is 0.35789034 1.98,
suggesting that the null hypothesis (H0) should be
rejected. This study contradicts the findings of, [17],
who argue that interest rates on mortgages have a
substantial impact on returns via profit margins.
5 Conclusion
Researchers may infer that the magnitude of credit
risk will affect the profit margins of banking
businesses listed on the IDX in 2020-2022 based on
the findings and discussion of the submitted study.
Since there is a strong correlation between credit
risk and exchange rate risk, researchers must
eliminate the exchange rate variable to avoid further
correlation before drawing any conclusions about
the impact of exchange rate risk on profit margins
(H1 or H2). Profit margins of banks included in the
IDX in 2020–2022 are unaffected by mortgage
rates, regardless of interest rate size. Equity returns
investors get from banking businesses listed on the
IDX in 2020-2022 are unaffected by profit margins
since investors in these companies consider factors
other than profit margins when making investment
decisions.
For 2020–2022, the amount of credit risk has no
effect on stock yields for banking businesses listed
on the IDX. Since the credit risk variable is highly
correlated with the exchange rate risk, we cannot
draw any firm conclusions about the effect of
exchange rate risk on stock returns. To avoid any
potential link, the researcher drops the exchange rate
variable. In 2020–2022, an increase in mortgage
rates will have a considerable impact on the equity
yields of IDX-listed financial institutions because of
the correlation between mortgage rates and the
returns on mortgage-related investments. In 2020-
2022, the stock yields of banking businesses
included in the IDX are unaffected by credit risk as
measured by profit margins. Because of the strong
relationship between credit risk and exchange rate
risk, H9 cannot be chosen. To avoid any potential
link, the researcher drops the exchange rate variable.
In 2020-2022, the equity yields of banks included in
the IDX are unaffected by the interest rate on
mortgages via the banks' profit margins.
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Contribution of Individual Authors to the
Creation of a Scientific Article (Ghostwriting
Policy)
- Fahrudin Zain Olilingo designed the research
concept and model, and was responsible for the
research carried out
- Rita Alfin carried out data analysis and is
responsible for journal publication
- Listiyana wrote and designed the paper and was
responsible for administration when the research
was carried out.
- Sonny Leksono carried out data collection, data
analysis and wrote the research results chapter.
Sources of Funding for Research Presented in a
Scientific Article or Scientific Article Itself
There was no source of funding when presented in
the scientific article, I used personal funds.
Conflict of Interest
The authors have no conflicts of interest to declare.
Creative Commons Attribution License 4.0
(Attribution 4.0 International, CC BY 4.0)
This article is published under the terms of the
Creative Commons Attribution License 4.0
https://creativecommons.org/licenses/by/4.0/deed.en
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