The Prime Lending Rate and Profitability of Regional Banks in Indonesia

Bank of Indonesia in 2012 has issued a circular prime lending rate, covering: corporate, mortgages non-mortgages and retail. The prime lending rate is the minimum loan interest charged to customers when taking credit in commercial banks including regional bank. The purpose of this study is to test the effect of interest rates using proxy the prime lending rate on the profitability of regional banks in Indonesia. This study used secondary data from the financial statements of regional banks which was accessed from the page of the Financial Services Authority. This study used multiple regression models analyzed by using Eviews. The study found that the prime lending rate affects the profitability of regional banks. Partially explained that the prime lending rate of mortgages affect the profitability of regional bank swith five percent significance. Moreover, the lending rate of micro and non-mortgage has a significant influence over ten percent. This indicates that the profitability of banks in Indonesia is still determined by mortgage and non-mortgage loans.