Effects of Credit Distribution to Economic Sectors Toward Commercial Bank's Operating Profit in Indonesia

Bank as a financial institution has a core business, which is distributing credit. Basically, lending money happened because bank believes that the borrower can return the loan in accordance with the agreements. Therefore, bank should consider well to whom it lends its money. Wrong decision in lending could lead to bad loans that resulted in a loss of profit. Grouping of debtor into economic sectors can help analyze the economic sectors that have the promising prospects to the bank. Due to the volatility of economic sector, research needs to be held to analyze the effect of distribution of credit based on economic sector its impact on banks. The income of credit is counted as operating profit bank. Hence, it is appropriate to analyzed operating profit as the impacted factor. This research only analyzes lending by banks to the economic sector in Indonesia from 2003-2011 and their impact on the bank's operating profit. Data were obtained from Indonesia Banking Statistic. Multiple linear regressions were used to know the relationship of each of the economic sectors to commercial bank’s operating profit. The result of the paper can be used as by bank as a consideration in distributing credit. Based on the analysis Electricity, Gas, and Water Sector, Construction Sector, Transportation, Warehousing, and Communication Sector, Business Services Sector, and Consumer Loans Sector have significant effect and very strong relation toward commercial bank’s operating profit