Assessment of Bank Health Level Using RGEC Method and Its Impact on Islamic Financial Distress

Abstract

Bank Indonesia has established rules regarding bank health so that banks are always expected to be healthy it will not harm the people interested in banking. This study aimed to analyze the effect of bank soundness level on financial distress using the RGEC method at Islamic Commercial Banks in Indonesia either partially or simultaneously. This research uses a descriptive quantitative approach using the RGEC method; the object of this research is Islamic Commercial Banks in Indonesia from 2013-2020. The sample collection technique used purposive sampling, with a sample of 11 Islamic Commercial Banks. Source of data obtained through secondary data. Data analysis used panel data regression with the help of Eviews 10 software. Financial Distress (Z-Score) is the dependent variable. While the Risk Profile (NPF and FDR), Good Corporate Governance (GCG), Earnings (ROA), and Capital (CAR) as independent variables. The study results show that the soundness level of Islamic commercial banks in 2013-2020 in terms of NPF is very healthy, and FDR is quite healthy. Meanwhile, GCG is in the good (healthy) category. Regarding ROA, it has decreased, so Islamic banks generating profits have decreased. Meanwhile, the CAR level has increased to a very healthy category. Partially NPF, GCG, and ROA significantly negatively affect Financial Distress. Meanwhile, FDR and CAR do not affect Financial Distress. Simultaneously NPF, FDR, GCG, ROA, and CAR significantly affect Financial Distress.