The Impact of Internal Performance and Macroeconomic Conditions on Profitability in Indonesian Banking From 2015-2017

The purpose of this study is to analyze and measure the effect of internal performance and macroeconomics conditions on profitability in Indonesian banking (conventional and syariah bank) from 2015-2017. This research uses Granger of Causality and Vector Autoregressive (VAR)/Vector Error Correction Model (VECM) as a data analysis tool. The conclutions of this research are: 1) For conventional banks: the factors that have a positive influence to profitability (ROA) are BI Rate, NPL, inflation, and loan to deposit ratio; 2) For Islamic banks: the factors that have a positive influence to profitabilty (ROA) are exchange rate and inflation


The Impact of Internal Performance and Macroeconomic Conditions on Profitability in Indonesian Banking From 2015-2017 INTRODUCTION
The financial institutions have always been concerned with limiting the bank size in order to ensure financial stability. But, after the recent financial crisis of 2007/2008, this issue has gained much more importance in recent days and requires more explanations. The possible reason could be that empirical evidence accounted larger banks for the crisis, whereas these banks provide significant damage to several countries across the globe. (Muhammad Ali and Chin-Hong Puah, 2018).
The banking industry in Indonesia is very important in its role economy. The bank is one of the financial institutions has an important role in the economy of a country as financial intermediary institution. Bank in article 1 paragraph (2) Law No. 10 years 1998 concerning changes to Law No. 7 of 1992 concerning banking is business entity that collects funds from the public in the form of credit or loans and other forms in order to improve living standards people. The types of banks in Indonesia are divided into two types of banks, namely banks conventional and Islamic banks. This is because banking is one of the functioning financial systems as Financial Intermediary, which is an institution that has a role to bring together the owners and users of funds (Yenni Annor Vivin and Budi Wahono, 2017).
The development of these two banking systems from 2015 to 2017 in Figure 1.

122-135
In Figure 1 shows the development of banking syariah rises in Indonesia. In accordance with the research by Siraj and Pillai (2012) comparing the performance of conventional and syariah banks in the The Gulf Cooperation Council (GCC) proves that operating profit on syariah banks is increasing rapidly compared to conventional banks. Research on syariah and conventional banking by Abdalla Salih, et.al (2018) One might have predicted that the mismanagement of the assets due to excessive investments and loans that the conventional banks have undertaken during the boom period that preceded the crisis would have generated worse profitability (ROA) and efficiency (revenue/assets) performance than Islamic Banks. More analysis continued from Return on Equity (ROE) and Profit Expence Ratio (PER) reveals that syariah bank getting closer to conventional banks in the trend, not inconceivable that in the near future banks Islam may outperform conventional banks. The development of conventional bank ROA and syariah period 2015-2017 in Table 1. The success of a banking industry can be seen of the profitability ability that has been generated. Expressed by (Defri, 2012) that measurement internal banking performance is reflected in achievement of profitability of a bank. Sri Suwarsi (2017) said the company size and profitability have significant positive effects on ISR and the industry types do not have significant effect on the ISR. The ratio of profitability was measured by ROA measure. The effectiveness of overall management is shown by the size of profit level of s in connection with the sale or investment. The better the profitability ratio, the better the ability of company profitability. The return on assets focus on the company's ability is to obtain earnings from the company's operations. Thus, in this study, the return on assets was used as the measure of profitability and performance of Islamic banking.
Beside that Tan, Aaron Yong, et.al (2012) said when estimating bank profitability, either measured by the ROA or NIM, we face a number of challenges. First, it is endogeneity: more profitable banks may be able to increase their equity more easily by retaining profits. The relaxation of the perfect capital markets assumption allows an increase in capital to raise expected earnings.
In Table 1 shows that the acquisition of ROA both conventional and syariah banking year 2017 demonstrate that for conventional commercial bank ROA has increased for conventional commercial bank book I where in year 2016 have value 1.76% whereas in year 2017 equal to 1.86% mean between year 2016 and 2017 for conventional commercial bank book I experience increase of 1,06%. Then for conventional commercial bank type II book in 2017 has decreased where in 2016 value of ROA owned by 1.87% and then in 2017 has a value of ROA of 1.69%. This means that between 2016 and 2017 decreased by 0.90%. Furthermore for conventional bank type III book type in 2017 has increased where in 2016 value of ROA owned by 1.63% and then in 2017 has a value of 2.01% ROA. This means that between 2016 and 2017 increased by 1.23%. Furthermore for conventional bank type IV book type in 2017 has decreased where in 2016 the value of ROA owned by 3.15% and then in 2017 has a ROA of 2.98%. This means that between 2016 and 2017 decreased by 0.9%. While for Islamic banks type book I for the year 2017 has increased although the value of ROA for syariah bank type I book is still negative that in the beginning in 2016 amounted to -0.75% to 2017 at -0.48% or an increase of 0.65%, negative ROA result derived from the performance of Islamic banks in 2017 to earn still very little profit. Then for Islamic banks type book II for the year 2017 experienced an increase that initially in 2016 amounted to 0.91% to 2017 at 1.30% or an increase of 1.44%. Furthermore, for syariah banks book type III for the year 2017 decreased the level of ROA which initially in the year 2016 amounted to 0.58% to the year 2017 that is 0.57% or an increase of 0.99%. Theodore Panagiotidis and Panagiotis Printzis (2016) said the key macroeconomic determinants by employing a two stage Vector Error Correction Model (VECM) that takes into account exogenous variables to gauge the short and the long run dynamics. The direction of causality and the long-term relation between housing prices and the other macroeconomic factors will be investigated. In Indonesian country indicator macro economics can be observed from the indicator movement of the variable the macro economics in Figure 2.  This study was conducted to examine and andexamine the factors of macroeconomics and performance internal impact on profitability the banking industry in Indonesia is using conventional system and syariah system. Appropriate analysis in researching an eventusing time series data is Econometrics.
According Karel Mertens Jose and Luis Montiel Olea (2018) said econometrics time-series models that have been influential for evaluating the effects of monetary and fiscal policy interventions. Time series data is data recorded collected based on a certain period of time. Economic analysis of time series in general used to find the time series data pattern, both trend and volatility, and tofind the structure of relationships among the variables economic (moving) economic valuables time to time. The results of such observations can be provides an overview in front of the effects of macro economic will happen, so it can determine the attitudes and actions that can be donein the face of macro economic turm oil conditions at a later time. The role of banking as an intermedary institution within a country, and a profitable institution in the industry finance should be able to read and understand the situation the market is happening. Market conditions that become influences described through macro economic indicators. There this role, raises the question "is there the relationship between macro economic to Profitability the banking industry and the opposite condition?". As for the main purpose of this research is 1) analyze and measure the effect of internal performance variables conventional banking and syariah against profitability; 2) analyze and measure influence macro economic variables affect profitability in conventional and syariah banking The research model that I use not a new model but taken from some empirical studies, but because year, operational definition and sample different research then results from this study has a difference with other empirical research.

METHODS
The data used in this study is data secondary. These secondary data are statistical data from Otoritas Jasa Keuangan Indonesia (OJK), inflation data and exchange rate from Bank Indonesia (BI), and World Oil Prices DCOILWTICO. Also refers to literature, books, internet, journals, literature studies, and other articles related to the research this. Research is done by examining the factors of macro economic and influential internal performance to the profitability of the banking industry in Indonesia (conventional and syariah) with a span of time of year 2015 until 2017. The data used is data the value of internal performance and macro economic variables monthly. Variable used in this research the study is described in Table 2. According Teresa Serra (2013) timeseries econometric analyses for become analysis for the influence of macro economic on commodity prices and to provide substantial economic insight into price behavior patterns.
Cathy W. S. Chen and Sangyeol Lee (2016) the time series models in the aforementioned studies are univariate and follow auto-regressive schemes, but some exogenous variables can be incorporated in the models that describe data sets more properly than the original variables. To cope with this problem, we propose a modified Granger causality test for bivariate time series.
According Robin Bruyndonckx, et.al (2017) F-tests are used to evaluate the significance of the included explanatory variables. Using F-test to test whether the information lag in variable Y provides information significant statistics about the variable X in explain the change X. If not, Y does not exist the cause and effect relationship of Granger with X. With form of equation: yt = α0 + α1yt-1 + ... + α1 yt-1 + β1 x1, t-1 + ... + β1 x-1 + εt xt = α0 + α1xt-1 + ... + α1 xt-1 + β1 y1, t-1 + ... + β1 y-1 + εt With data that is time series multivariate then the appropriate analysis tool is VAR / VECM. Besides know the relationship between variables, also done research the effects of the effects of shock and pressure of the variables specified using Impulses Response Function (IRF) and Forecast Error Variance Decomposition (FEVD).

Influence of internal performance variables based on testing Granger causality in conventional banks of Indonesia from 2015-2017
Analysis on Influence of internal performance variables based on testing Granger causality in conventional banks of Indonesia from 2015-2017 can be shown in Figure 3 below: The relationship between inflation and the BI Rate will be seen when the amount of cash in circulation in the community decreases, inflation growth will indeed be depressed. But on the other hand also at risk of suppressing economic growth. if banks are reluctant to lend capital to entrepreneurs because they prefer to keep their money in BI, then entrepreneurs will certainly have difficulties developing their business, and will ultimately suppress overall economic growth. Therefore, if the inflation rate has been restrained then BI can lower its BI rate, so that the previously deposited funds can be redisbursed to the community, to grow the economy and create jobs. This is also revealed by Paul Ehling et al. (2018) who states that in contrast to expected inflation, which mainly affects the wedge between real and nominal yields, inflation disagreement affects nominal yield, which has an impact on the real side of the economy. Then second, Inflation has an effect on the Exchange Rate with a probability value of 0,0002 smaller than the value α = 0,05 so that inflation has an effect on the exchange rate Indonesia Conventional Bank from 2015-2017. This is caused by more imports of goods from abroad then the inflation rate of Indonesia's economic growth becomes high and the foreign exchange rate is getting stronger. It is good to offset domestic goods and imported goods or to further reduce the level of imported goods and increase export goods, so that inflation and foreign exchange rates will stabilize. This is consistent with the research conducted by Christopher Allsopp et al. (2016) which states that transmission mechanism of monetary policy while also offering a sustainable explanation of the weakness of the exchange rate/inflation relationship and making consumer price inflation an appropriate monetary policy target.
Third, the effect of inflation on oil with a probability value of 0,00002 is smaller than the value of α = 0,05 so daat said inflation has a positive influence on the oil Indonesia Conventional Bank from 2015-2017; so that Bank Indonesia is expected to maintain economic stability in Indonesia through the level of inflation at a certain level or fair and maintain exchange rate to stay in the economic position. According to Muhammad Afdi Nizar (2012) states that rising oil prices also lead to rising inflation. Higher crude oil prices will soon be followed by rising prices of petroleum products, such as gasoline and fuel oil used by consumers.  (2014) Oil has a positive influence on Inflation. 7. Furthermore, Exchange Rate has an influence on two variables namely first, BI Rate with probability value 0,0018 smaller than value α = 0,05; so the Exchange Rate has an effect on the BI Rate. Second, Inflation with probability value 0.00000000000000007 smaller than value α = 0,05; so the Exchange Rate has an effect on inflation in conventional banks from 2015-2017. This is in accordance with the research conducted by Jonathan M. Chipili (2015) which states that the Exchange Rate has an influence on the Bank Rate and Inflation.

Influence of internal performance variables based on testing Granger causality in syariah banks of Indonesia from 2015-2017
Analysis on influence of internal performance variables based on testing Granger causality in syariah banks of Indonesia from 2015-2017 can be shown in table 4 below : BI-Rate to ROA, indicating that BI Rate shocks that occur make profitability conventional banking and syariah are in the area negative. The negative value of syariah banking is greater than conventional banking. Stable state faster achieved by conventional banking rather than syariah. This is because the system used by conventional banks refer to BI Rate. BI Rate is used as a reference for internal rate savings and loans. Therefore, when there will be an increase in the BI Rate then conventional banks will increase internal deposit/saving deposit rate) and loans. NPL / NPF to ROA, shows NPL / NPF shocks that occur to make conventional banks are in positive areas while for syariah banks themselves are in negative areas. This is due to the increase in loan interest rate, resulting in the NPL and the decline in the value of loans disbursed, conventional banks still have other revenue channels to achieve profitability targets. At the time of the sharp increase in BI Rate, it is seen that syariah banks are substituted from conventional banking. Pursuant to research of Poetry (2011) explains that when interest rate of SBI increase accompanied by increasing of lending interest rate in conventional banking causing conventional banking customer have difficulty to return its credit to conventional banking because of high interest expense coupled with inflation condition, in conventional banking increased. Strengthened by the statement of Shita Tiara (2014) that Bank Indonesia regulations have a direct influence on the NPL of a bank, for example BI raises the BI rate which will cause credit interest rates to rise. By itself the ability of the debtor to repay the loan principal and interest will decrease. The IRF Exchange Rate to ROA analysis shows that in the event of an exchange rate shock (weakening of the rupiah against the dollar) then profitability will be accepted by the banking industry. In the conventional bank the profitability value is in the stagnant area between positive and negative, as opposed to the syariah bank which is in the positive area. Stable value of profitability was achieved faster by syariah banks in the 10th period. The impact of exchange rate shocks for conventional banks seen in Figure 4 is stagnant. This pattern indicates that conventional bank games in the financial sector can generate profitability. The impact for syariah banking from exchange rate shocks is profitability increase (ROA line is in negative area). This incident is caused by more Islamic banks plunge into the financing of the real sector. Islamic banks do not play games in the financial sector, putting forward the banking intermediation function to finance the real sector.
In accordance with research This is similar to the statement of Julentia M. V. Makatita, et.al (2016) that the price of exports has a very close relationship with the exchange rate or the exchange rate. If the rupiah exchange rate against US $ depreciates or the US dollar appreciates it will affect the increase in exports and in this case the exporters will also benefit. Conversely, if the rupiah exchange rate against US$ experiences appreciation or the US$ depreciates then exports will decline and exporters will be harmed. Therefore, the NPL and NPF levels in both types of banking declined. With the rupiah exchange rate strengthening against the dollar then the profit can be maximized for both banking industry. This is the opposite if the rupiah weakens against the dollar then profitability will decrease. 4. IRF Inflation to Return On Asset (ROA) in Indonesia Conventional Bank & Syariah Bank from 2015-2017 Analysis IRF Inflation to Return On Asset (ROA) can be seen in Figure 6 below: Inflation occurring in both banks is at the same value. Inflation signifies the amount of money circulating in the community. The higher the value of inflation, the higher the money in circulation in the hands of the people, it is driven by rising prices in certain sectors. Changes in this condition followed by the pattern of the community in using banking services both loans and savings. If the inflation rate is high then this condition can affect profitability in banking. This shows that in the inflation condition Islamic banks can not take profits greatly because of inflation that threatens the real sectorperceived directly by syariah banks. Different conditions in conventional banks engaged in the financial sector of the market can have a greater advantage.
In accordance with the results of research Khan (2014)  The World Oil Price Shock (OIL) causes the profitability of syariah banks to be in negative areas. Conventional banks have a greater positive value than syariah banks. OIL contributes to the real sector that lowers the financing channel by syariah banks. Unlike the conditions in conventional banking. In accordance with the research conducted by Reshinta Candra Gumilang, et.al (2014), the world oil price has a negative and significant effect on the JCI. The increase in world oil prices will cause an increase in other needs because oil is a vital necessity. Rising prices for manufactured goods will cause companies to experience an increase in production costs. This certainly will greatly affect the company's performance and profits. When the company's performance and profits show unfavorable results, investors will sell the shares they have. This certainly will affect stock prices and also the composite stock price index.  Figure 9 below: indicates conventional banks have good performance because conventional banks are able to manage the funds obtained from customers either in the form of savings, deposits and then distributed into credit to the community so that conventional banks from 2015 to 2017 get a profit of the loan disbursement. As for Islamic banks seen in negative areas, this means that the performance of credit distribution for Islamic banks should be fixed again. This is different from the research conducted by Pupik Damayanti and Dhian Andanarini Minar Savitri (2012) which states that the Loan to Deposit Ratio (LDR) is not proven to have a positive and significant effect on Return On Asser (ROA) in the Indonesian banking.

Managerial Implications
The success of banking in achieving profitability can foster a sense of community trust. Macroeconomic conditions provide a signal and a signal for banks to immediately take a stand for the purpose of the formation of high profitability can be maintained. Managerial implications of both banking system (conventional and syariah) that can be taken is the Government through OJK participate in regulating the business plan of banks in a region, this is to be able to control the effects of bubble credit that led to uncontrolled inflation due to competition in the banking industry. The government increases the competitiveness of the real sector to protect the real sector itself against the exchange rate that can lead to inflation. The government also provides education to the community about the functions of both banks so that people really know the options to be gained. The government is also increasing the number of Islamic banks that exist, so it can balance the banking competition. For conventional banks need to reduce the placement of funds in the financial sector so as to avoid the value of the fall in the exchange rate resulting in a crisis. Syariah banking needs to educate the public about the banking business process syariah and its owned products. Channeling financing by better recognizing business risk profiles in the real sector. Improve cooperation with the government in participating in managing state budget funds. For the community, the use of banking functions that have application in the real sector is higher, as an effort to grow the domestic real sector also reduces the risk of exchange rate changes that occur.

Conclutions
The conclutions of this research are: 1) For conventional banks: the factors that have a positive influence to profitability (ROA) are BI Rate, NPL, inflation, and loan to deposit ratio; 2) For Islamic banks: the factors that have a positive influence to profitabilty (ROA) are exchange rate and inflation