The Impact of Non-Performing Loans Towards Financial Performance of BPR in Central Java, the Role of Empathy Credit Risk

Abstract

The lending activities of commercial banks are exposed to the risk of non performing loan.Some individuals cannot repay fully while others are only able to repay a small portion of loans which ultimately results in NPL accumulation.This research proposed empathy credit risk approach as a derivation of spiritual leadership theory and agency theory used to reduce NPL.This study aims to examine the empathy credit risk model as an effort to overcome the problem of collectability in non-performing loans in improving the financial performance of BPR in Central Java.The population in this study was 260 leaders at the BPR in Central Java Province with a sampling method with a purposive sampling technique to obtain respondents as many as 150 BPR leaders.Data analysis using SEM AMOS shows the result that credit collectibility (business prospects, debtor performance, and ability to pay) have positive significant relationship with non-performing loans (NPLs).Non-performing loans have a negative significant effect on the financial performance of banks.empathy credit risk moderates the influence of business prospects, debtor performance, and ability to pay with non-performing loans (NPLs).

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