FINANCIAL DISTRESS PREDICTION IN RURAL BANKS (BPR): EXAMINING THE EFFECT OF GOOD CORPORATE GOVERNANCE (GCG) AND FINANCIAL PERFORMANCE

Abstract

This study analyzes the influence of Good Corporate Governance (GCG), liquidity, and profitability on financial distress among Rural Banks (BPR) in 2023. This study employs a quantitative approach using multiple linear regression analysis. The sample comprises 74 BPRs selected through purposive sampling. The data used in this study are secondary, consisting of annual financial statements and governance reports for 2023. The results indicate that GCG has no effect on financial distress. Liquidity, measured using the Loan-to-Deposit Ratio (LDR), has a positive effect on financial distress, suggesting that an increase in the LDR within reasonable limits reflects optimized credit disbursement, thereby reducing the risk of financial distress. Meanwhile, profitability, measured by Return on Assets (ROA), was found to positively affect financial distress, indicating that an increase in BPRs’ ability to generate profits can strengthen their financial condition, thereby mitigating financial distress. This study implies that the management of financial performance, particularly liquidity and profitability, plays a crucial role in maintaining the financial stability of BPRs, while the implementation of GCG needs to be substantially improved to have a more effective impact on preventing financial distress.