Correspondence to : candraandhikabolot@gmail.com Received: 30 August, 2021 Accepted: 5 September 2021 Published: 30 September 2021 JURNAL AKUNTANSI, MANAJEMEN DAN EKONOMI Vol.23, No. 3, 2021, pp. 56 - 64 Published online in http://jos.unsoed.ac.id/index.php/jame ISSN: 1410-9336 / E-ISSN: 2620-8482 INTRODUCTION Banks have a very important role in the economy and national development. Bank Papua began to undertake a diversification strategy in the form of business diversification as a step intended to obtain maximum profit by combining several investment portfolios whether by producing various goods, establishing a number of business units, or establishing new subsidiaries or even buying companies that are already established (Hariadi, 2005: 37). Bank Papua's business diversification is the development of a single business by adding more business units to the Bank. This strategy is an attempt by Bank Papua to expand by opening branch offices outside Papua. This diversification strategy is expected to enable Bank Papua to earn more revenue as more branch offices are opened. This effort is also a step to improve bank performance. Diversification Strategy In the economy, diversification includes business and products diversification in products, stated by Kotler and Armstrong (2008: 71) which explains that diversification is a strategy in growing a company by starting a new business or buying other companies outside the company's products and markets that are already owned when this. Hariadi (2005: 37) defines business diversification as a step that is intended to obtain maximum profit by combining several investment portfolios whether by producing various goods, establishing business units, or establishing new subsidiaries or even buying existing companies. The definition is also put forward by Coulter in Rahayuningsih (2015: 443-445) defines business / business diversification as a company growth strategy where the company expands its operations by entering different industries Rahayuningsih (2015: 443-444) suggests that diversification is carried out to increase total company value. Value is created when a particular strategy enables business units to increase revenue or reduce costs while implementing its business-level strategy. Another reason is to get more market power than its competitors. In addition, a diversification strategy is implemented to neutralize the market power of competitors and to expand the company's portfolio in order to reduce managerial employment risk, for The Effect of Banking Diversification Strategy on the Performance of Bank Papua Candra Andhika1, Sabihaini2 1,2Master of Management Study Program, Faculty of Economics and Business, Yogyakarta “Veteran” National Development University Abstract This study aims to describe the performance of Bank Papua after diversification and to analyze the effect of diversification strategies on the performance of Bank Papua. This research is a quantitative study with a population of 37 Bank Papua branch offices throughout Indonesia. The data source used is secondary data in the form of financial reports for 2016 - 2018. Data analysis using descriptive analysis and linear regression. The results showed that the diversification strategy carried out by Bank Papua had a significant and negative effect on the performance of Bank Papua as indicated by a significance value of 0.038 (p <0.05) and a value of t = -2.086. The significant and negative effects of the diversification strategy also apply to each bank performance variable based on LDR (influence magnitude of 5.9% and significance of 0.010), ROA (influence size of 3.6% and significance of 0.047), NPL (magnitude of influence of 3.6%. and a significance of 0.046), and CAR (magnitude of influence 3.9% and significance 0.038). It can be concluded that the higher the diversification, the lower the bank's performance. Keywords Diversification; Bank Papua; Bank Performance; ROA; LDR JURNAL AKUNTANSI, MANAJEMEN DAN EKONOMI , Vol. 23, No. 3, 2021, pp. 56-64 example, if one business fails, top-level executives can still work in the diversified company. Rumelt (1974) in Sabihaini (2012) classifies diversification strategies into 5 business categories according to their level of diversification. In addition to the single business categories and the dominant business, increasingly related firms are classified into related and unrelated categories. A company is concerned through its diversification when there are relationships among its business units, for example units with various products or services, technology, or distribution networks. The tighter the ties between the business units, the more “limited” their diversification links will be. Disconnection refers to the absence of a direct relationship between businesses. The levels and types of diversification are described in the following table, Table 1. Diversification Level Diversification Level: Low 1. Single Business More than 95% of revenue comes from a single business 2. Dominant business Between 70% and 95% of revenue comes from a single business Diversification Level: Moderate-High 3. Related constrained Less than 70% of revenue comes from the dominant business, and all businesses share products, technology and distribution networks 4. Related linked Less than 70% of revenue comes from the dominant business, and there are limited relationships between these businesses t Diversification Level: Very High 5. Unrelated Less than 70% of revenue comes from the dominant business, and there is no relationship between these businesses Source: Rumelt (1974) in Sabihaini (2012) The basis used by Rumelt (1974, 1982) to determine the level of diversification uses a specialization rate (SR) or concentric rate (CR) which is the ratio between core business income and total income. The formula is as follows: Rt Ru SR   = Information: Ru = main business income Rt = total income SR = specialization rate The level of diversification based on the SR can be explained as follows: 1. If the SR number is higher (95%> SR> 70%), the lower the level of diversification, meaning that the company's business activities are concentrated (concentrated) on the main business activities. 2. If the SR number is getting smaller (below 70%), the higher the level of diversification, it means that business activities are moving away from the main business or the company tends to business activities that generate fee based income (supporting activities). Bank Performance According to Syaifuddin (2009: 25), bank performance is basically the work that can be used to evaluate the ability of banking management to manage its business to achieve bank goals, namely with certain risks for high profitability. Bank health assessment refers to Bank Indonesia Regulation (PBI) number 13/1 / PBI / 2011 concerning Assessment of Commercial Bank Soundness Level. Assessment of bank soundness as stipulated in Article 2, namely by using a risk approach (Risk Based Bank Rating) either individually or on a consolidated basis. This method replaces the previous valuation method, namely a method based on Capital, Asset, Management, Earning, Liquidity and Sensitivity to market risk or what is called CAMELS. In Article 6 of PBI number 13/1 / PBI / 2011, the RBBR method uses an assessment of four factors, namely the Risk Profile, Good Corporate Governance, Earning and Capital (RGEC). 1. Risk Profile The risk profile can be measured by credit risk and liquidity risk. Credit risk can be measured using the Non Performing Loan (NPL) ratio, with the formula: %100 Pr x CreditTotal creditoblem NPL = JURNAL AKUNTANSI, MANAJEMEN DAN EKONOMI , Vol. 23, No. 3, 2021, pp. 56-64 a. Non-performing loans are loans to non- bank third parties that are classified as substandard, doubtful, and bad. b. Total credit is credit to non-bank third parties. Table 2. NPL Determination Criteria Rating Keterangan Kriteria 1 Very Healthy NPL < 2% 2 Healthy 2% ≤ NPL < 5% 3 Fairly Healthy 5% ≤ NPL < 8% 4 Unwell 8% ≤ NPL 12% 5 Not Healthy NPL ≥ 12% Source: Bank Indonesia Circular No. 6/23/ DPNP of 2004 Measuring liquidity risk can be done with the Loan to Deposit Ratio (LDR), with the formula: %100x fundspartyThird GrantedCreditofAmountThe LDR − = Table 3. LDR Determination Criteria Rating Keterangan Kriteria 1 Very Healthy LDR ≤ 75% 2 Healthy 75% < LDR ≤ 85% 3 Fairly Healthy 85% < LDR ≤ 100% 4 Unwell 100% < LDR ≤ 120% 5 Not Healthy LDR > 120% Source: Bank Indonesia Circular No. 6/23/ DPNP of 2004 2. Good Corporate Governance (GCG) In Attachment 1 of Bank Indonesia Circular Letter No. 13/24 / DPNP, parameter / assessment of the GCG factor which is an assessment of the Bank's management on the implementation of GCG principles referring to the Bank Indonesia provisions concerning GCG for Commercial Banks with due regard to the characteristics and complexity of the bank's business. The principles of GCG include transparency, accountability, responsibility, independence, and fairness. 3. Rentability Based on Appendix I of Bank Indonesia Circular Letter number 13/24 / DPNP, profitability is indicated by the level of ROA. ROA is the ratio between net income and total bank assets, using the following formula: %100 Pr x AssetTotalAverage TaxBeforeofit ROA = Table 4. ROA Determination Criteria Rating Keterangan Kriteria 1 Very Healthy ROA > 1,5% 2 Healthy 1.25% < ROA ≤ 1,5% 3 Fairly Healthy 0,5% < ROA ≤ 1,25% 4 Unwell 0% < ROA ≤ 0,5% 5 Not Healthy ROA ≤ 0% Source: Bank Indonesia Circular No. 6/23/ DPNP of 2004 4. Capital (Capital) The assessment of capital factors is measured using the Capital Adequacy Ratio (CAR). CAR is calculated by the following formula: %100x AssetsWeightedRisk CapitalBank CAR = Table 5. CAR Determination Criteria Rating Keterangan Kriteria 1 Very Healthy CAR > 12% 2 Healthy 9% ≤ CAR < 12% 3 Fairly Healthy 8% ≤ CAR < 9% 4 Unwell 6% < CAR < 8% 5 Not Healthy CAR ≤ 6% Source: Bank Indonesia Circular No. 6/23/ DPNP of 2004 RESEARCH METHODS The population in this study were all branch offices of Bank Papua throughout Indonesia after diversification, namely 37 branch offices. The research sample was all Bank Papua branch offices in the last 3 years, namely during the 2016-2018 period. The sampling technique in this study used a census, in which all members of the population were sampled. The type of data used includes secondary data. Secondary data sources were obtained from data from all Bank Papua branches JURNAL AKUNTANSI, MANAJEMEN DAN EKONOMI , Vol. 23, No. 3, 2021, pp. 56-64 regarding the level of diversification including main business income and total income, and the performance of Papuan banks including CAR, ROA, LDR, and NPL. The data analysis used descriptive analysis, which is the statistic used to analyze the data by describing the data with the diversification level, ROA value, CAR value, LDR value, and NPL value. Hypothesis testing in this study uses linear regression test. Hypothesis: The high level of diversification strategy affects the low performance of Bank Papua, and vice versa. RESULTS AND DISCUSSION Bank Papua's diversification strategy was implemented by opening 37 branch offices throughout Indonesia (5 branches in Papua and 32 branches in Papua). Branch Offices (BO) in the Papua region include BO Kaimana, BO Teminabuan, BO Jayapura, BO Waisai, BO Wamena, BO Wasior, BO Agats, BO Merauke, BO Oksibil, BO Aimas, BO Tanah Merah, BO Nabire, BO Waren, BO Sentani, BO Dekai, BO Mulia, BO Abepura, BO Sorong, BO Arso, BO Sarmi, BO Fakfak, BO Bintuni, BO Karubaga, BO Kasonaweja, BO Timika, BO Biak, BO Enarotali, BO Keppi, BO Serui, BO Manokwari, BO Waghete, and BO Ilaga. Meanwhile, branch offices outside Papua include BO Jakarta, BO Yogyakarta, BO Makassar, BO Surabaya, and BO Manado. 1. Bank Papua Diversification Strategy From the annual report for 2016-2018, the data is presented in the following table: Table 6. Bank Papua Revenue Data 2016-2018 Year Main income year (Rp), in million Supporting income (Rp), in million Total Revenue (IDR), in million 2016 2.088.661 322.333 2.410.994 2017 2.114.796 381.485 2.496.281 2018 1.892.775 588.420 2.481.195 Diversification strategies that are increasingly being carried out are measured using a specialization rate or SR, in this study using the basis used by Rumelt (1974, 1982) which is the ratio between core business income and total income as follows: incometotal incomeessbumain Rt Ru SR sin =   = Based on the formula above, the level of diversification of Bank Papua from 2016-2018 can be obtained as follows: 866,0 000.000.994.410.2 000.000.661.088.2 2016 ==SR or 86,6% 847,0 000.000.281.496.2 000.000..796.114.2 2017 ==SR or 84,7 % 763,0 000.000.195.481.2 000.000.775.892.1 2018 ==SR or 76,3 % Based on the results of the above calculations, it can be seen that from 2016 to 2018 the SR number is getting lower (although still> 70%) which indicates that the level of diversification is getting higher, meaning that business activities move away from the main business or companies tend to business activities that generate fee based income (supporting activities). This means that activities are no longer focused on main activities that generate principal benefits in the form of interest income, but are also expanded through other supporting activities. Therefore, the decreasing SR figure shows that income is not only based on main income, but also supporting income. This is what causes the SR number to decrease, indicating that the main income has also decreased due to switching to income from supporting activities. It can be concluded that the lower the SR number, the wider the diversification will be. Based on the SR data in the table above, it can be seen the trend of increase or decrease in the SR number for each Bank Papua branch office. Figure 1 Trend of SR for Bank Papua branch offices in 2016-2018 In the above, it can be seen that from 2016-2018 in most branch offices there was a decrease in the SR number, although some branch offices fluctuated but at the end of the 0,5 0,6 0,7 0,8 0,9 1 1 4 7 10 13 16 19 22 25 28 31 34 37 S R Branch Offices SR Trend 2016-2018 Bank Papua Branch Offices 2016 2017 2018 JURNAL AKUNTANSI, MANAJEMEN DAN EKONOMI , Vol. 23, No. 3, 2021, pp. 56-64 research year (2018) almost all branch offices were at the lowest SR number. Based on the description of the SR figures in the 2016-2018 period, the average SR value of the branch offices shows a decreasing value. This indicates that the branch office is adjusting its diversification strategy according to the direction of the head office. 2. The performance of Bank Papua a. Loan to Deposit Ratio (LDR) Loan to Deposit Ratio (LDR) is measured to determine the bank's ability to repay its obligations to customers who have invested in the bank, namely in the form of credit. LDR is measured by comparing the amount of credit extended to third party funds. The LDR percentage shows the soundness level of the bank, the higher the percentage, the more unhealthy the bank is. Based on the LDR criteria, several Bank Papua branch offices were categorized as unhealthy, even unhealthy. Bank Papua branch offices that are not healthy based on LDR are Makassar, Sentani, Eranotali, and Manado with LDR> 120%, while unhealthy branch offices with 100% 12% during 2016-2018. d. Capital Adequacy Ratio (CAR) Capital Adequacy Ratio (CAR) is the size of the minimum capital requirement. The CAR percentage value is a benchmark for bank health, the greater the CAR percentage, the healthier the bank. Based on LDR criteria, several Bank Papua branch offices were categorized as unhealthy (6%