Bank profitability in Indonesian commercial banks: The roles of capitalization, digital banking adoption, operational efficiency, and good corporate governance

Type of the article: Research ArticleAbstractThis study examines bank profitability in Indonesian commercial banks by assessing the associations of bank capitalization, digital banking adoption, and operational efficiency with profitability and the moderating role of good corporate governance (GCG). Using a balanced panel of 28 commercial banks observed annually from 2020 to 2024, the study analyzes 140 bank-year observations. Bank profitability is measured by Return on Assets (ROA), capitalization by Equity-to-Total Assets (ETA) and Capital Adequacy Ratio (CAR), digital banking adoption by a Digital Banking Index based on ten disclosed banking services, and operational efficiency by the Operating Expenses to Operating Income ratio (BOPO). The analysis employs two-way fixed-effects regression with bank and year fixed effects, bank-clustered standard errors, and a wild cluster bootstrap with 999 Rademacher resamples. The results show that ETA is not significantly associated with ROA, whereas CAR is positively associated with ROA under conventional clustered inference but not under the wild bootstrap. Digital banking adoption is not significantly associated with profitability. BOPO is negatively and robustly associated with ROA under both inferential approaches, indicating that greater operational efficiency is consistently associated with higher profitability. Firm size and microfinance orientation are not significant. None of the GCG moderation terms is robustly significant, although CAR × GCG is significant under conventional inference only. Overall, operational efficiency shows the most consistent association with bank profitability.