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This research analyzes how financial risks and bank characteristics influence the financial performance of Indonesian banks.

April 23, 2026Open Access

The Effect of Financial Risk and Bank Characteristics on Financial Performance of Indonesian Banks

Key Points

This research analyzes how financial risks and bank characteristics influence the financial performance of Indonesian banks.
Used a quantitative approach with panel data from 36 banks on the Indonesia Stock Exchange.
Employed Fixed Effect Model for Return on Average Assets (ROAA) and Random Effect Model for Net Interest Margin (NIM).
Cost Efficiency consistently negatively impacts both ROAA and NIM.
Credit Risk and Bank Capital significantly affect NIM but not ROAA.
Liquidity Risk, Bank Size, and Loan Growth do not significantly influence financial performance.

Abstract

This study aims to analyze the influence of Financial Risks (Credit Risk and Liquidity Risk) and Bank Characteristics (Capital, Size, Loan Growth, and Cost Efficiency) on the Financial Performance of conventional commercial banks in Indonesia. The study employs a quantitative approach using panel data from 36 banks listed on the Indonesia Stock Exchange (IDX) during the 2020–2024 period. Data analysis was conducted using EViews 9 software with the Fixed Effect Model (FEM) for ROAA and the Random Effect Model (REM) for NIM. The findings reveal that Cost Efficiency (BOPO) has a consistent and significant negative effect on both ROAA and NIM. Credit Risk (NPL) and Bank Capital significantly affect NIM but have no impact on ROAA. Meanwhile, Liquidity Risk, Bank Size, and Loan Growth do not significantly influence financial performance. Operational efficiency is identified as the most critical driver of banking profitability in Indonesia.

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