An Analysis of the Impact of the RGEC Framework on Profitability in the Indonesian Banking Sector (2020–2024)

Abstract

This study aims to analyze the impact of the RGEC framework (Risk Profile, Good Corporate Governance, Earnings, and Capital) on banking profitability in Indonesia, proxied by Return on Assets (ROA). The population consists of all banks operating in Indonesia, with a purposive sampling technique resulting in 230 observations over the 2020–2024 period. A quantitative approach is employed using multiple linear regression based on panel data. In addition, classical assumption tests—including multicollinearity, heteroskedasticity, autocorrelation, normality, and cross-section dependence—are conducted to ensure the validity of the model. The results indicate that BOPO, as a proxy for operational efficiency, and CAR, representing capital adequacy, have a significant effect on ROA. In contrast, NPL, LDR, NIM, and GCG do not show statistically significant effects on profitability. However, the findings also reveal violations of classical assumptions, particularly heteroskedasticity, autocorrelation, and cross-sectional dependence, which may lead to biased estimates if not properly addressed. Therefore, the application of robust estimation techniques, such as Driscoll–Kraay standard errors, is necessary to improve the reliability and accuracy of the results. In conclusion, operational efficiency and capital structure emerge as the primary determinants of banking profitability, while the choice of appropriate estimation methods plays a crucial role in ensuring valid empirical findings in panel data analysis.