INDONESIAN BANKS RISK-TAKING: THE EFFECT OF RISK PROFILE, GOOD CORPORATE GOVERNANCE, EARNINGS AND CAPITAL (RGEC)

The Impact of the Sustainable Financing Ratio on Credit Risk and Profitability of KBMI IV Banks in Indonesia for the Period 2015 - 2025

This study analyzes the impact of the Sustainable Financing Ratio (SFR) on the credit risk and profitability of KBMI IV banks in Indonesia during the 2015–2025 period. Credit risk is proxied by the Non-Performing Loan (NPL) ratio, while profitability is proxied by Return on Assets (ROA). The Capital Adequacy Ratio (CAR), Loan-to-Deposit Ratio (LDR), and Bank Size are used as control variables. The sample comprises Bank Mandiri, Bank Negara Indonesia, Bank Rakyat Indonesia, and Bank Central Asia, yielding 44 observations. Secondary data were obtained from annual reports, sustainability reports, financial statements, and publications by the Financial Services Authority (OJK). The analysis employs panel data regression using the Random Effect Model (REM), Nerlove transformation, and bank-level clustered standard errors. The results indicate that SFR has a positive and significant effect on NPLs, with a coefficient of 0.0439874 and a p-value of 0.0000821. Conversely, SFR has a negative and significant effect on ROA, with a coefficient of −0.0139732 and a p-value of 0.0005. Collectively, SFR, CAR, LDR, and Bank Size significantly influence both NPLs and ROA. These findings suggest that the increase in the proportion of sustainable financing among KBMI IV banks during the observation period is associated with higher credit risk and lower profitability. Therefore, the expansion of sustainable financing must be accompanied by strengthened risk management, monitoring of credit quality, and attention to the banks' efficiency and financial performance.

Influence Structure Capital and Risk Credit to Profitability in Banking Companies Listed on the Indonesia Stock Exchange (IDX) Period (2019-2023)

Credit Risk in Regional Development Banks: The Roles of Operational Inefficiency, Profitability, and Independent Commissioners

This study examines the effects of operational inefficiency, profitability, and independent commissioners on credit risk in Indonesian Regional Development Banks (RDBs). Regional Development Banks (RDBs), locally known as Bank Pembangunan Daerah, are provincially owned financial institutions that play a vital role in promoting regional economic development. Credit risk remains a major concern for RDBs because of their strategic intermediation function and their vulnerability to non-performing loans (NPLs). Using panel data from 23 conventional RDBs over the 2018–2024 period, this study analyzes 161 bank-year observations through panel data regression, with the Random Effect Model identified as the most appropriate estimation technique. Credit risk is measured by the non-performing loan (NPL) ratio, operational inefficiency by the operating expense-to-operating income (OEOI) ratio, profitability by return on equity (ROE), and board independence by the number of independent commissioners. The findings reveal that operational inefficiency has a positive and significant effect on credit risk, indicating that lower cost efficiency increases the deterioration of loan quality. In contrast, profitability has a negative and significant effect on credit risk, suggesting that more profitable banks are better able to maintain asset quality and absorb potential losses. Independent commissioners also have a negative and significant effect on credit risk, demonstrating the importance of board independence in strengthening oversight and mitigating risk. However, independent commissioners do not moderate the relationships between operational inefficiency and credit risk or between profitability and credit risk. This study contributes to the banking and corporate governance literature by providing empirical evidence from Indonesian RDBs, an underexplored segment of the banking industry in emerging markets. The findings suggest that, rather than functioning as a moderating mechanism, independent commissioners serve as an important direct governance mechanism for mitigating credit risk. From a practical perspective, RDBs should improve operational efficiency, maintain sustainable profitability, and strengthen board independence to enhance credit risk management and support long-term financial stability.

Determinants of Capital Adequacy Ratio in KBMI 4 Banks: Evidence from Profitability and Liability Structure in Indonesia (2021–2025)

This study examines the determinants of the Capital Adequacy Ratio (CAR) and liability composition among the four KBMI 4 banks listed on the Indonesia Stock Exchange (IDX), namely BBCA, BBRI, BMRI, and BBNI, over the quarterly period from 2021 to 2025. The analysis is based on 80 bank-quarter observations extracted from publicly available financial statements and verified using bank-level individual data reported in millions of Indonesian Rupiah. The primary dependent variable is the Capital Adequacy Ratio (CAR), while the independent variables include Return on Assets (ROA), Gross Non-Performing Loans (NPL), Loan-to-Deposit Ratio (LDR), bank size, and liability composition proxied by the Deposit-to-Liability Ratio (DLR). Panel data regression with bank fixed effects and HC1 robust standard errors is employed to estimate the relationships. The results indicate that ROA and liability composition have a positive and statistically significant effect on CAR, whereas NPL, LDR, and bank size are not statistically significant in the baseline model. Robustness tests using winsorization and time fixed effects confirm that profitability and a funding structure dominated by customer deposits remain the most consistent determinants of CAR among KBMI 4 banks. This study contributes to the banking literature by demonstrating that capital adequacy in large commercial banks should be interpreted as an indicator of capital quality supported by sustainable profitability and stable funding, rather than merely as a measure of regulatory compliance. For investors, the findings suggest that CAR should be evaluated jointly with ROA, deposit-based funding structure, credit quality, and risk-weighted asset expansion capacity when assessing the fundamental performance and financial resilience of banking stocks.

ESG Performance, Economic Policy Uncertainty, and Forward-Looking Bank Credit Risk: Evidence from U.S. Banks

This study examines the relationship between environmental, social, and governance (ESG) performance and bank credit risk among publicly listed U.S. banks over the period 2016–2025. It distinguishes between forward-looking and realized credit risk by using the loan loss provision ratio (LLPR) as the primary measure of expected credit risk and the non-performing loan ratio (NPLR) as a robustness measure. Using fixed-effects and dynamic System Generalized Method of Moments (System GMM) estimations, the results show that stronger ESG performance is associated with lower forward-looking expected credit risk. The ESG pillar analysis indicates that the social dimension exerts the strongest risk-reducing effect, followed by governance and environmental performance. In addition, economic policy uncertainty weakens the beneficial effect of ESG on bank credit risk. By contrast, ESG performance is not significantly associated with realized credit deterioration measured using NPLR, suggesting that ESG primarily influences banks’ expectations of future credit losses rather than realized loan performance. Overall, the findings demonstrate that the impact of ESG on bank credit risk depends on both the measurement of credit risk and the surrounding macroeconomic environment.

Economic policy uncertainty and bank earnings quality: the role of corporate governance and regulatory reforms in India

Corporate governance and regulatory supervision are widely recognized as critical monitoring mechanisms in the banking sector. This study aims to investigate whether these mechanisms mitigate the adverse impact of economic policy uncertainty (EPU) on the earnings quality of Indian banks. Using a panel of 44 banks over 2005–2024, earnings quality is measured through discretionary loan loss provisions (DLLPs), and EPU is captured using the Baker et al.’s (2016) index. The analysis uses the two-step system generalized method of moments estimator to address endogeneity and dynamic panel bias. Corporate governance is proxied by a composite board index and its subcomponents, while regulatory supervision is measured by the post-2015 asset quality review. Heightened EPU significantly increases discretionary provisioning, and this effect remains robust across alternative DLLP measures and model specifications. Corporate governance attenuates the EPU–DLLP relationship in private banks but is less effective in state-owned banks. Regulatory supervision weakens the EPU–DLLP link primarily in state-owned banks. These results suggest that the moderating influence of governance and supervision depends on bank ownership. This study provides novel evidence on the interaction between policy uncertainty, governance and regulatory oversight in shaping earnings quality in banks. By distinguishing ownership-specific effects and incorporating a major regulatory reform, it provides policymakers with timely insights. It contributes to the growing literature on policy uncertainty and bank behavior in emerging markets.