Do Macroprudential Policies Influence Bank Profitability? Evidence From Indonesia

Abstract

This study examines the effect of macroprudential policy instruments on bank profitability in Indonesia during the 2014–2024 period. The research is motivated by the increasing importance of macroprudential policies in maintaining financial system stability while simultaneously supporting banking performance. However, empirical findings regarding the effectiveness of macroprudential instruments on profitability remain inconclusive, particularly in emerging economies. Therefore, this study aims to analyze the influence of Loan-to-Value (LTV), Macroprudential Intermediation Ratio (RIM), and Macroprudential Liquidity Buffer (PLM) on bank profitability measured by Return on Assets (ROA). The study uses secondary panel data obtained from commercial banks in Indonesia, Bank Indonesia, and Statistics Indonesia (BPS). The sample was selected using purposive sampling based on data availability and reporting consistency criteria. Data were analyzed using the Fixed Effect Model (FEM) with Driscoll–Kraay standard errors to address heteroskedasticity, autocorrelation, and cross-sectional dependence. The findings reveal that RIM has a positive and significant effect on ROA, while LTV and PLM are generally insignificant in partial estimations. However, the composite macroprudential policy index (MaPP) significantly improves bank profitability, indicating the importance of integrated policy implementation. The novelty of this study lies in the simultaneous examination of multiple macroprudential instruments and the construction of a composite macroprudential policy index. The findings imply that coordinated macroprudential policy frameworks are more effective in supporting banking profitability and financial stability in emerging economies.