Key Banking Risks Affecting The Financial Performance of Conventional Banks In Indonesia

Abstract

This study examines the effects of banking risks on the financial performance of conventional banks in Indonesia during the 2019–2024 period. Financial performance is measured using return on assets (ROA), return on equity (ROE), and net interest margin (NIM). The examined risk factors include credit risk, liquidity risk, capital risk, operational risk, leverage risk, market risk, macroeconomic risk, and bank size. This study employs a quantitative approach using panel data from 42 conventional banks, resulting in 252 observations selected through purposive sampling. Data were analyzed using panel data regression. The findings indicate that credit risk, cash-to-deposit ratio, operational risk, inflation, and exchange rates negatively affect financial performance. In contrast, capital adequacy, economic growth, bank size, and interest rates positively influence financial performance. Liquidity coverage ratio and leverage risk are found to have no significant effect. The results suggest that effective risk management, adequate capitalization, and favorable macroeconomic conditions are essential for improving bank profitability. This study contributes to the banking literature by providing comprehensive evidence on the simultaneous effects of multiple banking risks on financial performance in Indonesia and offers practical implications for bank managers, investors, and regulators.