Asset Growth, Credit Risk, and Operational Efficiency Effects on Indonesian Banking Profitability 2019-2023

Abstract

This research investigates the impact of asset growth, credit risk, and operational efficiency on banking profitability among Indonesian Stock Exchange-listed financial institutions during 2019-2023. The banking sector serves as Indonesia's economic foundation, where profitability assessment is crucial for evaluating financial system health. The study employs asset growth rate as a proxy, the non-performing loan ratio for credit risk measurement, and the expense-to-income ratio for operational efficiency assessment, while return on assets represents banking profitability. Utilizing purposive sampling with WarpPLS 7.0 software, the research analyzes data from banking companies. Findings reveal that asset growth demonstrates positive significant effects on banking profitability (path coefficient 0.352, p-value 0.003), while credit risk shows negative significant influence (path coefficient -0.270, p-value 0.020). However, operational efficiency demonstrates a non-significant impact on banking profitability (path coefficient 0.128, p-value 0.174). These results provide valuable insights for banking management strategies in Indonesia's financial sector.