CAN CREDIT RISK EXPLAIN THE PERFORMANCE OF INDONESIAN BANKS?

Abstract

This study investigates the impact of credit risk on the profitability performance of Indonesian banks during the period 2022–2023. Non-Performing Loans (NPL) and Loan Loss Provisions (LLP) are used to measure credit risk, and Non-Interest Income to Total Assets (NoiITA) and Net-Interest Income to Total Asset (NiITA) are used to measure bank profitability. This study examines financial data from a sample of Indonesian commercial banks using multiple linear regression model. The empirical results show that both NPL and LLP significantly impair bank profitability, suggesting that higher credit risk lowers banks' financial performance. These results demonstrate how important it is to successfully manage credit risk in order to guarantee long-term profitability. In addition to offering useful insights for bank managers and policymakers in promoting the stability of the banking industry, the study adds to the body of literature by presenting current empirical evidence from a rising economy.