Risk and Profit: Exploring the Relationship in LQ45 Banking Companies
Keywords:
Credit risk, Liquidity risk, Operational risk, Bank financial performance, IndonesiaAbstract
This study examines how credit, liquidity, and operational bank risks influence the financial performance of Indonesian banks in the LQ45 index from 2016 to 2023. Using purposive sampling, we analyze quarterly reports from five selected banks (BCA, BNI, BRI, BTN, and Bank Mandiri) within the 2016Q1 to 2023Q3 period. Results show that Non-Performing Loans (NPLs) adversely affect financial performance, while Loan-to-Deposit Ratios (LDRs) have a positive impact. Additionally, Operational Expenses to Operating Income (BOPOs) negatively influence financial performance. The findings stress the importance of banking management understanding the impacts of credit and operational risks for stability and avoiding failures. Despite common belief, high liquidity alone does not ensure positive outcomes, necessitating effective risk management to address liquidity and other associated risks.
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