The Influence of Digital Transformation, Liquidity, Credit Risk and Green Credit on Bank Performance

Abstract

This study explores the influence of digital transformation, liquidity, credit risk, and green credit on bank performance in Indonesia. The research examines how these factors affect key banking performance indicators: Return on Assets (ROA), Return on Equity (ROE), and Net Interest Margin (NIM). Using quantitative methods and panel data regression with a sample of 18 banks listed on the Indonesia Stock Exchange from 2019 to 2024, the study finds that digital transformation positively impacts ROA, ROE, and NIM. It demonstrates that digitalization in banking improves operational efficiency, service access, and risk management, thereby increasing profitability. Liquidity, measured by the Loan to Deposit Ratio (LDR), has a significant effect on ROA but does not significantly impact ROE or NIM, highlighting that aggressive credit expansion does not always increase shareholder value or improve margins. Credit risk, represented by Non-Performing Loans (NPL), negatively affects all performance metrics, confirming that asset quality is critical for banking profitability. However, green credit, while strategically important for sustainability, does not show a significant impact on short-term profitability measures such as ROA, ROE, or NIM. The findings underscore the importance of effective credit risk management, continuous digital transformation, and careful liquidity balancing in improving bank performance and supporting long-term growth.